A specific example of a massive underbid would be the 99 year lease on Chicago’s skyway. Which was $1.8 billion for a 99 year lease which was not just profitable every year, but after 10 years they sold the remaining 89 year lease for 2.8 billion.
The debt was all priced above 5%. So the leverage didn't help. And the thing lost money almost every year, mostly because the 08/09 recession crushed traffic.
The Chicago Skyway wasn't a big money maker for the winners. I doubt the people of Chicago are upset the owner made a low single digit return.
FWIW, most of these things look different once you start bidding or even considering bidding on them. The competition is fierce. It's hard to make money buying obviously good, simple to understand assets.
We could dive into the risk and finances such refinancing in a year to pull out 370m etc, but I will point out:
> The competition is fierce
“Burke, chairman of the city council's finance committee, described the 99-year lease of the Chicago Skyway, a 7.8-mile toll road, to a private operator for the stunning sum of $1.8 billion - almost $1 billion more than the next-highest bid.”
That’s hardly stiff competition that’s twice the second highest bid and it was still profitable in the short term even with a recession.
Doesn't your linked article explicitly say overbidding is going on?
But yep funnily enough the second highest bid would have generated a half decent return. The winners overbid because it was competitive, and they didn't feel smart when they found out how much higher they'd bid.
It's worth asking anyone who spent time bidding on these things. No one will tell you it's easy money or that there is underbidding going on.