Where many see rusting beams and potholes, some investors see the next frontier for real estate investing. With the prices of conventional real estate hovering near cyclical highs, there is a growing interest by investors in toll roads and bridges, which possess many of the same characteristics of commercial properties, including predictable cash flow.

Last year, for example, a joint venture between two foreign investment firms shelled out $1.83 billion to buy a 75-year leasehold on the Chicago Skyway. The 7.8-mile long Skyway, which connects a local road to the Indiana Tollway, generates annual toll revenue of $45 million. In November, the state of Indiana announced plans to lease its 157-mile long Indiana Toll Road for 75 years to the same joint venture for $3.8 billion.

“Money continues to inundate the commercial real estate market, and much of that capital is having a hard time finding a home,” says Dale Anne Reiss, global director of Ernst & Young's real estate hospitality and construction sector. “Public infrastructure is certainly a sister to real estate, and the returns are both steady and long-term.”

Private toll roads are common in Europe and Canada, but the concept is slow to gain traction here in the United States. One reason may be that some U.S. privatization deals have soured: The 22-mile long Camino-Colombia Toll Road, one of four toll bridges that span the Rio Grande River in Laredo-Nuevo, Texas, was built for $90 million by a private company with deep roots in the area. It opened in the fall of 2000 hoping to lure 18-wheel truck traffic at a $16 toll. But the project was a failure. After the borrowers foreclosed, Camino-Colombia fell into the hands of the Texas Department of Transportation for just $20 million.

Despite these bumps, Reiss says that pension funds and other institutional investors will look to privatize public infrastructure to lock in steady returns for decades. She also believes that privatization will appeal to many local governments looking to get costly roads and highways off their books.

The clogged highway systems of New York and New Jersey present the greatest opportunity. The New Jersey Turnpike and Garden State Parkway generated $1.12 billion in revenue last year, exceeded only by New York, which generated $2.08 billion in toll revenues. These two states represented roughly half of all U.S. toll revenue in 2005, according to the Bureau of Transportation Statistics.

It's still too early to gauge how strong the returns would be for U.S. infrastructure, but a well-established toll road in Europe can yield 8% annual returns within the first 12 years of ownership, according to RREEF, the real estate and infrastructure investment management arm of Deutsche Bank, which holds stakes in Australian tunnels and airports. A RREEF spokeswoman declined to comment on the company's plans for the U.S., citing a quiet period surrounding infrastructure investments.

“I think that infrastructure really represents the next frontier for real estate investors,” concludes David Geltner, director of the Massachusetts Institute of Technology's Center for Real Estate, “especially since the returns are already so low for core properties.”