Railroads

Railroads are a different breed of real estate. Most real estate stays put. The purpose of a railroad (like that of a road, a canal, or any other corridor) is to facilitate motion. Railroads get us from place to place. A railroad derives its value from its ability to connect points and move traffic between them. A railroad in operation has value to the extent that traffic wants to move between those points (or any other points along the corridor) and that competitive means of transportation are lacking.

Railroads date from the days when the only competition was from boats and horses. Across the nation, the survey plans for rail corridors date from the 1800s and are largely unrevised. The internal combustion engine, the wireless, satellites, and eighteen-wheelers have changed the world in which railroads operate. Some railroads continue as they have for 150 years, hauling passengers and freight over long distances. Their value is in a combination of elements: the land underlying the corridor, rolling stock, freight contracts, and all the other elements that contribute to the value of a going concern. Other railroads, losers in the battle with alternate means of transportation, are defunct. Their track, if still in place, is in disrepair and may have value for little more than salvage. Whatever value they may have had for rail use is lost.

A defunct corridor is a corridor available for a new use. Some new uses begin spontaneously. The general public puts an abandoned corridor to informal use as a walking trail. Where the noise of the engines once prevailed is now the peace of open space. Motor bike riders sometimes use abandoned rail corridors, though these are less preferred than utility easements on more hilly terrain. Abutters on occasion use portions of corridors in industrial neighborhoods for parking or material storage and sometimes encroach with buildings. A corridor can serve as the location for a utility, including fiber optic, whenever the corridor is a better alternative than a roadway. Sections can be converted to roads and driveways to access rear land. The most popular current form of surface re-use is redevelopment as a public bicycle path. Bicycle paths on rail corridors today exist in relatively short stretches. In urban areas, they are heavily used by walkers, joggers, bicyclists, and roller bladers. The East Coast Greenway is a vision for a continuous, motor-free corridor from Maine to Florida. Sixty years ago, the Appalachian Trail had a similar visionary origin. Today, the Trail is a highway for hikers. Whether the Greenway reaches similar fruition will be seen in coming decades.

When a rail business is abandoned, the corridor's value is as real estate. Appraisers have developed a variety of methods of valuation. One is the "across the fence" method. It works on the premise that the value of a corridor should bear some fixed relationship to the value of the land through which it passes. A difficulty with this approach is that it does not fully consider the corridor for its special function, as a means to join two points.

An alternate method of valuation is liquidation analysis. The owner has the ability to produce a cash flow from various non-rail means, including sale of the track as scrap, sale of pieces to abutters, and sale of licenses and easements to utilities like fiber optic. Cash flows produced over time may be converted to a value estimate through discounting techniques.

Perhaps the best method of analysis is the Sales Comparison Approach. Though abandoned corridors differ greatly in location and other respects, when sold, they show a relatively high degree of consistency in terms of price per lineal mile.

Corridor valuation also involves consideration of special issues. One is contamination. Another is the legal impediments to liquidation in those instances in which government requires that the corridor not be dismantled. For some, title issues may result from abandonment of the original rail use. An appraiser may require advice from environmental consultants and title experts. Proper valuation of a corridor requires consideration of those elements that make the corridor unique.

Eric T. Reenstierna, MAI