Tortoise, Calvin Group back energy infrastructure firm

Principals from Tortoise Capital Advisors, Tortoise’s majority owner Montage Asset management, and The Calvin Group have agreed to form Corridor Energy, a new asset manager based in Kansas City that will specialise in “energy infrastructure financing”, according to a statement. 

Corridor “plans to provide growth capital to finance energy infrastructure assets” in areas that include electricity distribution and gas transportation and storage, the firm said in a statement. Corridor will target assets that could qualify as real estate, exploring avenues for using real estate investment trusts (REITs) to invest in infrastructure, the firm said. 

The REIT-structured assets will be the “focus” of the new company, said Richard Green, a founder of Calvin Group who will serve as managing director of Corridor. Corridor will be looking at investments across the US, Green said.

“We will be acquiring these assets and then have the option to choose REIT status down the road,” Green said.  

REITs were created in the US 50 years ago for smaller investors to pool money to own real estate. By law, 90 percent of a REIT’s taxable income must be paid to shareholders, and a REIT must generate at least 75 percent of its revenue from real estate and at least invest 75 percent of its total assets into real estate, according to the Securities and Exchange Commission. 

REITs pay less taxes than corporations. Corridor said in a statement that REITs are “commonly used in the real estate industry to connect operators with long-term capital” and are better for “tax-efficient returns to investors”.

Last November, Hunt Power and Marubeni Corporation, John Hancock Life Insurance (USA), Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF), and OPTrust Private Markets Group agreed to form $2.1 billion electric and gas alliances as REITs. Hunt Power said these were “the first REITs of their kind” and would focus on electricity and gas transmission and distribution in Texas, the Great Plains and the Southwest.

However, future energy investments are not guaranteed to get REIT status. In Hunt's case, the Internal Revenue Service said they could consider  transmission networks to be “real estate” after a specific request for clarification, or private letter ruling from the IRS. A private letter ruling from the IRS is more of a guideline than a law because they do not bind the IRS to give another taxpayer the same ruling.

Green said that Tortoise had considered using the REIT structure before the announcement of the Hunt’s electric and gas alliances.

“We were aware of it before that, and the development of this really started in discussions between Calvin Group and Tortoise as a new product for the Tortoise family of funds,” Green said.

Green added that Corridor already has a five-person team and is “in discussions to add to our group as we begin to do deals and grow”.