Investing in Aging Infrastructure

Investing isn’t just in dollars and cents, but in time, energy, and talent

By Mike Drai

According to Cohen and Steers, infrastructure services (global energy, utilities, transportation and communications sectors) represents a $40 trillion global market opportunity by 2030. U.S. water infrastructure represents a $195 billion market opportunity by 2040, according to a report by the American Society of Civil Engineers. However, the need to maintain infrastructures is much more than just dollars and cents—it’s imperative to our quality of life.

Due to very public instances of infrastructure failures, including the San Bruno pipeline disaster and the Flint Water Crisis, Americans are more aware of the need for safe utilities. Unfortunately, municipal governments are strapped, making it harder to replace infrastructure until there’s a disaster or crisis that demands attention. Coupled with the need for skilled labor, this is a market where project costs can climb exorbitantly, and carry drastic repercussions if taxpayers aren’t satisfied.

Expectation of Long-Term Demand for Investment in Infrastructure

Investing in aging infrastructure will remain a priority for years to come due to the following:

Areas of Investment

Gas Infrastructure: The need for maintenance, repair and placement for distribution gas infrastructure is alarming, with 92,993 miles of pipeline infrastructure considered high risk, according to the Department of Transportation. The last time this market saw substantial investment was World War II. In 2015, the Obama Administration submitted to Congress a recommendation on projects that would take substantial investment including:

  • A $2.5 billion Energy Department initiative to improve natural-gas distribution
  • At least $ 1.5 billion to improve and extend the life of the crucial Strategic Petroleum Reserve

Water Infrastructure: Water infrastructure, including sewers and water mains, are also in need of repairs and industry groups are coming down hard on this. In 2013, The American Society of Civil Engineers gave the United States a “D” grade for the state of its aging wastewater infrastructure.

In addition, the EPA says to maintain water infrastructure at an acceptable level, more than $384 billion will need to be spent by 2031. Capital investment needs for the nation’s wastewater and storm water systems are estimated to total $298 billion over the next 20 years, according to the American Society of Civil Engineers. The society also notes that pipes represent the largest capital need, comprising three quarters of total needs –fixing and expanding the pipes will address sanitary sewer overflows, combined sewer overflows, and other pipe-related issues.

Roads and Bridges: America’s network of 60,000 bridges and roads is vast and far reaching. With thousands of bridges built during a time with millions of less cars on the road, this infrastructure is in need to maintenance and repair. According to the American Road and Transportation Builders Association (2016) every state has some degree of bad bridges that need to be repaired. With thousands of cars on bridges every day, shutting down a bridge for an extended period of time isn’t a viable solution. The Federal Highway Administration (2016) estimates it would cost $20.5 billion annually for the next 16 years to properly update existing bridges.

A Critical Need

The substantial upgrades required in the aforementioned areas and deterioration of our aging infrastructure in the U.S. will likely require millions of dollars of investment for years to come. And the investment isn’t just in dollars and cents, but in time, energy and talent. It’s critical that governmental agencies begin to form action plans and strategies to complete these projects with both the assistance of local municipalities and private companies who can act as government contractors and invest in improving the quality of life for Americans.

Mike Drai is a Managing Director at Sterling Partners, a Chicago based private equity firm. Mike oversees a number of investments in the firm’s Business Services portfolio, including Brace Industrial Group and Hoffman Southwest. He may be reached at mdrai@sterlingpartners.com.

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