Ready for a wave of capital investment?

Over the next five years, $130 trillion will flow into capital projects around the world as organizations work to advance decarbonization and improve critical infrastructure, according to a recent McKinsey analysis. Most of this global investment by government and private industry will go toward reducing climate change impacts and meeting the Paris Agreement target of net-zero emissions of greenhouse gases by 2050. 

Transit and private transportation, including investments in electric vehicle charging infrastructure, will account for about 40% of the projected spending. Physical assets and the built environment will command roughly 75%, or $97.5 trillion, of capital project investment by 2027. With this unprecedented surge of capital, organizations have significant opportunities to strengthen communities, improve climate resilience and reinvigorate the economy following the COVID-19 pandemic. 

However, the unprecedented volume of capital investment also brings numerous logistical and planning hurdles, along with other major challenges. Organizations will need sophisticated, adaptable and long-term project management to ensure the effectiveness of their investments. At the same time, the structural challenges facing construction labor and global supply chains continue to worsen as a result of the lingering COVID-19 pandemic and geopolitical conflicts.

Amid heightened uncertainty, the following three strategies can help stakeholders manage project risks while maximizing today’s capital funding opportunity. 

1. Assemble an experienced team to manage capital projects 

Managing capital projects is more challenging than ever today because of the unique circumstances of the present moment. Look for partners that can supplement your in-house team with deep experience in both project financing and management. 

 Anyone who has managed a construction project over the last two years has seen major delays coming from disruptions at the earliest, and sometimes most unexpected, points in the supply chain. Don’t let surprises squander the exceptional opportunity presented by the influx of capital. 

Because of the widespread risks in today’s complicated environment, project management expertise is critical to keeping projects on track and within budget. Your project team must be able to anticipate disruptions, deploy proven strategies to reduce risks and tap established supplier relationships for creative material sourcing solutions. 

Experience also comes into play on the financing side, because the incoming wave of capital investment will bring complex funding structures. For example, state and local agencies that want to take advantage of funding available through the Transportation Infrastructure Finance and Innovation Act (TIFIA), the Infrastructure Investment and Jobs Act (IIJA) or other public funding will need a team that understands the intricacies of the laws. 

In addition, government agencies and education institutions around the world often turn to public-private partnerships (P3s) to bridge the gap between public resources and the cost of needed infrastructure and facilities. P3 structures vary widely, which is why it is essential to have the right expertise on hand equipped to plan, negotiate and implement the P3.

For an example of complexity, consider a major city train station development project that was implemented under a P3 with a 99-year ground lease. In addition to capital sourced by the private developer, the financing structure included a significant loan from the Transportation Infrastructure Finance and Innovation Act (TIFIA), secured by payments in lieu of taxes (PILOTs) by the commercial development operating within the transit building. In addition, the TIFIA loan is secured by a debt service backstop from the public transit agency. Altogether, nearly $1 billion of public funding from multiple entities made the site feasible for private investment.

2. Approach projects with a wide lens

Current approaches to infrastructure development tend to be fragmented and reactive, ignoring connections and opportunities for synergy. Yet cities, private developers and corporations alike can maximize impact when they view capital investment opportunities through a portfolio-wide lens.

A portfolio approach to planning can maximize the impact and reduce risks because the aims and outcomes of infrastructure projects typically overlap. Infrastructure projects have long-term, widespread impacts that cannot be separated from the broader social, economic and environmental context of their delivery. 

Taking that wider approach helped the major city train station mentioned above become a bustling transit hub that revitalized a neighborhood. Thanks to a portfolio approach that enabled the project team to maximize an opportunity to redevelop a historic site, the state-of-the-art train station now serves as a civic icon complete with beautiful architecture, public art and high-tech amenities. In addition to bringing together multiple rail lines and other transportation connections, the mixed-use facility includes dining, retail and office spaces. 

3. Integrate sustainable and socially responsible practices from the start

As private enterprises and governments alike set ever-bolder environmental, social and governance (ESG) goals, capital providers will prioritize sustainability in new developments. Current trends indicate a shift to healthier, greener and more inclusive spaces that have a positive impact for the surrounding community.

Project stakeholders increasingly recognize that it is insufficient to use funds reactively for infrastructure needs without addressing the long-term impacts of projects on the environment and future livability of regions. For these reasons, sustainability is emerging as a first-class measure of value for public projects and a key determinant in selecting which projects are funded.

For example, the municipal transit project previously mentioned above had to support ambitious statewide climate targets to secure public funding and approval. Project developers sought and achieved LEED Silver certification with energy efficiency features that also improve building performance and reduce operating costs.

Are you ready to seize the capital investment opportunity?

Successfully delivering on the opportunity presented by the incoming wave of investment has never been more difficult. Project success hinges on an organization’s ability to manage significant risks and complexities amid uncertainty, while addressing the broader needs of communities and the environment in each project.

The right partners will be crucial to maximizing the opportunity ahead. Contact us to discuss how we can help achieve your project vision.