Strategy & Competition March 4, 2010, 5:00PM EST

Privatize This!

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Chicago parking meters John Gress/Reuters/Corbis

London City Airport Chris Ratcliff/Bloomberg News

A Connecticut rest stop Benjamin Lowy

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OFF THE RAILS

Deutsche took a charge of $205 million after shifting Maher Terminals in 2008 to its corporate division from its group that manages alternative assets. Executives can now check on their unwanted acquisition by gazing across the water to New Jersey from the windows of Deutsche Bank's U.S. headquarters in downtown Manhattan.

"Investing in infrastructure can't be just a financial play," says Stephen Mentzines, head of Maquarie Capital Funds in North America. "It takes sector expertise and the ability to operate assets."

In early 2009, Chicago cancelled plans to lease Midway Airport for 99 years when a group of investors including Citigroup failed to raise financing. A Fortress private equity fund ran off the tracks when it paid $3.5 billion for Florida East Coast Railway in 2007. It was counting on the Florida state legislature to fund the development of a rail corridor running between Jacksonville and West Palm Beach—but the funding hasn't come through. Fortress has done better with its $450 million investment in Florida's RailAmerica, however.

KKR and Blackstone say they remain committed to making infrastructure investments. And federal stimulus efforts may give Wall Street a chance to find its footing. The Transportation Dept. is set to receive $4 billion to help create a so-called infrastructure bank that would "effectively leverage non-federal resources, including private capital," according to the budget President Obama submitted to Congress in February.

Rude experience may have taught private equity firms better ways of doing these deals. In November, Carlyle Group's infrastructure fund inked a $178 million public-private partnership to manage 23 service areas along Connecticut's highways for 35 years. Carlyle didn't use any leverage, and it worked to win the support of state departments of transportation and environmental protection, as well as community groups and labor unions.

Carlyle managers say it may serve as a model for future transactions. "A lot of people have come to talk to us about it," says Robert Dove, co-head of Washington-based Carlyle's infrastructure group. "There continues to be a real interest in bringing the private sector in."

Kelly is a reporter for Bloomberg News. Keehner is a reporter for Bloomberg News.