Buyer or seller's market? | Bleader

Buyer or seller's market?

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At this point debate about the parking meter lease deal is at least as much about transparency and honesty in government as parking policy or budgetary concerns.

Case in point: aldermen heard all sorts of things last week when they tried to get information about the parking meter lease from officials with the Daley administration and its financial adviser on the deal, William Blair and Company. As Ben Joravsky and I note in a story for this week’s  Reader, many of the responses were real head-scratchers.

One of the more astounding claims—which we didn’t touch on in our story—came in response to a question about how the collapse of the economy might have affected the deal. The answer: it made the deal even better.

Brendan Reilly, alderman of the downtown 42nd Ward, voted in favor of the lease and continues to maintain that it was a good one for the city. But he did ask Tom Lanctot, who spearheaded William Blair’s work on the deal, to respond to criticism that the city probably could have gotten more money if it had waited for the country to emerge from the worst recession since the Great Depression.

“If we had waited to sell this during sunnier days down the road, perhaps, could we have expected a better return?”

“We started this process well before the current economic trouble started, so our valuation estimates were not influenced by those market conditions,” Lanctot said.

In fact, he said, investment firms had been gearing up for years to spend lots of money on public infrastructure. When the economy sank, there were suddenly fewer governments ready to make deals. “The city frankly was able to take advantage of the fact that there was a tremendous amount of investor equity available to make investments like this and a very small number of opportunities to make these investments,” he said. “So in many respects this was a very good time.”

His statements went unchallenged in the hearing, but that doesn’t mean they were true.

(1) Last year Pennsylvania legislators balked at a plan to lease the state’s toll road, and now it appears to be dead. As the Philadelphia Daily News recently reported: “Given the failure of the turnpike-lease plan and the subsequent collapse of financial markets, neither the Rendell administration nor the legislature is very interested in trying again to lease the toll road.

(2) In May, Florida dropped plans to lease one of its highways after no one bid for the contract. “The bidding deadline, originally set for December 15, was repeatedly moved back as bidders reeled from a global credit meltdown that left them unable to obtain financing,” Reuters reported at the time.

(3) A week ago the Texas state legislature declined to let Governor Rick Perry proceed with his plans for more road privatization deals there, largely as a result of voter frustration over the rising number and cost of tolls. Analysts say there have been other problems with Perry’s aggressive road privatization policies. From the Dallas Morning News:

Former U.S. Secretary of Transportation James H. Burnley, who served under President Ronald Reagan and now represents transportation-related clients as a lawyer in Washington, said Wall Street's appetite for the highly leveraged toll road deals has waned. There is significantly less capital available for those kinds of investments, he said.

‘Virtually all of the public-private deals that have been seriously discussed in the past decade have involved significant leverage,’” he said. “As we return to a more normal economy those kinds of deals will be attractive again. But lenders [may] continue to be more conservative for many years to come, reducing availability of capital for infrastructure.’

The Daley administration says that when it was ready to lease Chicago’s meters it sent a request for proposals to more than 150 parking and investment firms around the world. Ten parties expressed interest. The city ruled two unqualified, but only two of the remaining eight followed through with bids.

It’s obvious that at least some of the other groups backed off because their economic fortunes declined—one of them was Lehman Brothers, which was forced to close shop when things got bad last fall. Yet William Blair and the city continue to shrug off the impact of the economy.

“They all fell off for one reason or another,” budget department spokesman Pete Scales said about the firms that decided not to bid. “But it wasn’t all because of equity.”

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