By Noel T. Braymer
Last year there was a news story that an unnamed investor had bought the 1915 Santa Fe Depot in downtown San Diego. The Depot was privately owned, but leased to Amtrak. Why did this investor want to buy a 103 year old train station? This investor’s reason for buying this train station was to make money. Train stations are usually seen as cost centers, not profit makers for rail passenger service. The same holds true for intercity bus companies with Greyhound getting rid of as many of its bus stations as possible and moving into intermodal transit centers as bus stops as much as possible to save money and catch transferring passenger from public transit. So how does this investor plan to make money with an old train station? Well this person will get revenue with lease payments from Amtrak. But what will make this deal a winner is the old Depot is a large building with lots of empty space that has been left idle for years.These unused spaces at the old Depot will be renovated and leased to paying tenants. Between Amtrak and future tenants the income from the old Depot is expected to produce a steady source of income. So why would anybody want to work or live by a train station?
Well people are doing just that in downtown San Diego. The Santa Fe Depot hosts not just Amtrak service, but also Coaster service between San Diego and Oceanside, all 3 lines of the San Diego Trolley which is the San Diego Metro area Light Rail service and several local bus lines. With all these transportation options there has come an explosion of new high raise construction around the Depot. Much of this construction is for high end housing in many of these new high rise buildings. A major factor to attracting people to move downtown is the high level of public transportation centered in downtown San Diego near railroad tracks. Much of this new construction near rail service is on land owned by the same company which had recently owned the old Depot. Years ago the railroads separated their real estate division from their railroad, creating in effect 2 separate companies. There have been some changes over the years of ownership of the companies that have inherited this old railroad land. But increasingly much of this land near the railroads which in the past was predominately industrial, is now being redeveloped for commercial uses and housing.
The railroads have long been in the real estate business. When the New York Central Railroad built the Grand Central Terminal in 1903, it lowered its main line below ground level into its terminal. The road that was built over the tracks is called Park Avenue. Not only did the New York Central own the land under Park Avenue, but also much of the land around it. Developing the land around Park Avenue made a lot of money for the New York Central. When the New York Central and the Pennsylvania Railroads merged in the late 1960’s they separated their real estate division from their railroad. When the PennCentral Railroad went into bankruptcy in 1970, the independent real estate part of the PennCentral was not affected and its assets untouched by the bankruptcy of the railroad division. When Amtrak was given the Northeast Corridor by the Federal Government in the mid seventies it got a lot of property of the PennCentral with high overhead costs, but little revenue production.
San Diego is not the only place that rail service is now making land with rail passenger service more valuable. Many cities in California with rail passenger service own their local train stations and have made them intermodal centers by adding local bus and rail services. Like San Diego, for years Amtrak leased Los Angeles Union Station from the same company which had also owned the Santa Fe Depot in San Diego. Finally the Los Angeles Metropolitan Transportation Authority or LA Metro bought Los Angeles Union Station. Not only did Union Station have Amtrak and Metrolink service, but LA Metro had built Red and Purple Line subway service to Union Station as well as Gold Line light rail service. LA Metro recognized that Los Angeles Union Station was the logical center for surface public transportation for Southern California. Not only did LA Metro buy Union Station, but it is working on a major commercial redevelopment of the property around Union Station. This will result in Union Station making money.
LA Metro is increasingly getting into the real estate business. A major problem in Los Angeles and many parts of California is a housing shortage which has made housing very expensive. LA Metro is encouraging the construction of high density housing near its rail transit stations. In some cases LA Metro is using land it owns by its rail transit stations to build affordable housing for low income families. It is also helping to finance some of the construction of housing near its stations. These grants by LA Metro after being paid back will use the money to finance more housing construction. This will also spur other commercial development around the stations. All of this will increase passenger traffic for the rail transit services in Los Angeles County.
This is nothing new. For years and up to today, the transit company which operates transit in the city of Hong Kong has been and still is a private, for profit company. Does it make its money carrying passengers? What really makes it profitable is the property it owns around its stations from which it earns income from. This is much the business model being used by the new Brightline rail passenger service that recently opened in southern Florida. It is privately owned and operated by a land development company in Florida. This company also owned the railroad it is using for passenger service in Southern Florida. In a few years Brightline is expected to run from Miami to Orlando. The expectation is they will operate the trains at a profit. But the real money will come from the development at and around the stations attracted by the concentration transportation options.
Amtrak owns a good deal of property which it got from the PennCentral. It owns many of the stations on the Northeast Corridor, Chicago Union Station as well as major yards like Sunnyside on Long Island and Beech Grove in Indiana. Yet Amtrak has done very little to improve their properties to generate revenue. There has been progress with plans to redevelop Amtrak stations at Chicago, Philadelphia and Baltimore with more commercial development. But ideally this should have been done over 20 years ago. A great deal of attention in New York when it comes to Amtrak have been efforts to add a double tracked tunnel under the Hudson between New Jersey and Penn Station. Much has been claimed that the future of Amtrak and the nation’s economy depends on building this tunnel and repairing the 2 old tunnels built by the Pennsylvania Railroad over a hundred years ago. What’s really behind the Gateway Project to build a new tunnel under the Hudson is a major property development called Hudson Yards. It is 28 acres of high rise construction being built over a rail yard for in Manhattan used by the Long Island Railroad. Hudson Yards is nearby to Penn Station. In order to fill up these new high rise buildings, more commuter trains will be needed to carry people to work at Hudson Yards. Much of the work building Hudson Yards in nearly finished. But funding, let alone construction for the Gateway Tunnel was yet to be secured or started. There’s a lot of money on the line which will depend on getting more trains and people to fill up Hudson Yards.
So what is the secret to making money with Rail Passenger Service? Not much money is made carrying passengers. But lots of money is to be made from property development fed in large part by bringing large groups of people by rail to developments at or near train station/transportation centers. This is much of what is at the heart of the California High Speed Rail project. Most of the cities scheduled to get High Speed Rail stations in California are using these stations as drivers to much more new development for their city’s. Many of these cities could use a major economic kick start. Its not like private companies haven’t noticed. Google is going ahead with plans to build a new headquarters in downtown San Jose next to the Diridon Train Station. San Jose will be the terminus of the first leg of the California High Speed Rail coming up from the San Joaquin Valley. There is already talk of well paid Silicon Valley employees commuting to work from the San Joaquin on High Speed Rail. This could save these people money on housing and still get to work faster than living closer to work and driving. But even without High Speed Rail, the Diridon Station will be a great place to be near by to with Amtrak, Caltrain and ACE rail passenger services as well as local VTA Light Rail services and future BART service to Diridon.
Critical to making rail passenger services function, is it will need funding generated by the very development it helps to generate. Both LA Metro and the California High Speed Rail Authority are working with Public-Private Partnerships to help generate the income to build and maintain rail passenger services. Using the income generated by income property and or increased employment near train stations/transportation centers should lead to faster travel times, fewer travel hassles and reasonable cost of living for more people with more affordable housing and lower transportation costs.