Bloomberg had an article this morning highlighting a pretty neat infrastructure investment: parking meters. According to reporter Darrell Preston:
“Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners may earn a profit of $9.58 billion before interest, taxes and depreciation…Chicago gave up billions of dollars in revenue when it announced in 2008 that it leased Morgan Stanley its 36,000 parking meters, the third- largest U.S. system, for $1.15 billion to balance its budget.”
Now, the reporter is being overly dramatic here — for example, the story is titled “Morgan Stanley’s $11 Billion Makes Chicago Taxpayers Cry” — but he does have a point: parking meters appear to offer investors healthy cash flows over the long-term. Who knew? (Actually, the real money is in the parking tickets…but’s that’s another post altogether.)
Now, the $9.58 billion “profit” cited by Mr. Preston (which is before interest, taxes and depreciation) on $1.15 billion invested doesn’t look quite as outlandish when spread over 75 years. Depending on your assumptions for how the profits accrue to the investors, a back of the envelope calculation (using my trusty rule of 72) suggests this is only around 3-4% (compounded) annual return.
In other words, it’s not at all the jaw dropping largesse that Mr. Preston is insinuating. So, while the article says this deal was “…despicable the way it went down…”, I’d say this looks like a pretty fair shake (especially given the circumstances) for the city’s taxpayers. Just try to think of this as a long, long, long bond with some parking meters as collateral. There’s no need to cry about this one.