Centuries Old Technology Is New Again

The Real Estate Espresso Podcast

Centuries Old Technology Is New Again

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Centuries Old Technology Is New Again

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re looking at the value of a piece of property that has a ~~real~~ 📝rail connection on it.

But first, I’d like to invite you to our upcoming Build to Scale Mastermind, November 9 through 13 in Tulum, Mexico. This exclusive four day event is free to learn how to scale your business and your life. It’s an opportunity to spend four high quality days with the leadership team at my company, Y Street Capital, and to take your investing business and your life to the next level. To learn more, click on the link in the show notes, and we’ll see you in Tulum, November 9th through 13th.

On today’s show, we’re talking about the value of a piece of property that has a ~~real~~ 📝rail connection on it. When you consider industrial property, the methods for transporting material in and out become important. Properties should have good access to major roads and freeways. Proximity to a major seaport is definitely a consideration, but sometimes that’s not possible.

But, if there’s no port nearby, and the main method of distribution is by truck, even a small rail terminal could be extremely valuable. When it comes to transportation and logistics, rail is significantly less expensive than trucking. Rail costs about $0.02 per ton per mile, versus $0.10 per ton per mile when transporting by truck.

For bulk commodities and for shipping containers, rail can be MUCH less expensive. That means transporting a 20 ft long shipping container by truck from Los Angeles to New York could cost about $7,500. By comparison, that same trip by rail would cost about $1,400.

The savings are substantial, but once you get the rail car to the destination, you still need to switch from rail to road for that last mile, or perhaps the last few miles. This short-haul trip is gonna be disproportionately expensive. The rail yard would charge a number of fees for handling. There’s gonna be an intermodal fee for loading and unloading the container from the rail car. There might be a storage fee if you don’t pick up the container right away.

The simple fact is, even shipping by ~~mail~~ 📝rail can be complex, even if there are real savings. Only those who have a regular shipping schedule and a flow of material will be inclined to ship by rail. But if you have a rail spur that comes directly to your property, what would that be worth?

A brand-new rail spur is maybe expensive to build, maybe it’s inexpensive depending on your point of view. The rail and the associated infrastructure itself costs about the same as a paved road with all the infrastructure. We’re talking about an average of $450 a linear foot. So a 300 foot rail ~~cost~~ 📝costs $150,000. The switching equipment to redirect the train onto the spur can be expensive, and that might cost a couple of hundred thousand.

Of course, the railway has to agree to the spur off their branch line. In a dense urban setting, these rail lines typically operate at very low speed. The number one cargo on the rail network used to be coal. That’s been replaced by intermodal, which includes truck trailers, shipping containers. Intermodal is the fastest growing segment of the rail ~~transmittal~~ 📝transportation network.

Even though the railway seems like an antiquated technology of the last century, it is still by far the most energy-efficient mode of transportation on the planet for moving large cargos.

The last mile for a shipping container can be expensive. Even if you ship a container across the country, you might save $6,000 on the long-haul portion. That last mile will often face a minimum charge, called a drayage charge, of about $600, and then there is a whole bunch of surcharges on top of that.

There’s going to be a chassis rental fee on which the container is placed. That’s anywhere from $20 to $60 a day. There are terminal fees of $50 to $100 at the railyard. There might be a fuel ~~surge~~ 📝surcharge anywhere from $40 to $100. And then, you add all these up, you could be facing an extra $800 to $1,000 for the last mile, when the first 3,000 miles only cost you $1,400.

So, the incentive is high to eliminate those costs every time you take a shipment. Many industrial properties that had a rail spur historically were associated with heavy industries. Most properties can often be redeveloped and used for new purposes in transportation, warehousing, and logistics. But many of these properties that have a history of heavy industry also bring the risk of environmental contamination.

Environmental standards are much tighter than they used to be, and levels of contamination that might have passed in the years gone by would fail against today’s stricter thresholds. Environmental concerns can be a big liability. Obviously, they have to form part of the due diligence in any acquisition.

In some communities, there is a surplus of industrial land. As heavy industries have shut down, I’m thinking of rust belt communities. At the same time, there’s communities that have acute shortages of space for logistics and warehousing.

See, Amazon makes all the headlines when it comes to commerce, but there’s many aspects of the economy that don’t involve Amazon. People in construction projects are continually looking for cost-effective space to store materials, without ~~occurring~~ 📝incurring huge handling charges.

Tapping global supply chains can result in huge savings, but those savings can be eroded if the logistics at the destination are not managed efficiently.

As you think about that, have an awesome rest of your day. Go make some great things happen. And we’ll talk to you again tomorrow.

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