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Wall Street senses a bargain in a New York bridge.

And through a relatively new segment of finance that deals in public works projects, it's possible that rights to landmarks like the New Jersey Turnpike and the Tappan Zee Bridge could one day be sold.

In Wall Street's latest investment craze, "infrastructure finance," banks are taking over government-owned assets, rebuilding or refurbishing them, raising fees, levering up capital and taking other steps in the name of huge profits.

J.P. Morgan


is the latest to join the game. The firm is putting together an infrastructure finance team that works with its real estate group to assemble a portfolio of large, government-owned assets.

Meanwhile, the pioneering force in infrastructure deals, Macquarie Bank of Australia, has recently upped the game's ante. Macquarie has been quietly meeting with New York and New Jersey legislators to pursue an agenda that includes targeting the Tappan Zee Bridge and New Jersey Turnpike, according to proposal documents reviewed by


Infrastructure finance is increasingly viewed as the next big growth area for Wall Street. Despite the daunting name, the strategy behind the investment is fairly simple. A firm acquires a long-term lease on a quasi-monopoly, government-owned structure, such as a toll road or a bridge, with a steady stream of income that is distributed to pools of investors who line up to fund the projects. By raising fees andpiling on debt, the bank can gain a steady cash flow that provides a good return for their funds -- up to 15% a year, in many cases.

J.P. Morgan's plan to form an infrastructure finance team follows forays into the business by other Wall Street firms, including

Goldman Sachs


and private equity outfits Apollo and Carlyle.

Macquarie, however, has dominated the space, with assets in Korea, the Netherlands, the U.K., France, and Sweden, among other countries. It has recently started to gain serious momentum in the U.S. It owns rights to the Dulles toll road, the Chicago Skyway, and State Route 125 South in San Diego, and is trying to buy a lease to the Indiana toll road. Many of Macquarie's assets are rolled up into a fund and traded on the

New York Stock Exchange

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as an

Infrastructure Trust



Now Macquarie has its sights on the tri-state area, and the bank has been lobbying in both Albany, N.Y., and Washington to try to push government proposals that would allow it to purchase New York's Tappan Zee Bridge. At the same time, the bankers are pitching New Jersey Gov. Jon Corzine, a former Goldman Sachs investment banker, to acquire the New Jersey Turnpike, people close to the deal told


Representatives at Macquarie were unavailable for comment.

Macquarie's deal strategy is savvy and ahead of a bank like J.P. Morgan, which has just assembled its own team. Macquarie typically walks into a governor's office with a team and plan in place, ready to get the deal done. For the Tappan Zee Bridge, for example, Macquarie has hired

Lehman Brothers

( LEH) as the adviser, LCOR as the developer, Bechtel as the manager of construction, and

Granite Construction


as the construction company.

Its plan calls for knocking down the Tappan Zee, which spans the Hudson River 30 miles north of Manhattan, and building an entirely new bridge that includes a rail crossing.

The New York approval process is complex, however, and financiers and legislators disagree about how imminent a deal is. According to people close to the negotiations, Pataki seems ready to seal a deal, in part because the leasing revenue could help him close the state's budget deficit, including gaping deficits in New York's pension fund.

State approval has support from others who advise Pataki on the pension funds in New York. Dr. Robert Smith, member of the advisory board for the New York State Common Fund, believes that sales of state-owned assets would relieve some deep pension deficits in New York.

"This is the year of the pension, it needs to be addressed," says Smith. "It is no secret that

once approvals are made everything is up for grabs. It's a question of making it work from a political and economic standpoint."

A bigger problem for Macquarie is Richard Brodsky, the state assemblyman who chairs the Committee on Corporations, Authorities and Commissions. Brodsky, who has done a lot of work trying to restructure New York transportation assets through bond issuance, says he's nowhere near approving the sale of any New York asset, and isn't very impressed with Macquarie's pitch.

"Right now Pataki is using this proposal as a budget hole-plugger," Brodsky says, adding that he isn't going to approve anything if the pitch doesn't change. "If I approve something like this now, there will be a knee-jerk reaction," he says. "I need specifics. What? Who? What terms? What are you going to build?"

Macquarie is ready to push forward. A group of its bankers is currently on the road around the world, pitching institutions to raise money to buy assets. Raising funds for these deals is essential to completing the package, and the time-consuming process, in which a bank travels to fund managers to drum up support, is the final step.

One obstacle to the bank's fund-raising is that infrastructure finance remains a new discipline, and as such it is usually lumped into the larger category of "alternative investments." That's significant when you consider that most pension funds and other endowments face caps on what percentage of assets they can earmark to the alternative category, which also includes hedge funds.

Meanwhile, in these particular negotiations, other Wall Street firms are nowhere in sight, according to sources. If Brodsky does approve a deal, the bidding process would open up to many interested parties.

Still, with the capital, the deal team, the construction team, and the legislators' ears, Macquarie could have the edge if the deal ever takes shape.

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