Short Line Investment?

[Anonymous]

jodom, that article was in the july 1982 trains mag. old alcos never die in georgia. i just got a copy sent from their stock of back issues . swapped emails with the editor about
his visit to the CIRR years ago. thanks for the reply.

[SALfan]

QUOTE: Originally posted by jonahranch

jodom, what's your connection to the Chattahoochee Industrial Railroad? I retired
from this railroad after 30 yrs. one of my mentors there was oodom.

Don't really have any connection, other than reading, enjoying and remembering an article in TRAINS years ago. The description at the beginning of the thread sounded a lot like the CIRR, other than the coal. Don't know the gentleman whom you mentioned, but you'll find Odoms all over - I met two brothers from Oklahoma when I worked in Arkansas.

[Anonymous]

jodom, what's your connection to the Chattahoochee Industrial Railroad? I retired
from this railroad after 30 yrs. one of my mentors there was oodom.

[Anonymous]

QUOTE: Originally posted by tormadel

QUOTE: Originally posted by tormadel

As I understand it in an easement you are buying the right to build and operate a railline through, or over if you will, someones property and you actually don't own a thing on it but you're railways gear (ballast, subballast, ties rails signaling equip etc.) But for an easement do you pay someone a one time fee for the right, or do you have to like pay rent on it? And years down the road when the origional owners grandchild is the one you're dealing with, can they be a pain in the***and try and throw you off?

I have read alot about government (both US and Canada) land grants to build the early railroads. How many of these were actual gifts of property and how many just easements?

Quit Claim deed sounds something like "Ok I give up here it's yours"
Whereas Warrenty Deed sounds to be "Really I swear this land is mine to sell, you can spank me later if I'm lying"

But, I do see how splitting up parcels of land would be more difficult then signing over the title to you're car.

This was the bunch of questions I was referring to, sorry about the confusion. I would always like to learn more, but at this moment I don't know what questions to ask.

You are generally on the right track, but these are legal matters where nuances count. My best suggestion for you, short of going back to law school (been there, done that) is to do a bit of reading in real estate law or attend some basic real estate investing classes. Pretty much everybody should have a basic knowledge of real estate even if only to keep from getting into trouble when buying or selling a home or business.

LC

[tormadel]

QUOTE: Originally posted by tormadel

As I understand it in an easement you are buying the right to build and operate a railline through, or over if you will, someones property and you actually don't own a thing on it but you're railways gear (ballast, subballast, ties rails signaling equip etc.) But for an easement do you pay someone a one time fee for the right, or do you have to like pay rent on it? And years down the road when the origional owners grandchild is the one you're dealing with, can they be a pain in the***and try and throw you off?

I have read alot about government (both US and Canada) land grants to build the early railroads. How many of these were actual gifts of property and how many just easements?

Quit Claim deed sounds something like "Ok I give up here it's yours"
Whereas Warrenty Deed sounds to be "Really I swear this land is mine to sell, you can spank me later if I'm lying"

But, I do see how splitting up parcels of land would be more difficult then signing over the title to you're car.

This was the bunch of questions I was referring to, sorry about the confusion. I would always like to learn more, but at this moment I don't know what questions to ask.

[Anonymous]

QUOTE: Originally posted by mudchicken

LC - If I took your thread off on a bad tangent, my apologies.

tormadel: I second LC's "And they are"?

Mud

No problem MC. I started this thread to learn a few things and see where it goes...

I may learn more than I thought, nothing wrong with that...

LC

[mudchicken]

LC - If I took your thread off on a bad tangent, my apologies.

tormadel: I second LC's "And they are"?

Mud

[Anonymous]

QUOTE: Originally posted by tormadel

Well the real estate talk had inspired new questions in me [:)]

And they are?

LC

[tormadel]

Well the real estate talk had inspired new questions in me [:)]

[mudchicken]

If you are the railroad, you grant license agreements/contracts/permits and try to avoid the easement route to keep the user accountable. (S. I . Hayakawa Principle [:D])

[Anonymous]

QUOTE: Originally posted by tormadel

As I understand it in an easement you are buying the right to build and operate a railline through, or over if you will, someones property and you actually don't own a thing on it but you're railways gear (ballast, subballast, ties rails signaling equip etc.) But for an easement do you pay someone a one time fee for the right, or do you have to like pay rent on it? And years down the road when the origional owners grandchild is the one you're dealing with, can they be a pain in the***and try and throw you off?

I have read alot about government (both US and Canada) land grants to build the early railroads. How many of these were actual gifts of property and how many just easements?

Quit Claim deed sounds something like "Ok I give up here it's yours"
Whereas Warrenty Deed sounds to be "Really I swear this land is mine to sell, you can spank me later if I'm lying"

But, I do see how splitting up parcels of land would be more difficult then signing over the title to you're car.

Payment fo an easement can be in installments or all at once.

If you are a common carrier railroad the law prohibits a property owner from throwing you off, unless you abandon the track.

LC

[tormadel]

As I understand it in an easement you are buying the right to build and operate a railline through, or over if you will, someones property and you actually don't own a thing on it but you're railways gear (ballast, subballast, ties rails signaling equip etc.) But for an easement do you pay someone a one time fee for the right, or do you have to like pay rent on it? And years down the road when the origional owners grandchild is the one you're dealing with, can they be a pain in the***and try and throw you off?

I have read alot about government (both US and Canada) land grants to build the early railroads. How many of these were actual gifts of property and how many just easements?

Quit Claim deed sounds something like "Ok I give up here it's yours"
Whereas Warrenty Deed sounds to be "Really I swear this land is mine to sell, you can spank me later if I'm lying"

But, I do see how splitting up parcels of land would be more difficult then signing over the title to you're car.

[Anonymous]

QUOTE: Originally posted by tormadel

I understand the gist of what they're saying if not every term. Suffice it to say real estate is a big pain in the ***. It's just not as easy as going to Walmart and picking up a 6 pack of property to put you're business on heh.

Real property is an old and arcane part of the law. What's worse, railroads weren't around when it was invented, so it had to be cobbled in later and got less than the best seat in the house.

LC

[tormadel]

I understand the gist of what they're saying if not every term. Suffice it to say real estate is a big pain in the ***. It's just not as easy as going to Walmart and picking up a 6 pack of property to put you're business on heh.

[MP173]

Boy, this thread just took off over my head. I understand about every third word now.

ed

[MichaelSol]

QUOTE: Originally posted by mudchicken

You can quitclaim just about anything. The question is whether you had legitimate title to anything in the first place.

Same with a warranty deed; how good's the warranty?

Best regards, Michael Sol

[mudchicken]

You can quitclaim just about anything. The question is whether you had legitimate title to anything in the first place.

(And then there is the abuse by most of the term easement)...and going back to the original point of the thread, you ought to be getting the bulk of the records from the seller, especially if it's a Class 1 [who would be in violation of 49CFR1201 if they cannot produce the data - Quite another issues for Cls. 2 & Cls. 3's since Staggers, especially when the rules changed in the Federal Register in 1983.] The due dilligence is not a walk in the park (as LC knows well) and I wonder how much income the shortline loses and how much etra liability are the shortlines taking on?

[tormadel]

Yeah it becaue obvious to me reading about the hurricanes on the east coast that the railroads don't have the kind of insurance alot of companies have. For example if my Domino's pizza burned down it would probably help my franchies owner. The insurance would pay for the loss and fund rebuilding (or moving to a better location). He might have to eat the loss of revenue during the reconstruction, but wouldn't have utility bills either. The hurricanes caused millions (probably more) of $ worth of damages and the railroads seem to have had to eat the whole loss to fix it. Hurricane damage was basically portrayed as the last nail in Erie Lackawanna's coffin.

But, I could see how property damage and acts of god insurance on every mile of track would be a nightmare. [:D]

[MichaelSol]

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by Limitedclear
It is impossible to get a loan from a bank based upon a quitclaim, unfortunately.

????
It's what the Title Insurance Policy looks like, not the form of the property deed [warranty deed v quitclaim deed], that is important. That is, due diligence goes to the examination of title, not the name of the deed used for conveyance.

A quitclaim deed only grants that interest which the transferor held in the property. Accordingly, if there is a defect in the transferor's title it passes to the transferee without any of the warranties (including the warranty of title) contained in a warranty deed. Accordingly, the type of deed does indeed matter where the property is being evaluated by a lender.

That's the classic definition of a warranty deed. However, under the doctrine of merger, that "warranty" goes hand in hand with any other documents, including language frequently used "subject to exceptions contained in the title insurance policy" in Buy-Sell agreements and the like.

It is true that railroads are often "self insurers" on many matters. The standard ALTA policy excludes just about anything to do with railroads for a variety of reasons, including the fact that the standard 50 year search almost never discloses the true title information when it comes to railroads. Further, the policies are written for the amount of purchase of the land, not for the future value of the use of the land.

However, look at what you have written: the seller "warrants" title. Good luck in finding the seller five years down the road unless it happens to be another railroad company. I suppose after that old farmer has spent the money from the sale on gambling and drinking and the Bahamas, and then died, that "warranty" is worth the cost of the sheet of paper it was written on.

As I have trained associates over the years, rule number one if the seller won't sign a warranty deed is "why not?" but rule number two is, the "warranty" in "warranty deed" is not worth gambling anything on. And that's the "due diligence" part of anyone who handles a transaction and relies on a single word at the top of the page to have significance when push comes to shove in litigation.

As I mentioned above, a great deal of property is conveyed outside of the standard warranty deed. The Trustee Deeds referred to above have routinely been pledged in mortgages and trust indentures by First Bank System, Wells Fargo, Norwest, US Bank, National Bank of Commerce and others that I have worked with on those transactions notwithstanding the risk particularly inherent in those deeds (and some mighty sloppy work done back in Chicago).

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by Limitedclear
It is impossible to get a loan from a bank based upon a quitclaim, unfortunately.

????
It's what the Title Insurance Policy looks like, not the form of the property deed [warranty deed v quitclaim deed], that is important. That is, due diligence goes to the examination of title, not the name of the deed used for conveyance.

Best regards, Michael Sol

A quitclaim deed only grants that interest which the transferor held in the property. Accordingly, if there is a defect in the transferor's title it passes to the transferee without any of the warranties (including the warranty of title) contained in a warranty deed. Accordingly, the type of deed does indeed matter where the property is being evaluated by a lender.

Further, I have yet to see a railroad deal with title insurance, nor have I met a major title insurer that will write railroad title coverage. Most railroad have never been surveyed except to the extent there are internal valmaps kept by the railroad itself which hardly carry the weight of an independent surveyor's license stamp. Localities maintain tax maps, but those can be notoriously unreliable in determining the exact dimensions of the property. Also, many railroads have some portions that are owned in fee and other portions that are easements "for railroad purposes" which indicates an old negotiated easement or an easement that resulted from an eminent domain taking or perhaps cetain state or federal land grants, depending upon the language of the grant (most are over a century old too, so finding the grant can mean extensive legal research all by itself) Taken together this makes banks extremely nervous about lending for RR deals based upon the real property. Some banks will lend for specific projects but most RR loans come from government sources.

LC

[MichaelSol]

QUOTE: Originally posted by mudchicken

MSol:

You just touched a raw nerve around most surveyors/mudchickens.

You apparently don't know how big, dumb and incredibly stupid most title insurance people can be around railroad operating property. It would be a joke if it wasn't so sad a story. They just except everything in their Schedule B's and walk away dazed in their own little warped world. Too many have no clue about railroad color of title or where to begin looking. [and they don't pay out when they screw up, which they do with frightening regularity - scary[:(!][:(!][:(!]

Ha! I agree.

I have handled probably about a thousand "Trustee's Deeds" from Richard Ogilvie [Milwaukee Road Receivership Trustee] to various entities over the past 25 years, plus a few BNSF deeds.

Now, you want to see something interesting, where government easements mixed with private easement grants mixed with outright purchases of ROW, combined with the occaisional "exclusive use" for railroading language written into some -- including in original Warranty Deeds (!!) -- then add on subsequent easement grants by the railway company (to power companies, pipelines, irrigation ditches, roads) -- and subsequent outright sales -- and you have the finest litigation stew concocted at the hands of mortal man.

The Title Company's are usually poorly equipped to analyze those.

I learned long ago to do my own title searches, and compare that to the Title Company's.

Warranty Deeds, Quitclaim Deeds, Trustee's Deeds, Instruments of Distribution, Personal Representative Deeeds, all have their legal quirks, but from the Title Company standpoint its that Title Insurance Policy that I have always been mostly interested in.

Best regards, Michael Sol

[mudchicken]

MSol:

You just touched a raw nerve around most surveyors/mudchickens.

You apparently don't know how big, dumb and incredibly stupid most title insurance outfits can be around railroad operating property. It would be a joke if it wasn't so sad a story. They just except everything in their Schedule B's and walk away dazed in their own little warped world. Title people operate with a set "formula" and the drones carry it out without any understanding of what's in play. Too many have no clue about railroad color of title or where to begin looking. [and they don't pay out when they screw up, which they do with frightening regularity - scary[:(!][:(!][:(!] ...the ones getting burned are the adjoiners, not just the rr's[:O]]

[banghead][banghead][banghead]

[MichaelSol]

QUOTE: Originally posted by Limitedclear
It is impossible to get a loan from a bank based upon a quitclaim, unfortunately.

????
It's what the Title Insurance Policy looks like, not the form of the property deed [warranty deed v quitclaim deed], that is important. That is, due diligence goes to the examination of title, not the name of the deed used for conveyance.

Best regards, Michael Sol

[tormadel]

These things are good to hear from Mudchicken and LC. Not good that they happen, but it is good to see someone aware of the issues. I know if I were to start a venture in this area I would want people like them in my corner.

[Anonymous]

QUOTE: Originally posted by mudchicken

LC- That's mostly just the sales transaction contract for the line. It gets worse for the contractural agreements/licenses/contracts that come with the property during sale. I've also seen swoosh and yellow's corporate legal folks get rid of more than they thought they were with quit claim deeds which should be a signal to get a new set of legal beagles. And yes, those bargain & sale agreement with the conditional/restrictive clauses are a headache. Know of at least two shortlines suing yellow over those conditions tied to questionable AAR embargoes.

Sadly, too true. Many of the easements, licenses and other real estate agreements are beyond the skill sets of many short line operators. Quitclaim Deeds are very common in the industry, but generally not a big problem as when the property transfered is an operating railroad it is nearly impossible for outsiders to affect the property transfer. It is impossible to get a loan from a bank based upon a quitclaim, unfortunately.

LC

[mudchicken]

LC- That's mostly just the sales transaction contract for the line. It gets worse for the contractural agreements/licenses/contracts that come with the property during sale. I've also seen swoosh and yellow's corporate legal folks get rid of more than they thought they were with quit claim deeds which should be a signal to get a new set of legal beagles. And yes, those bargain & sale agreement with the conditional/restrictive clauses are a headache. Know of at least two shortlines suing yellow over those conditions tied to questionable AAR embargoes.

[Anonymous]

MC -

I know what you mean. These days the Class 1s and most of the big short line groups are putting these kind of hold backs in all their sales agreements. Check out this article at one short line oriented law firm website.

http://www.wbsk.com/

Go to "Newsletters" link at top of page and then down the side menu to December 2004 Transportation Newsletter.

LC

[mudchicken]

LC:

Pet Peeve Time

Still waiting to see another issue come up regarding startups & that is the total blundering management of and mishandling of the real property assets. Compound that with the asset managing scam that happens on most of the ex-Rock and ex-Milwaukee properties and you have a big liability and cashflow mess. Very common to see seller still reaping income from lease & contract rental(s) years after sale of the line and the new shortline oblivious to the lost income. Most shortline management is clueless of what is going on and future income is squandered by the shortline management on the ground being oblivious to what goes on around them. [a big part of this I blame on the buyer & seller's clueless lawyers/ advisors, but that income and/or liability risk protection could keep many a shortline afloat in times of poor cashflow] Hope those operating managers and ex ChE are not much more than glorified trainmasters and trackmen....... (things I start looking at HARD while I'm out there "kicking the tires" and which I continually get really sorry answers for from shortline management)

Really fed-up with most of these transactions coming with zero paperwork, ICC maps & records, contracts on the line sale and so on.[:(!][:(!][:(!]

[edblysard]

You know, after a while, they kinda grow on you.
And note the new Green Goat has a very familiar shape to it!
In reality, the big cab windows, short rear hood, and sloped, short "nose" allow the engineer to see all around, and most importantly, he can see me in the front or rear steps giving hand signals!
They are very utilitarian, on purpose...it is easier to replace flat steel sheet than curved shaped steel, and the basics, frame, trucks and controls are all off the shelf EMD parts.
Makes for an easy to repair, and easy to run little beastie!

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by edblysard

The MK1500D, although ugly as sin, works great for our type of switching, and even though they are Cat powered, we have not have a major engine failure in the ten years they have been here.

Ed

Oh come on Ed, utility and reliability are their own forms fo beauty. [:D]

[Anonymous]

QUOTE: Originally posted by tormadel

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by MP173

Ed:

my only problem with this is that $10 million is being raised with on $1.2 million invested. I would be very leary of this, until I knew more of what was going to be happening with the $8.8 million. Just think of it this way....88 cents of every dollar would not be invested in this shortline.

ed

ed -

If I was going to make an offering of this type, which I am NOT, there would be a complete set of financials and pro formas looking forward five years. Part of that would explain the need for working capital, capital investment on the existing property to bring it up to a usable state and other capital investment in equipment (if any) that would be necessary to convert partially unused and deferred maintenance track into a healthy short line...

I chose the $10,000/share number to ensure my potential investors realized they would have real skin in the game and were willing to take such a risk. I have found that it is much easier to raise a LOT of capital than a little so long as the plan is sound.

The $10,000,000 raise amount is larger than I would expect and in any event there are several legal and corporate reasons I would never do a real deal this way as it would require a public offering and all the headaches inherent in such a structure. As I have said above I would leave the financial structure open for now to make additional adjustments possible. So far, no one has suggested such an adjustment.

LC

Well I had not gone there yet but I would suggest a Limited Liability Corp orgainization rather then a standard corp. Would be much easier to deal with, but could restrict the number of investors you might have. But then again it's likely that anyone willing to invest that much may want to invest alot to have more say.

True, I could and probably would use an LLC to avoid some of the limitations. Unfortunately, that won't solve all of the possible issues. What particular corporate form I would use depends upon how I would finance the deal. There are other possible financial and corporate structures for this sort of thing which make sense too, but I can't give away ALL my secrets...

LC

[TomDiehl]

QUOTE: Originally posted by edblysard

The MK1500D, although ugly as sin, works great for our type of switching, and even though they are Cat powered, we have not have a major engine failure in the ten years they have been here.

Ed

Oh come on Ed, utility and reliability are their own forms fo beauty. [:D]

[tormadel]

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by MP173

Ed:

my only problem with this is that $10 million is being raised with on $1.2 million invested. I would be very leary of this, until I knew more of what was going to be happening with the $8.8 million. Just think of it this way....88 cents of every dollar would not be invested in this shortline.

ed

ed -

If I was going to make an offering of this type, which I am NOT, there would be a complete set of financials and pro formas looking forward five years. Part of that would explain the need for working capital, capital investment on the existing property to bring it up to a usable state and other capital investment in equipment (if any) that would be necessary to convert partially unused and deferred maintenance track into a healthy short line...

I chose the $10,000/share number to ensure my potential investors realized they would have real skin in the game and were willing to take such a risk. I have found that it is much easier to raise a LOT of capital than a little so long as the plan is sound.

The $10,000,000 raise amount is larger than I would expect and in any event there are several legal and corporate reasons I would never do a real deal this way as it would require a public offering and all the headaches inherent in such a structure. As I have said above I would leave the financial structure open for now to make additional adjustments possible. So far, no one has suggested such an adjustment.

LC

Well I had not gone there yet but I would suggest a Limited Liability Corp orgainization rather then a standard corp. Would be much easier to deal with, but could restrict the number of investors you might have. But then again it's likely that anyone willing to invest that much may want to invest alot to have more say.

[edblysard]

Actually, HB&T was dissolved back into its parent roads....
Which were, in the end, BNSF and UP.
Originally, HB&T was a joint venture between several roads, but the merger/acquisitions reduced the owners to these two.
They split the property and the locomotives.
HB&T, along with the PTRA, purchased the first, and only 35 MK1500Ds...We got the 01 thru the 25 they got the 26 thru 35.

The HB&T yards and property were split between UP and BNSF...BN of course got the old Santa Fe property, New and Old South Yards, and the UP got Settagast and East yard, Booth and Basin yard, along with the Milby street roundhouse.

PTRA is a neutral switching association, not owned by the member lines, but in fact owned by the Harris County Navigation District, the City of Houston, and the Port Authority of Houston.
BN and UP have board members on our board of directors, and help determine our business practices, but the majority of the voting power rest with Harris County.
But then, Harris county guys don’t know much about railroading, so they pretty much go along with what BNSF and UP want.
Our operating budget comes from the Harris County Navigation District, the Port Authority, and BNSF and UP.

Our billing to the UP and BNSF is, in fact, the majority of our next year operating budget…the more cars we move this year, the bigger our budget will be next year…not a bad incentive to work hard and be productive.


Ed

QUOTE: Originally posted by tormadel

QUOTE: Originally posted by edblysard

ed....

We did break one of the frames, and drove a piece of drill stem through another ones cab and electrical cabinet, but that’s another story!

Ed

Hehe, OOPS! I'm surprised, I had heard that someone had purchased the Houston Belt and Terminal, surprised the same thing didn't happen you ya'll (although I don't wish for anything like that)

[Anonymous]

QUOTE: Originally posted by MP173

Ed:

my only problem with this is that $10 million is being raised with on $1.2 million invested. I would be very leary of this, until I knew more of what was going to be happening with the $8.8 million. Just think of it this way....88 cents of every dollar would not be invested in this shortline.

ed

ed -

If I was going to make an offering of this type, which I am NOT, there would be a complete set of financials and pro formas looking forward five years. Part of that would explain the need for working capital, capital investment on the existing property to bring it up to a usable state and other capital investment in equipment (if any) that would be necessary to convert partially unused and deferred maintenance track into a healthy short line...

I chose the $10,000/share number to ensure my potential investors realized they would have real skin in the game and were willing to take such a risk. I have found that it is much easier to raise a LOT of capital than a little so long as the plan is sound.

The $10,000,000 raise amount is larger than I would expect and in any event there are several legal and corporate reasons I would never do a real deal this way as it would require a public offering and all the headaches inherent in such a structure. As I have said above I would leave the financial structure open for now to make additional adjustments possible. So far, no one has suggested such an adjustment.

LC

[MP173]

Ed:

my only problem with this is that $10 million is being raised with on $1.2 million invested. I would be very leary of this, until I knew more of what was going to be happening with the $8.8 million. Just think of it this way....88 cents of every dollar would not be invested in this shortline.

ed

[tormadel]

QUOTE: Originally posted by edblysard

ed....

We did break one of the frames, and drove a piece of drill stem through another ones cab and electrical cabinet, but that’s another story!

Ed

Hehe, OOPS! I'm surprised, I had heard that someone had purchased the Houston Belt and Terminal, surprised the same thing didn't happen you ya'll (although I don't wish for anything like that)

[edblysard]

ed....
If this had been the real deal, and more information posted, I would have jumped on it.

Given a little more info, and a chance to go walk the property, this is one of those once in a lifetime deals that would have me seriously considering taking a mortgage out on the house for the investment cash.

Tormadel..
What ever we could lease from our member lines...in 1996 that would be BN, Santa Fe, UP and KCS(TexMex)

We had everything from SW9s and the UP rebuild program SW10s(little brutes), GP38s, a bunch of CF7s, and a few GP9s....we even had a SP SD9 for a year or two.

Problem was the Class 1s would run short of their own power, cancel the lease and leave us short handed.
So, in 1995 the board of directors decided to purchase our own power.
We looked at rebuilt SWs, rebuild GP38s and a few others...but MK Rail offered the best all around deal, including warranty service, on site maintenance and rebuilding as needed, field mechanics, and a service contract that included UP and BNSF getting light repairs at our facility, and the MK service contract for all of the Houston area.

The MK1500D, although ugly as sin, works great for our type of switching, and even though they are Cat powered, we have not have a major engine failure in the ten years they have been here.

We did break one of the frames, and drove a piece of drill stem through another ones cab and electrical cabinet, but that’s another story!

Ed

[Anonymous]

QUOTE: Originally posted by MP173

LC:

I did read the facts, however you didnt mention other purchases, only this one. The investment turns from an investment in a shortline railroad into an investment in a portfolio of shortline and more importantly into the abilities of management to identify potential line, negotiate a fair price, operate and manage the line better than others.

At this point my attention would turn from the actual 32 mile stretch of railroad to the people involved that are asking me for money. Do you care to share more on their past successes?

ed

Check out the 11th post in the string on page 1 where I set forth most of the facts. In two places I mention that this is one of several short line possibilities in the hypothetical group.

I think the resumes for the individuals are more than adequate. If this were an actual solicitation I would add more.

I'm not looking to teach everything I know, just enough to get a general feeling of whether this type of project is able to attract outside investment.

LC

[tormadel]

What were you guys using before the MP1500D's?

[Anonymous]

QUOTE: Originally posted by MP173

Things are a bit clearer....still, I would want to know more about the principals involved. That is just as important in a project like this as the assets.

BTW...is this an informal solicitation? You have my interest, which is always the first step.

ed

No ed, it is not a solicitation. As I said above it is offered as an example only. I posted it as a companion thread to the other short line thread in the hope it would be a good learning exercise for some of the folks on this board about how things really work.


LC

[edblysard]

http://www.ptra.com/
http://www.trainweb.org/southwestshorts/ptra.html
http://home.austin.rr.com/aldossantos/port_terminal.htm
http://home.austin.rr.com/aldossantos/texas_shortlines.htm
http://www.trainweb.org/jssand/Houston/Houston.htm
http://www.trainweb.org/jssand/Houston/Houston.htm

The last one has a few photos of our locomotives...the MK1500D,
Purchased in 1996, and numbered by that year and then the order they came on property...9601 would be the first unit, with 9624 tha last to arrive.

Some of the information in the links is out of date...some customer no longer are there, and some of the operating officers have been replaced, but this will give you a basic view of who we are and what we do.

Ed

[MP173]

Ed

That is a fascinating railroad you work for.

When are you giving us a tour?

ed

[edblysard]

Boy, I wish it was!

And additional plus...if you get in a position where you would need to divest your group of this line, once you got it up and running, the coal companies would most likely buy it just to keep their product flowing.
Aarco... (Citgo Lyondell) has a coke unit here, on the south side of the ship channel.
The Bulk Material handling plant, that loads coal and coke to ships, is one the north side, within visual range of the Arco coker...it is cheaper for Aarco to lease 2 SD40-2, and 100 old coal cars, and run a twice a day train using PTRA tracks and crews around the turning basin, as opposed to loading a barge and shoving it across the channel, although the distance separating the two is less than a mile.

They have a vested interest in keeping their product flowing, so Arco also has rebuilt a siding and loading facility to expedite this move, and we, (the PTRA) have exclusive right to move their trains.

If this hypothetical line happened, getting the coal companies involved as vested partners almost guarantees a built in buyer in the event you decide to move on to other things.

There are quite a few short lines here in Texas that are exclusively devoted to a single or small group of companies...one in West Texas was mentioned in Trains mag, it moves crushed rock and gravel only.
And there is GRR, Georgetown Railroad...built as a connection from limestone and gravel quarries to interchange with the MoPac, it now hosts its own ballast trains and leased rock trains all over the Gulf Coast, supplies men and equipment to rebuild or build ROW, all from a pair of SWs and some old composite gons....

Texas City Railroad serves three refineries, supplying interchange service for them to the UP, on a railroad that is less than ten miles long.

My own railroad started out in 1924 with two 0-6-0 switchers, hauling freight up from the city docks to a small interchange yard, not even two miles of track, with 35 total employees it generated a whopping $7000.00 it’s first year of operations...now we have almost 40 miles of mainline, 8 yards, employee 275 T&E personnel, a large car department and MOW group, along with the office staff and company officers.
We serve over 450 customers on the Houston Ship Channel.
North Yard, the original or first yard built, now holds 3000 cars on any given day, and generates several outbound to interchange trains per shift.

BNSF is building two 125 car length sidings out near the Cargill Elevator for the exclusive use of BNSF and PTRA to serve the unit grain trains...
Like any enterprise, you can grow it, if you’re willing to invest the time, money, and the sweat equity.

Ed

[MP173]

Things are a bit clearer....still, I would want to know more about the principals involved. That is just as important in a project like this as the assets.

BTW...is this an informal solicitation? You have my interest, which is always the first step.

ed

[tormadel]

Welcome home LC.

[Anonymous]

QUOTE: Originally posted by edblysard

True,
But you have to
Buy fuel, fix track, and replace frogs (cost out one of those!)
Lease the locomotives; pay to have them brought to you...
Revamp the buildings, purchase some vehicles, (crew van or pick up truck)
Buy spikes, tie plates, ties...get the power/ water/gas turned on, get some form of insurance...the list could go on far a while, but you get the point.

The first thing you must do is get a mudchicken to come out and look it over, tell you what has to be fixed before you turn a wheel, what can wait a month, or a year.
You have to pay your employees, even before some of them step foot on property, no one will show up and put in time with out pay.

10 million will cover most of this and leave you a reserve, albeit not a large one, to cover the unexpected things.

The 1.2 million asking price is the value of the land and the scrap value of the tracks and buildings…not the total “value” of an ongoing enterprise.
We don’t know if the price is only for the ROW, or is there additional property along the ROW, or outside the railroad altogether.
Currently running only part of the railroad to serve the woodchip and cardboard company, the rest is to be scrapped, if I read LC’s comments correctly.

I would surmise the first step is getting firm commitments from the coal mines and the power plant, new interchange agreements from CSX and NS, and a buyer for the metallurgical grade coal.
Sure, it’s a back of the envelope exercise, but bigger and more profitable things have started out as nothing more than an idea in a garage, such as Apple.

(well, see what happens when you go to a ball game and come back and finish a posting!)

Ed

Essentially correct Ed.

The first step is bid for the property or at least discuss it with the owner (Class 1 or otherwise). This will lead to an opportunity to conduct the basic due diligence necessary to construct a bid or offer. This will include an opportunity to hirail and inspect the property (without this, I'm not interested). This also gives me a chance to bring my VP along to inspect (my MC, in effect). The inspection tells me what I need and what I can live with. It also tells me what scrap and spare material is on the property already so I can bargain for it to be included in the purchase. This usually is effective and saves quite a bit of $$. One reason consultants like me can be worth it to aspiring short liners.

As to the RR, we wouldn't plan on scrapping it as the OOS portion will be needed to reach the coal loadouts we are projecting.

I would want to get input and perhaps even some financial help from the coal mining companies in the purchase. I'd look to bring them in for 10% of the investment, about $120,000 or more to help buy the property. This would also sell a few shares. Remember, this little line is projected to throw off a free cash flow of $750,000 or so in 5 years. If you can get three of these going 5 years after starting the last you would have cash flow $2.25 Million, minus any additional staff and growth costs. Probaby in the neighborhood of $2Million. Enough to acquire even more lines and do some upgrading, or even pay a dividend to the shareholders.

LC

[MP173]

LC:

I did read the facts, however you didnt mention other purchases, only this one. The investment turns from an investment in a shortline railroad into an investment in a portfolio of shortline and more importantly into the abilities of management to identify potential line, negotiate a fair price, operate and manage the line better than others.

At this point my attention would turn from the actual 32 mile stretch of railroad to the people involved that are asking me for money. Do you care to share more on their past successes?

ed

[Anonymous]

QUOTE: Originally posted by edblysard

If I read the original few posting correctly, the big pay off are the two coal mines coming on line...and note that the coal is both power plant grade, and metallurgical grade, so at least one of the coal moves will be to interchange, not in captured service to the power plant.

Although LC stated this was all a hypothetical concept, it sure sounds like it is based on a existing road, and he has put quite a great deal of thought into it...as for risk, not much is risk free any more, and if this does pan out, the initial investors will make out fairly well in the next five to ten years.

If it was a real deal...I would seriously consider ponying up 20 grand and might even think about moving out of the swamp and switching railroads...rivers have backwaters too!

Ed

Ed -

You are correct, the coal increases and additional area reserves is the upside. All of the coal would go offline. Some to the power plant and other to tidewater.

Also, it is based on an actual opportunity I had a ways back. I have changed a few facts to use this as a good hypothetical...

LC

[edblysard]

True,
But you have to
Buy fuel, fix track, and replace frogs (cost out one of those!)
Lease the locomotives; pay to have them brought to you...
Revamp the buildings, purchase some vehicles, (crew van or pick up truck)
Buy spikes, tie plates, ties...get the power/ water/gas turned on, get some form of insurance...the list could go on far a while, but you get the point.

The first thing you must do is get a mudchicken to come out and look it over, tell you what has to be fixed before you turn a wheel, what can wait a month, or a year.
You have to pay your employees, even before some of them step foot on property, no one will show up and put in time with out pay.

10 million will cover most of this and leave you a reserve, albeit not a large one, to cover the unexpected things.

The 1.2 million asking price is the value of the land and the scrap value of the tracks and buildings…not the total “value” of an ongoing enterprise.
We don’t know if the price is only for the ROW, or is there additional property along the ROW, or outside the railroad altogether.
Currently running only part of the railroad to serve the woodchip and cardboard company, the rest is to be scrapped, if I read LC’s comments correctly.

I would surmise the first step is getting firm commitments from the coal mines and the power plant, new interchange agreements from CSX and NS, and a buyer for the metallurgical grade coal.
Sure, it’s a back of the envelope exercise, but bigger and more profitable things have started out as nothing more than an idea in a garage, such as Apple.

(well, see what happens when you go to a ball game and come back and finish a posting!)

Ed

[Anonymous]

QUOTE: Originally posted by MP173

Ed:

Early posts indicate they are talking about leasing old locomotives, not purchasing.

There has to be more to it than this, otherwise this investment is upside down...investing $10 million for a $1.2 million property.

ed

You guys need to check the facts I set forth in the beginning. I said this was the first property of several. The $1.2Million is the purchase price of the property alone and it is darn cheap by comparison to some I have seen. Equipment give aways are long gone among the Class 1s.

LC

[Anonymous]

QUOTE: Originally posted by tormadel

I doubt the boardmember(s) are going to work 50hrs a week for$5000 a year. But I would not worry about the others. Getting this company up and started, then keeping it alive will take alot of work. Given these officers back grounds I do not think it's likely that they would shirk they're responsabilites. There is no room in the budget for assistants or the office toady, so it seems set out to me that the whole staff is dedicated to rolling up they're sleeves and doing it all.

I go to work for a couple days, and....

Correct. The Board Member is not devoting his full time attention to the company, he has a full time job. He is compensated for his efforts and financial advice and guidance learned in guiding many companies including railroads.

LC

[MP173]

Ed:

Early posts indicate they are talking about leasing old locomotives, not purchasing.

There has to be more to it than this, otherwise this investment is upside down...investing $10 million for a $1.2 million property.

ed

[tormadel]

We wi***his was busy enough to need 24 loco's thou, hehe.

[edblysard]

True, but the original owner has already stopped operation a while ago, and is looking to scrap part of the line...for what ever reason, he is calling it quits.
On the other hand, if the coal mines do come on line, it would make a very good, and very quick return.
Even if you only run it for a few years, then close and scrap it.

You’re getting the basic right of way, what track exists, and the few buildings there are...not much else.
So the 10million start up isn’t that far out of line...our MK1500Ds cost almost $500,000. each, and we bough 24 of them in 1996.
That’s 12 million in locomotives alone.


Ed

QUOTE: Originally posted by MP173

Ed:

There has to be more to it than this....you dont invest $10 million to purchase a $1.2 million railroad.

but it is a fun concept.

ed

[tormadel]

True it has not yet been discussed if they are common or preferred stock, voting or non-voting. But it was stated that the officers would retain operational control.

Ed- It is good to hear about heart in railroading (ie the Cheif mechanical office), I was disenchanted with railroading for a time because it seemed the heart had gone out of it, but I am seeing things in a brighter light now.

My new little Locomotive roasters book says BNSF still has 53 SD9's and that 2 of them are even upgraded to -3 specs (that sounds like an interesting experiment I wonder how that went). I remember growing up with a bunch of them keeping themselves busy with locals around Lincoln, NE <smile>

[tormadel]

QUOTE: Originally posted by SD38SD39locomotives

QUOTE: Originally posted by tormadel

I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

Heres one simple beauty about SD40s and shortline start up: If you get a good deal on 1 or 2 or 3 or how many involved. And if the per-axle weight of them is reasonable for the line being purchased. And you buy them, and then turns out ya got too much juice for the operation, then what was originally estimated/planned. Ya go the deturbo route. Now about this comment of SD9s not being able to cut the mustard? Examples are still ABOUND, of SD9s cutting the mustard to this very day.
And older SDs are pretty darn cheap these days, but the loco market is always a changing. Right now, serviceable SD40-2s can be had for deluxe pick up truck prices. But after watching ( and studying the past history of the diesel loco market for 15 years now ), there are no guarentees on the used loco market prices. The only guarentee, is that used locos ( especially and most practicaly EMDs ) can be rebuilt, upgraded, and modified. And last I knew, there were only roots blowers available for HP capacity of only up to 3000horses. But with a flood of SD50s on the market, and they are out there now indeed, deturbo'd SD50s could be more attractive and practicle to the shortlines, bantam shortlines, and regional roads.

Oh I don't mean to talk smack about SD9's, they are good units. I just wasn't sure they were suited to unit coal train service like LC is talking about. They could pull it, but once you got to the class 1's line to head to the powerplant you would be on track (most likely) that's rated for faster then they would go, want something that can perform alittle better. For just running around our line they would be fine. In another thread we talked about how parts for 7 & 9 series models is begining to become a problem so that could be another reason to go with SD40's.

[jeaton]

Face it. This is fun, but what we are doing here is nothing more than a "back of the envelope" exercise. One thing I know. If I did a back of the envelope analyses on a prospective business venture and thought I better put in a 100% contingency for cost, I would also decide that I lacked a basic knowledge of the business I was looking at and would be a fool to proceed.

On the other hand, I started my own business with not much more than a page of hand written notes including a couple budget estimates covering the range of business I expected. I was quite accurate with my projections and in the 12 years that the business has existed, I have never had an expense item that ran off the chart.

And like almost any small businessman, I do every task from house keeping to writing the checks, including the one to myself taking my profits out of the business. One exception-the rest rooms are in the common areas of the office building and the landlord takes care of those. Good thing.

Jay

[MichaelSol]

Trying to figure out startup costs on something like this.

One more:

The environmental assessment. These can cost between $20,000 and $140,000.

Cars. Shipper owned? Purchased? Leased?

Operating Costs:
Liability insurance, about $50,000. Combined with real property taxes at 50,000, ouch, already at $100,000. Might have to go with SD38SD39locomotives on doubling that general operating cost estimate.

Business Plan for the 30 mile Santa Cruz Railway of similiar scope, but also passenger service:

http://www.sccrtc.org/pdf/RecRailBizPlanReport.pdf

Best regards, Michael Sol

[MP173]

Ed:

There has to be more to it than this....you dont invest $10 million to purchase a $1.2 million railroad.

but it is a fun concept.

ed

[edblysard]

If I read the original few posting correctly, the big pay off are the two coal mines coming on line...and note that the coal is both power plant grade, and metallurgical grade, so at least one of the coal moves will be to interchange, not in captured service to the power plant.

Although LC stated this was all a hypothetical concept, it sure sounds like it is based on a existing road, and he has put quite a great deal of thought into it...as for risk, not much is risk free any more, and if this does pan out, the initial investors will make out fairly well in the next five to ten years.

If it was a real deal...I would seriously consider ponying up 20 grand and might even think about moving out of the swamp and switching railroads...rivers have backwaters too!

Ed

[MP173]

Boy, I have missed a great thread. My compliments to everyone on this for a really great discussion. I dont know too much about the mechanical aspects of railroading so I wont jump into that.

Here are my questions:

1. This is an interesting discussion, but a horrible investment. 1000 shares @ $10,000 = equitiy of $10,000,000. What exactly is that $10,000 going to get the shareholders? A railroad that generates $1,400,000 the first year and possibly $2,620,000 by year 5. An EBITA of $740,000 in year 5 would result in ROE of what, perhaps 4%. Right now I can get Treasuries with NO RISK yielding more than that.

2. What exactly would one purchase for $1.2 million? Just the rail line? No equipment with that? Where does the other $8.8 million go? I noticed there is an investment banker on the list of investors/board members. What kind of fees are involved with this?

3. I assume with the huge difference between purchase price of $1.2 million purchase price and the $10 million of equity there will be other purchases. I am very reluctant to invest without a track record of the money folks. Just what else are they looking to do? Likewise, with $10 million of money in the cookie jar, who is going to watch the cookie jar?

On a side note...SD38SD39...is the Evansville Western the old IC Mattoon to Evansville line?

ed

[edblysard]

Hey guys...
Take a step back for a second.
You are looking at a 32 mile short line that hauls woodchips and finished cardboard, a few inbound chemical tanks for both, and a twice weekly coal move.
It will run at restricted speed, GCOR rule 6.27, see below.

6.27 Movement at Restricted Speed
When a train or engine is required to move at restricted speed, movement must be made at a speed that allows stopping within half the range of vision short of:

Train
Engine
Railroad car
Men or equipment fouling the track
Stop signal
or
Derail or switch lined improperly
The crew must keep a lookout for broken rail and not exceed 20 MPH.
Comply with these requirements until the leading wheels reach a point where movement at restricted speed is no longer required.

Depending on the track condition, max speed will be 20mph, if it is all FRA exempt 10 mph max.

GCOR.
6.12 FRA Excepted Track
On a track designated as "FRA Excepted Track" the following will govern:

Maximum speed must not exceed 10 MPH.
No revenue passenger train will be operated.
No train will be operated that contains more than five cars placarded according to Hazardous Material Regulations.

Also keep in mind that this is a small group of people, everybody will have double duties...management will be a hands on thing, most of them will run some of the trains in-between their other duties, everyone will learn how to tighten joint bar bolts and lube switches.

It will not need a big accounting department, nor a web site, the GM and Super will double duty as sales reps and business recruiters...the computer, if it even has one, will use pre existing software that NS and CSX already use, for car tracking and routing/billing.
If not, most of us remember how to hand write a switch list and train sheet!

There is no signal system; it will work on RTC, (radio traffic control).

An SD50 is extreme for this.
Best bet would be if you could beg a pair of MP15DCs, a pair of GP38, and a pair of SD40-2s for the coal moves.
Depending on how the coal moves expand, it might use the class 1 power to serve the power plant and mines...if not, the SD40s will be in dedicated service there.
Two of them, because with a 80 car coal move, if one craps out, the other one can still pull the move.

The car department and mechanical department will be a small group of guys who will do double duty as welders and MOW in a pinch.

Don’t over blow this, your talking about a non union shop and T&E, where everybody has to do multiple tasks to make it work.

As for SD9s, I doubt you can find any left you would want…the only one I have seen in regular service is on the BNSF, still in BN green and black, it is a former Great Northern unit, and I doubt you would want to try and get parts for it.

The only reason it hasn’t been scrapped is because it is a shop favorite, along with a pristine pair of Santa Fe GP30s, which are shop queens at South Yard.
The Chief mechanical office just doesn’t have the heart to scrap them.

Ed

[Anonymous]

Just had another thought, in the start-up cost, I would suggest budgeting additional money:
1. IT Department for accounting, website, customer portal for tracking of shipments. In this case, then you would need an IT Manager added to the payroll as well as computer equipment hardware and software.
2.Marketing Manager to increase revenue stream.

Best regards,
Swafford

[Anonymous]

My number one question: To protect my investment, are these voting shares? If not, I would never invest in this type of venture!

Best regards,
Swafford

[Anonymous]

QUOTE: Originally posted by SD38SD39locomotives

because I've seen too many so-called "professional" operations fall apart in the past around this part of the country.

I need to quick rephrase my post. I meant operations as in businesses in general.

[Anonymous]

QUOTE: Originally posted by tormadel

I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

Heres one simple beauty about SD40s and shortline start up: If you get a good deal on 1 or 2 or 3 or how many involved. And if the per-axle weight of them is reasonable for the line being purchased. And you buy them, and then turns out ya got too much juice for the operation, then what was originally estimated/planned. Ya go the deturbo route. Now about this comment of SD9s not being able to cut the mustard? Examples are still ABOUND, of SD9s cutting the mustard to this very day.
And older SDs are pretty darn cheap these days, but the loco market is always a changing. Right now, serviceable SD40-2s can be had for deluxe pick up truck prices. But after watching ( and studying the past history of the diesel loco market for 15 years now ), there are no guarentees on the used loco market prices. The only guarentee, is that used locos ( especially and most practicaly EMDs ) can be rebuilt, upgraded, and modified. And last I knew, there were only roots blowers available for HP capacity of only up to 3000horses. But with a flood of SD50s on the market, and they are out there now indeed, deturbo'd SD50s could be more attractive and practicle to the shortlines, bantam shortlines, and regional roads.

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by SD38SD39locomotives
I used to do cost sheets like this. I'd get all the est. expenses wrapped together for operating costs, and then double it. Yep, thats right, DOUBLE IT! That would then be the est. operating cost.

This approach is accurate probably more often than not. But, that's why pro forma operating numbers for any business need to be worked and worked.

Best regards, Michael Sol

Hi Mike,
I couldn't agree with you more. The numbers always have to be being worked and worked. It's a never ending job and a necessity. Plain and simple. The scheme of kicking the op. costs by double, just gives a nice blanket to be able work those numbers without even giving the chance for everything falling apart out of the gates. I don't care how talented a controller / accounting team is. I want the security blanket. For one thing, because I've seen too many so-called "professional" operations fall apart in the past around this part of the country. Including a company my dad worked for. Look no further then Enron of all things, to put a face on the phrase -so-called professional operation-. Now I'm more conservative then liberal, when it comes to talking about money, but my view is this: if you don't have the costs liberally covered with some slack to go along with them, might as well not bother with even going into business then. Thats just my way of doing things business wise. And it's worked for me too in real life. And I had to learn this the hard way, so it's beaten into me now, which I consider a good thing. The phrase 'if it ain't broken, don't fix it' does actually have some meaning to it. And this way of doing things for me ain't broken, so I'm not going to try and fix it. God's Peace

[MichaelSol]

QUOTE: Originally posted by SD38SD39locomotives
I used to do cost sheets like this. I'd get all the est. expenses wrapped together for operating costs, and then double it. Yep, thats right, DOUBLE IT! That would then be the est. operating cost.

This approach is accurate probably more often than not. But, that's why pro forma operating numbers for any business need to be worked and worked.

Best regards, Michael Sol

[tormadel]

I doubt the boardmember(s) are going to work 50hrs a week for$5000 a year. But I would not worry about the others. Getting this company up and started, then keeping it alive will take alot of work. Given these officers back grounds I do not think it's likely that they would shirk they're responsabilites. There is no room in the budget for assistants or the office toady, so it seems set out to me that the whole staff is dedicated to rolling up they're sleeves and doing it all.

[jeaton]

Looking at the comments Michael and LC have made on staffing, I'd like to add a couple things.

I am inclined to go with the idea that 5 managers (6 with the board member) might be taking too large a slice out of the revenue stream. I think that the organization might do without a Controller and function OK with an administrative/accounting clerk backed up by a CPA on retainer. However, if everyone on the management team is willing and able to perform everything from the most menial tasks on up, then I think the staffing can be justified. And when I speak of "most" menial tasks, I am thinking of things such as cleaning locomotive windshields, sweeping the office floors and hauling out the waste. Of course, a manager would set priorties for tasks from most important to least important, but if the five are not putting in about 250 hours on a slow week, staffing would need to be reviewed.

Fun thread, though.

[tormadel]

Well, I can see what Micheal is saying basically in the early years if revenue needs time to come up perhaps be more stingy with how much you spend on locomotive leases. But, on the other hand, if you short yourself too much power and have any problems you're service could suffer, and good service is the golden rule for survival here. We need to give our customers every reason to believe that we are the best choice for every<logical> shipping need. I can believe LC when he says good deals can be had on SD40's these days, alot of them floating around now. I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

[tormadel]

I'm not sure the answer there Micheal. But, I can't remember the last time I saw just a switch engine doing anything but jockying around a yard. Wisconsin Central runs around the valley here working paper mills and everything else with either a GP40, a pair of GP38's or a pair of GP40s. I've seen 2 '38s heading back to the yard with 12 cars, why that much for so little? I have no idea. Maybe they had alot more when they headed out. But also I believe in the mid 70's there you were still having a majority of 70ton cars, not the 100 and now 125 ton thugs you see today. Just my 2 cents.

[tormadel]

QUOTE: Originally posted by edblysard

QUOTE: Originally posted by Limitedclear


32 miles. 115# and 112# with some 100# in sidings. Jointed. 2 miles of 115# CWR.
timber ties. 6 bridges all steel. Ruling grade 0.7%. Max curvature 10 degrees. Runs along river. Interchange: NS and CSX. Paper barriers possible.

Employees: 4 T&E; 3 MOW. To be adjusted as required by growth.

Equipment:

Locomotives: 2 4 axle units(2000hp) and 4 six axle units (3,000+hp)

MOW: Hirail inspection truck, Hirail Boom truck, backhoe, tamper, regulator others as deemed necessary.

Andrew, note the rail numbers, 115#, 112# and 100# jointed in some sidings...
As long as you run at restricted speed, its a good track base...would have to see how it was maintained, but thats what mudchickens do!

Hehe, hell yeah [:)]

[MichaelSol]

I remain puzzled over the six engine, high horsepower requirement for a $1.2 million revenue railroad.

Here's why. Where I grew up, the Milwaukee had one switch engine, a little SW1200, # 627. It ran just about every day for the 20 years that I knew it.

Through that little switch engine's eyes, it "operated" a railroad just about 50 miles in length. It did a Missoula patrol every weekday and a Blackfoot run on Saturdays.

Every morning, after it had breakfast it went six miles east from the Missoula depot to the Anaconda Company's Bonner (AFP) mill. There, it dropped empties and picked up lumber and woodchips. It hauled these back to Missoula where it set off the lumber and proceeded west to the Intermountain Lumber mill where it picked up both woodchips and lumber. Sometimes there were chemical cars waiting there for Stone Container as well, from the previous evening's freights. The sidings at the Intermountain Mill (actually part of the Missoula Yard) were also the "Traffic Gateway" to the BN resulting from the BN merger conditions, and BN cars would be spotted off the BN's Bitterroot branch at that location, waiting for Milwaukee pickup, or delivered there by Milwaukee for BN pickup.

Chip cars spotted from the previous evening's DFW from the Deer Lodge LP Mill would also be at this siding, ready to be taken to Stone Container.

After pickup of those carloads, #627 backed up about half a mile and put the Intermountain Lumber Co. cars with the AFP lumber cars, then proceeded west again with the AFP and Intermountain woodchip cars fifteen miles out to Schilling, the Stone Container pulp mill yard. There, it dropped off the woodchips, and went around to the other side of the mill and gathered the finished product cars. It hauled these back east to Missoula in the afternoon. The Stone Container cars would be blocked in whatever order with the lumber cars, along with chemical empties from Stone, and placed for pickup by the evening west or eastbound mainline freights.

On Saturdays, it took the morning off and went up the Blackfoot branch, an extraordinarily scenic and easy trip of about 35 miles, to pick up lumber, woodchips, and in former days sometimes sheep, cows or hay. Sometimes an Elk or a Deer was known to ride the caboose back down to Missoula.

It did all this at a blistering 10-12 mph. Sometimes they got excited and would go 15.

Now, that single switch engine was the heart of a $7 million operation in the early 1970s. That's $26,219,269 in 2005 dollars.

That little 1200 hp switch engine earned its keep. Including empties, it was handling anywhere from 30-50 cars a day on a 50 mile long railroad. It finally wore out and was replaced by a MP15AC.

While on the one hand that $26 million spoke to both the value of Milwaukee freight on its Transcon and of course the long haul revenues of that freight, I am still not clear why a single 1200 hp switch engine would be able to haul nearly three times the carloads on a longer line, whereas 6,000 hp would be necessary to haul substantially fewer cars on a shorter line.

The difference is an operating cost of about $300,000 per year, and so the question goes to a signficant cost factor.

Best regards, Michael Sol

[Anonymous]

An interesting thread.

If I were a potential investor the most important variable for me would be the ability to develop other customers along the line. The cardboard plant, as it was already pointed out, seems too "iffy" for me. The plant could close, depriving the short line of almost half its revenue. But if there was suitable land along the right of way which could be developed into an industrial park of some sort then there may be an additional source of revenue.

In my area short lines have to be creative and aggressive when it comes to potential sources of revenue. Purchasing, rebuilding and then leasing motive power is something one short line in my area does to increase its revenues. Other short lines have gotten involved in hauling construction waste from transfer stations they build and operate themselves. Team tracks are also used.

[edblysard]

QUOTE: Originally posted by Limitedclear


32 miles. 115# and 112# with some 100# in sidings. Jointed. 2 miles of 115# CWR.
timber ties. 6 bridges all steel. Ruling grade 0.7%. Max curvature 10 degrees. Runs along river. Interchange: NS and CSX. Paper barriers possible.

Employees: 4 T&E; 3 MOW. To be adjusted as required by growth.

Equipment:

Locomotives: 2 4 axle units(2000hp) and 4 six axle units (3,000+hp)

MOW: Hirail inspection truck, Hirail Boom truck, backhoe, tamper, regulator others as deemed necessary.

Andrew, note the rail numbers, 115#, 112# and 100# jointed in some sidings...
As long as you run at restricted speed, its a good track base...would have to see how it was maintained, but thats what mudchickens do!

[Junctionfan]

Well.........depending on what kind of tonnage a train from those mines are, I have to ask if it would better to use 115lb rail. I just don't see a bunch of loaded quad or bethgon hoppers staying on track with under 115lb rail.

[tormadel]

QUOTE: Originally posted by Limitedclear

Be offline for a day or so, keep the faith...

LC

Ok LC, have a good one. Hope to hear from you again soon

[Anonymous]

Be offline for a day or so, keep the faith...

LC

[tormadel]

Opps appearently I was tired when I posted earlier. My mistake, a roots blown would be a SD58 <blush> and I would have to guess that horsepower at like 2600-2700(& 16 cylinders). The SD59 would have a turbocharger but only the 12 cylinders.

[tormadel]

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by tormadel

QUOTE: Originally posted by mudchicken

Hydraulic or Air tools / I-R Compressor or Hydraulic Power Unit? (Off the truck please) - Oh man have I seen the falacy of just two men, a truck and a backhoe....The small tool availability issue gets scary, especially with those who don't take care of the equipment.

Surfacing Gang every 30 Mos? (rent/subcontract?) Availability of TSR or TKO machine? How fast does it fall apart?

Qualified Welder or are we parts changers & cannibals? (Kills your supply materials budget)

Speed? (You guys with the mirriors always wanna go faster)...Track class 1 0r 2?

I would push for at least class 2 track. Not only to go alittle faster but for the increased safety and reduced chances of pesky derailments and such. I'm a believer in keeping the physical plant in the best shape that is economically practical. I know my father in law is a qualifed welder with 30yrs experiance who's looking for a new job but dunno if he'd want that kind of relocation <smile>. (alot of welders in my wife's side of the family actually)

And I should say this thread gets my excitement up just talking about it.

WHOA there junior...

Why do we need higher speeds???

We don't. This is a common misconception outside the short line world. 10mph is just fine. I'd like to have better track but have you ever seen the difference between a 10 mph derailment and a 25 mph derailment?! The cost is at least triple to go along with the ugliness. Keep in mind that the 10 mph derailment is already gonna cost you $50,000 to $100,000 or more depending upon any number of factors. So, the 25 mph $150,000 to $300,000+ derailment expense will really put a damper on that balance sheet fast... I'd probably keep the track excepted too, even though maintained better as it tones down the FRA issues considerably.

LC

Ok, granted I don't know all the facts about this line but I was making some assumptions. But, I was equating this to the Wisconsin & Southerns class 1 track. It's from crappy ballast and really old 80-90lb rail. So they have been haveing all kinds of problems with like 3 times more derailments, snapped rail etc etc. And they've managed to get the state to sign a bill for $6million a year for 10 years to upgrade all of they're 640miles to brand new rail and class 2 specs. So that is where my thinking was coming from. Your right the faster you are going the worse an accident is, but I was just thinking of reducing the likelyhood of accidents, my bad. Because I had been given the impression that class 1 track was the swirling in the toilet bowl kinda line, sorry.

[Anonymous]

Thanks for the input guys , but I don't contract all of my MOW out. That is a quick way to par far TOO MUCH for too little. Contractors have profit margins. I can't afford them unless there is a significant value add. That is one of the reasons we have a great management team for this project. Our track people manage projects including contractors when required. The contractors are used for specific tasks for which they are well qualified and capable of doing the job more quickly, conveniently and with less cost than our employees.

Also, you don't need a "Certified" bridge engineer to inspect a bridge. A B&B foreman is fine. We certainly don't need a bridge contractor to do that. That is just one way of opening your wallet. If I need more than replacement of existing compenents I of course use a state licensed Professional Engineer specializing in structures.

LC

[Junctionfan]

Ya-with only 2 trains a day, I would also have to say that it would be better to contract our MOW work.

If there is going to be some mining haulage in the future, you might want to make sure the tracks are strong enough to take the load or you might run into what CONRAIL did with their wide-body locomotives.

[MichaelSol]

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by MichaelSol

I did not take into account business (equipment) and property taxes. No idea what they would be on railroad property in that neck of the woods.

Best regards, Michael Sol

Based upon similar properties my best guess on property taxes is $50,000 or less. That would be the number for the entire ad valorem tax including equipment.
LC

Well, that's reasonable.

I guess if I had a concern on the revenue side of things, it would be the high reliance of the line on the cardboard and woodchip traffic.

I've followed the industry since 1957, when one of the largest Kraft process mills in the world was built, literally next door. I've known every General Manager since 1957, beginnng with Roy Countryman, and including the current manager, Bob Boschee, with whom I spend a couple or three hours a week on a regular basis discussing business issues. They have about a $30 million a year transportation budget. Big operation, originally located on the Milwaukee mainline by Milwaukee's industrial department, served off of a short spur by NP.

The industry is so competitve, that many plants have been shut down in recent years. A new plant is so cost-effective compared to an older facility, and the margins so tight, older facilities have to work hard to make a profit. At the same time, the lumber industry has been on such a rollercoaster due to the Canadian timber tariff brouhaha, sources of chips have ranged from near to very far, naturally affecting overall costs of operation quite dramatically. Makes a big difference to the cardboard plant if it can buy waste chips, or has to make or purchase "custom" chips.

The pulp industry constantly oscillates between lean and plenty, that is, shortage and overcapacity. During the overcapacity periods -- which occur about every 5-7 years -- the industry generally loses two or three North American plants. These tend to be older and smaller plants. Compared to the Smurfitt-Stone operation that I am familiar with, the cardboard operation you are looking at appears to be quite small.

Bob reports that since Milwaukee left, most of the Smurfitt-Stone plant's transportation needs have shifted to truck. "BNSF's service has deteriorated to just awful; we try and use them as little as possible." He reports that MRL, which provides the service link to BNSF, does a good job, but once the traffic in on BNSF, "we just don't get service and with our margins as tight as they are, we can't afford to use the rail system if we can avoid it." Naturally, this sounds a little bit like the hypothetical Appalachian railroad -- dependent on someone else to actually provide most of the service, and being at their mercy.

Now, with regard to the overall proposition. If I were investing in something like this, on technical matters I happen to be a believer in expert, third party opinions -- consultants. I would probably hire someone with some time and expertise, such as Bill Brodsky or Alex Huff, to go look over the railroad and offer his opinion. Probably cost about $10,000 or so.

I would also hire someone like Bob Boschee to fly out and look over the pulp and chip operations to see if he thinks they will even be there in three years. I think I could get Bob to do that for about $10,000. If I wanted fancy reports and numbers, I could double those estimates. But, these would be gentlemen whose opinions I would accept without a written report.

I don't know anything about coal mining as an industry, but I do advise the owner of a coal mine, truck serviced, somewhere down there in West Virginia. He doesn't know anything about coal mining either, but he does seem to trust their current manager who appears to have done a good job with a combination facility. I would probably see what a visit for that purpose would cost as well.

So, from an investor's perspective, there's about a $20,000-$30,000 investment to see if it's feasible -- due diligence -- and that's before actually making any investment. To justify that, a person would have to be willing to purchase at least $300,000 of shares expecting a 25% return in order to justify the entire "cost" of the investment, and to be able to generate at least a 10% return over a safe investment in order to justify the risk. I am not looking at a spreadsheet, just ballparking some percentages.

As I mentioned on another thread, the railroad isn't the important factor in the decision -- the "lay of the land" from a revenue perspective is. I would need to know all about that cardboard plant and the chip or lumber mill. How old are they? Where's the industry going? Are those plants currently profitable? What are their earning and operating histories? Do they pay their bills on time? Do they have expansion plans or are they being "harvested"? How do their managements size up? Young and aggressive, or about to retire? Am I believer in their businesses? Can I help them succeed? Will I be a part of their success or a victim of their failure? Same questions for the coal operations.

I can walk the railroad and get a pretty good idea of what the railroad is like, what it needs, and ballpark some costs. I can price some engines. I can generate a capital budget and an operating budget.

Ironically, that tells me almost nothing about what I really need to know.

Best regards, Michael Sol

[mudchicken]

Tormadel: I kinda dropped a hint (LC caught it)...The operating types that go fast just because they can are a threat to the future viability of the line. What I asked LC about was what speed was going to do to the biggest asset you have here (track structure).

That shiny locomotive is worthless junk if the track is not there to generate income. Paperpushers and pure operating types get themselves in a hole quick on new startups frequently by ignoring the track structure and NOT having a good trained trackman around. The question was posed to see how much we could maximize the utility with.

LC: Would concur on the use of air tools like MT-4s, a pavement breaker and one inch Impact Wrenches along with a gas saw and gas bolthole machine. Local mechanics can usually fix them easier. (although air impacts usually fail early due to JoeBob not understanding how to take care of it...the joys of Marvel Mystery Oil!) .....We have yellow stickers around here that say in one inch letters: Take care of this equipment. If it doesn't work - neither do you!" [tup][tup][tup]

[Anonymous]

QUOTE: Originally posted by Limitedclear
[

WHOA there junior...

Why do we need higher speeds???

We don't. This is a common misconception outside the short line world. 10mph is just fine. I'd like to have better track but have you ever seen the difference between a 10 mph derailment and a 25 mph derailment?! The cost is at least triple to go along with the ugliness. Keep in mind that the 10 mph derailment is already gonna cost you $50,000 to $100,000 or more depending upon any number of factors. So, the 25 mph $150,000 to $300,000+ derailment expense will really put a damper on that balance sheet fast... I'd probably keep the track excepted too, even though maintained better as it tones down the FRA issues considerably.

LC