It’s all a matter of math and different from area to area.
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?
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.
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.
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.