5 Takeaways, 1 Challenge & 2 Book Suggestions from CollabNet’s Infrastructure Investment Networking Confab at Morgan Stanley

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1. Infrastructure is actually pretty damn interesting. It requires enormous vision and coordination, and done right it creates jobs. If employees can’t get to work, turn on the lights, or drink water, employers get discouraged. It is one corner of government where really smart people get to do gigantic dent-in-the-universe projects in public-private partnership. It is increasingly perceived as a great investment for insurance companies and pension funds (debt) and family offices (equity) because it offers yield in a zero yield world and offers duration to investors whose liabilities are long-lived and even multigenerational.

2. Investment universe is massive. Army Core of Engineers estimates US needs $3.6 trillion by 2020 just to keep our crappy steady state. Globally the number might be $9 trillion every year. Hard to comprehend? It’s about half US GDP! I like this one better: in single dollar bills it is almost 10 million tons….All of humanity only weighs 316 million tons. AND, there is a shortage of bankable projects: you need a government (usually a city) capable (i) of conceiving a project that delivers a public good like jobs, housing, energy, and clean water, and that can make money, and (ii) of producing a “tight” RFP that attracts talented private teams and guides them to bids that can be compared and ranked. Example: City (State?) issues bonds to pay for the 7 Train to Hudson Yards, Related builds Hudson Yards, tax revenues from Hudson Yards repay the bonds. City and citizens get transport, more jobs, Class A office, more residential, Related profits, bondholders profit. A truly virtuous dent.

3. Given the return profile and duration, some are questioning whether our beloved private equity fund and hedge fund structures are really the right forms of ownership for infrastructure since PE and hedge entities have limited lives and holding periods ranging from .5 seconds to 5 years. It may be that unlimited life single purpose/single strategy LLCs and even (gasp!) C corps are the way to go.

4. The opportunity in energy is a result of massively improved technology, particularly the drop in cost/increased efficiency of sustainable energy like wind, hydro, and especially solar. If that is the case should we still be investing in old style infrastructure like oil pipelines? No one mentioned it, but same question for building commuter mass transit – do we really need to spend money to dump masses of people into center cities at 8:45am every morning? Why is that better than each member of an adhoc team jumping into a self-driving car and rendez-vousing at the WeWork or Liquid Space that is optimally located for everyone on the team, and offers a lease that coterminates with the project? Isn’t that how we work today? Next project? New team, new location – even if they all work for the same company. (But please do fix the L Train)

5. Amazon is New York’s to lose. The RFP is practically a description of New York. Amazon is an infrastructure-sized prize. 100,000 hires in the last year (including my son – he likes it a lot)!! 350,000 worldwide. Q: Why do we win? A: largest US city, deepest talent pool (take THAT SF💥🥊), with an increasing labor force participation among workers aged 20-45 in a country where that number is falling, most impressive infrastructure (ummmm?), research universities, largest customer base, amazing local partners. One hitch: Amazon is focused on cost, and they have already been given the message that the Big Apple will not be moved to the discount bin. You get what you pay for. Maybe they should rename the project “HQ Prime”. (a second issue is Bezos likes to open his window, which requires a mild climate)

6. One question that nags at me though. Is public-private definitively the best way to achieve the job creation and other social goods that come with improved infrastructure? Doesn’t the financial investor’s rent-seeking profit possibly represent an avoidable increase in total cost to achieve the overall social benefit we all want? And doesn’t that profit exacerbate income and wealth inequality? Generally, the bond payments and equity profits are inuring to the people at the top of the scale who benefit one time from those direct financial payments on the bonds, and a second time because they are more likely to benefit most from an overall improved economy that a successful infrastructure project can create. Meanwhile, those user fees that repay the bonds are spread across the whole income scale, so everyone is paying interest and dividends to the wealthiest. Is it a given that society is better off with this model as opposed to government taxing the money from everyone, but with a tilt toward the wealthiest who will benefit most from a better overall economy, while eliminating some of the interest and dividend payments, and then hiring talented private groups like Related to do the work? What if we stopped calling it “Taxes” and started calling it “Paying for Shit That You Want”? I’m not dug in on this, but it is worth thinking about and has been out of the discussion for decades.

7. Books: Connectograpy and Climate of Hope Both click through to Amazon — c’mon, do your bit!!

Venue: Morgan Stanley

Organizer: Collabnet (Harry Dublinsky, Mark Perlman, Karen Gamba)

Speakers: James Patchett and Eleni Janis at NYEDC; Adi Blum (BlackRock), J. Todd Morley (G2 Investment Group), Dan Kaplan (FXFOWLE), and Tom Smith (WSP)

Thoughts are my own. Quotes Approximate.

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