Economic Update – Credit Woes Put Kibosh on $2.5B Midway Deal

Citi Infrastructure Investors–a joint venture of Citigroup Inc., John Hancock Life Insurance Co. and Vancouver Airport Services– will be unable to go through with a deal that would have seen the group buy Midway International Airport in Chicago for $2.5 billion. After previous extensions, the City of Chicago decided not to give the group any more time to close on the deal.The problem with the Midway sale? As the president & CEO of Vancouver Airport Service was quoted as saying in a statement, “the company was unable to finalize the transaction due to current global market conditions that have materially deteriorated since the bid award.” The buyers couldn’t, in other words, couldn’t come up with the dough. Back in December, Chicago sold its parking meters–actually, a 75-year lease–for about $1.83 billion, and the Midway deal was supposed to be the next big thing in infrastructure sales, as investors showed an increasing appetite for the assets class, and as government owners of such assets needed money. Late last year, a report by Probitas Partners noted that some $21.5 billion was raised for infrastructure investment in the first nine months of 2008, following $34.3 billion for such investments in all of 2007. At the time, senior investment executives of pension funds, insurance companies, foundations and other entities expressed interest in continuing to invest in infrastructure. The turmoil of the last six months has probably sidelined some of those plans, as it has in Chicago. According to the Real Estate Roundtable’s latest Sentiment Survey–which asks about 120 senior real estate executives, “How are things going?”–a majority of respondents say access to capital might improve slightly in next 12 months for the industry, but asset values for the likes of office buildings, shopping centers, warehouse/distribution facilities, hotels and apartments will continue downward. Some 83 percent of the total respondents noted that real estate markets are worse today than one year ago (at least a lucky 17 percent said otherwise). But when asked their perspective on today’s market compared to one year from now, 59 percent of respondents said they expected conditions would be better then, so there’s a sliver of optimism in that. On Monday, inquiring investors wanted to know, “Are banks really as healthy as all that?” Since the investors can’t know for sure, they sold bank stocks. Such sales helped lead Wall Street to a losing Monday, with the Dow Jones Industrial Average down 289.6 points, or 3.56 percent. The S&P 500 was down 4.28 percent and the Nasdaq lost 3.88 percent.