Skyway Jackpot For City; Lease Deal to Bring $1.82 Billion

Chicago Tribune ^ | October 16, 2004 | Gary Washburn

[Founding Father]

Skyway jackpot for city Lease deal to bring $1.82 billion

By Gary Washburn Tribune staff reporter Published October 16, 2004

The Chicago Skyway, a financial albatross for the late Mayor Richard J. Daley when he built it more than four decades ago, has become a golden goose for his son the mayor.

In a windfall that comes at a critical time for the cash-strapped city, Mayor Richard M. Daley announced Friday that a Euro-Australian joint venture has agreed to pay a whopping $1.82 billion--with the money upfront--to lease and operate the skyway for the next 99 years.

But the bad news for motorists is that the deal, which is expected to get quick City Council approval by the end of the year, could translate into higher tolls.

Copyright © 2004, Chicago Tribune

[Founding Father]

Interesting article previewing the coming nationwide trend to privatize.

NOTICE however, the idea of cutting spending is never suggested or even mentioned.

Privatizing can be a good way to go, because a free market system is always better than a government run system, but if government doesn't, at some point, reign in spending, we'll either become surfs or anarchists.

[Ceartas]

This deal seems like a slam dunk winner for Chicago.

If the buyer is really going to pay $1.82 Billion up front, the gross yeild on the deal is about 1.5% - before deducting operating and maintenance costs. Even if the buyer can raise tolls to the limit and not suffer a loss in volume, the gross yeild will be less than 5% (again before deducting operating and maintenance costs).

Does anyone see how this deal makes sense for the buyer?>

[Conservative Infidel]

Isn't this an elevated highway? Perhaps they are going to rent out the sides of the highway (i.e. sides of overpasses, sides of bridge trusses, etc.) that are visible from city below to advertisers. Those unused sides of the highway are probably worth quite a bit as potential billboard space.

[Founding Father]

I agree with both of your points. It is a slam dunk for Chicago and I don't see the economic sense in this from the buyer's viewpoint. Somewhere down the road (no pun intended), the Skyway will become very expensive to drive.

If you've been on it recently, the road and bridges are in poor condition. I wonder if the agreement prohibits Chicago from turning I-94 (Ryan/Calumet) into a competing toll road. If not, look for that to happen in a few years.

The main point I was trying to make was that Chicago could really take steps to put itself on sound financial footing, but will use this money as an excuse to not even attempt spending cuts.

How long before the city unions demand huge payraises? Months, weeks. days or hours.

[rawhide]

Well the deal is for 99 years. More than enough time to recoup your investment. Tolls will continue to rise. Costs will too, but you can almost be sure they will make the investment pays a nice return.

[Ceartas]

I don't think that the 99 year length of the lease makes any difference. With a lease longer than 35 years, the analysis is usually the same as for a fee simple purchase. Nevertheless, even a 99 year lease is a wasting asset. Therefore, the investment must also generate enough net revenue to recover the $1.82 Billion in addition to a profit for investors.

The suggestion that billboard advertising revenue may be a significant factor has merit. However, I suspect that the consumer demographic for the population that lives within sight of the Skyway is not the demographic most high dollar advertisers are seeking.

Something is missing from this picture.

[Founding Father]

"The suggestion that billboard advertising revenue may be a significant factor has merit. However, I suspect that the consumer demographic for the population that lives within sight of the Skyway is not the demographic most high dollar advertisers are seeking.

Something is missing from this picture."


All of these observations are correct and it's starting to irritate me that I cannot figure out how this makes sense to the buyer.

I'll bet the "devil is in the details," such as Chicago is on the hook for expenses,repairs, etc., OR price rebate, changing of toll constraints, etc., if revenues are not sufficient.

Maybe there is even a provision that if Chicago allows casinos, which will kill the Indiana (thus Skyway toll road) casinos, a portion goes to the buyers.

Otherwise, this just doesn't make sense, but as a taxpayor maybe I shouldn't care.

[Ceartas]

Given the Chicago city administration's stellar reputation for truth, openness and integrity, who can doubt that all of the details of this deal have been disclosed?