In 2007, the Passenger Rail Working Group (PRWG) presented to the 109th Congress its vision for a national intercity passenger rail system that connects major population centers and serves rural areas throughout the 48 contiguous United States. But with many rail lines having been abandoned, and federal funding policies emphasizing highway and aviation systems, the PRWG estimated that the investment needed to realize such a powerful transportation network by 2050 would be $357.2 billion in total capital costs and $8.1 billion in annual operating costs.
Regardless of what policies are adopted for passenger rail in our country, infrastructure investment requirements will continue to increase, and many different approaches will be needed to generate the necessary funding. One approach is for rail operators and owners to tap into the value of existing, underutilized assets, such as their real estate holdings. Parallel Infrastructure, a national right-of-way (ROW) management and infrastructure development company, is proving that a material new source of financing for intercity passenger rail systems can be realized in this manner.
A working model
As a wholly owned subsidiary of Florida East Coast Industries with a heritage dating back to the railroad pioneering days of Henry Flagler, Parallel Infrastructure invests in and manages ROWs, creating significant value for both public and private owners. Our model is unique in that we provide both the capital and resources to develop revenue-generating assets on ROW property, and then share the returns with the property owner. This frees the owner to focus their capital and efforts on core operations, while benefiting from a new source of revenue.
We have used this model successfully to establish asset development agreements with 31 freight railroads, with more than 2,000 miles of railway, as well as with Allegheny County in Pennsylvania. We manage more than 5,000 lease agreements and hundreds of separate land parcels, including some with existing buildings or structures, sized from one to more than 300 acres, that are mostly adjacent to or near the ROW.
The opportunity to fully earn revenues from ROW real estate in our country is vast. There are more than 1 million miles of transportation corridors in the United States, owned principally by state transportation departments, local governments, and private railroads. To provide a sense of scale, assuming that these ROW owners could earn just $1,000 per mile from the types of revenue-generating activities we undertake, the million miles of transportation corridor in the United States would generate $1 billion. Such a projection is well within reason when you consider that Parallel Infrastructure is generating approximately $50,000 per mile for the 351-mile-long Florida East Coast Railway (FEC) corridor.
In addition to maximizing the monetary value earned from real estate assets and providing additional recurring revenues for ROW owners, Parallel Infrastructure’s best practices approach and proactive ROW management services allow owners to access new capital by collateralizing these predictable revenue streams.
For example, if a transit agency garnered $10 million of annual revenue from its land holdings, it could easily use that as collateral to secure $100 million in capital through a financing transaction. So by first unlocking the value of underutilized real estate by leveraging a third-party’s capital and, in turn, leveraging the value of the annuities, an agency is positioned to take on previously unfunded or underfunded capital projects, such as passenger rail infrastructure improvements.
When you look at intercity passenger rail systems across the country, passenger revenue and government subsidies combined do not adequately meet current and future operating and capital expenditure requirements. Certainly, there are many approaches to close funding gaps. But today’s marketplace indicates that proactive ROW management and infrastructure development can be a feasible part of financing solutions to quickly generate annuity streams that can be used as collateral to secure financing for capital projects.
By aggressively monetizing ancillary assets in this collaborative and innovative manner, intercity passenger systems will be financially stronger, more viable, and better positioned to leverage steady revenue streams, revive dormant assets, and ultimately thrive in ways that have not been accomplished in the last 50 years.
Frank Chechile is CEO of Parallel Infrastructure (www.parallelinfrastructure.com).