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What does government sponsorship mean to a development project in terms of investment returns?
My understanding is that since the government usually sponsors projects located in under-developed areas or less profitable sectors, the real market value of a government-sponsored project could be questionable. Is this the case?
Answers
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Your understanding is correct. Unless you have a government-guaranteed return (never seen one to date), the returns will not be as claimed to me and lower than private sector investments.
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I think your vantage point needs to be expanded. So many major projects across the country are public-private ventures. They range from projects where New York City or state partners with ground leases for projects like Moynihan Station to opportunities at ports or other quasi-public opportunities. A bidding process is developed for this type of project to ensure transparency. Returns are generally fair.
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It's not always like what you thought. For instance, our HGC got involved in an investment to restucture an old building into a luxury hotel three years ago. Since it's a historic property located in the downtown center of Dallas, Texas, the local government sponsored this project from which we eventually made a comfortable profit when our full investment successfully returned last year.
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