Allegheny Valley Railroad’s Pittsburgh rail project lands $350 million
Pittsburgh Business Times by Tim Schooley, Anya Litvak
Date: Friday, September 30, 2011, 6:00am EDT

Allegheny Valley Railroad’s plan to establish commuter rail service from Tarentum into Downtown Pittsburgh, a project more than 10 years in the making, has chugged closer to reality, securing a $350 million commitment in private equity financing from Cleveland-based First Service Commercial Loans Inc.
A project that expects to run from Tarentum to the Westmoreland County community of New Kensington through Highland Park, Lawrenceville and the Strip District into Downtown, cutting transit times in half along the way, is seeking to secure at least a 50 percent match from federal and state sources. A local match from Westmoreland and Allegheny counties along with the city of Pittsburgh is expected to be generated solely from the value of the real estate of the rail line — $30 million — in their communities to the overall package, said Robert Ardolino, who is helping to shepherd the project through his Pittsburgh-based Urban Innovations.
Ardolino, whose firm has consulted on such projects in Arizona, Colorado and New Jersey, characterized the private investment as the more difficult to generate and said he is confident the remaining public funding and approvals from the Federal Railroad Administration and other federal agencies will come together, allowing construction and planning to take place over the next three years.
“Now it’s in the queue,” Ardolino said of the project. “Before, it was just a dream.”
Russell M. Oates, a principal of First Service, confirmed his company has committed to establish private financing for the project.
“Everything is going smooth,” Oates said. “The contracts are all signed. We’re just trying to push it over the edge.”
The commuter link would run on a stretch of Allegheny Valley Railroad, currently a freight-only passage. Allegheny Valley would sell the 22-mile segment of rail to the entity in charge of the commuter project, but it would retain a permanent easement to run its freight trains for an eight-hour period overnight.
Upgrades to the rail system are expected to cost about $70 million, to install traffic control signals and reconstruct the lines so that both freight and passenger trains can travel at up to 70 miles per hour. Currently, Allegheny Valley’s cars have a 25 mph speed limit.
Russell Peterson, CEO of Carload Express Inc., which includes Allegheny Valley Railroad, called the project “a total game-changer for the region.”
“We could see this was an underutilized corridor,” he said.
And like other cities with underutilitized rail, such as Camden and Trenton, N.J., whose River Line commuter link serves as the model for the Pittsburgh project, Peterson said, this screamed for a passenger opportunity.
THE FINANCIAL CASE
Allegheny Valley operated a passenger train only once in its history when, in 1998, the railroad invited potential stakeholders to consider it for passenger service.
That launched a handful of studies, including a 2009 opus by HDR Engineering Inc. that predicted ridership between Arnold and Downtown would be about 2,700 a day. Ardolino, whose project extends all the way to Tarentum, disputes that estimate and calculates daily ridership to be around 7,000.
“Funding projects in today’s fiscal world is a challenging activity,” Peterson said. “And the fact that a private investment finds the project to have a high enough rate of return to really get involved in it, really expedites the project.”
Relying mostly on federal funding for the public match, Ardolino hopes the deal structure will circumvent Pennsylvania’s lack of a public-private partnership law, which would allow private companies and public agencies to codevelop transportation and other projects. P3 bills have been introduced in the previous three legislative sessions and haven’t advanced to law, although another such bill is in the Senate and the concept enjoys the support of the governor and his transportation advisory commission.
At about $7 one way, the train would run from Tarentum to Penn Station in 40 minutes, stopping about half a dozen times along the way at sites still to be determined. Station development would cost around $35 million.
Ardolino said the round-trip price is less than the cost to park all day Downtown.
“Ridership will need to be economically viable, but it’ll never pay for itself because transit doesn’t pay for itself,” Ardolino said. “Without a federal grant program, it won’t work.”
What makes the deal enticing for private equity, then, are the “spinoff revenues,” such as advertising, naming rights and economic development land opportunities.
Oates described the project as a “no-brainer” in the way it’s being set up.
While he wouldn’t divulge what the expected rate of return would be for his investors, Oates said his company would establish public-private bond financing and expect to be reimbursed by federal grants to get the project up and rolling.
“It could be a huge catalyst, but we just want to make sure it’s coherent with the larger transportation plan for the city,” said Lena Andrews, a planning and development specialist with the Urban Redevelopment Authority .
The URA is in the middle of a $2 million study looking at development, stormwater management and transportation along the Allegheny Riverfront.
Whatever happens with the Allegheny Valley Railroad project would “not happen in isolation,” Andrews said.
Instead, it would need to fit into the area’s larger transit network.
Heather Pharo, a spokeswoman for the Port Authority , said the agency isn’t involved in the project but finds the concept interesting.
“While it is a worthy idea, there are some pretty pressing issues that we have to focus on in terms of having the resources to run our own system,” she said.
CHALLENGES AHEAD
The Allegheny Valley project will hinge in part on the last few miles between the Strip District and Downtown stations.
“The first thing we want to see gel is the feasibility of seeing a connection to Downtown,” said Patrick Roberts, principal transportation planner with the city. “How much would it cost to actually create the last needed connection and operate that? You have to look at the socioeconomic factors” of possibly disturbing a community to run elevated rail lines in the Strip in order to get the train over Liberty Avenue and the existing railroad tracks.
“We have to carefully plan how the last mile is connected into a larger system,” Roberts said.
At the same time, he said, the Federal Railroad Administration must sign off on a plan to run freight and passenger service on the same tracks.
Down the road, any federal funding request would require Allegheny Valley Railroad to conduct a series of studies chronicling the environmental impact and outlining alternatives.
It’s a major undertaking involving a swath of the region’s real estate, meaning it will require a lot of political and bureaucratic cooperation.
Chuck Hammel, president of the Strip District-based truck firm Pitt-Ohio Express, whose real estate holdings include the Cork Factory Lofts along with a handful of other properties along Smallman and Railroad Streets in the Strip, said he sees it as a project with big challenges but far larger potential benefits.
“It’s a nightmare trying to get the political will to get it that far, because, let’s face it, it’s not cheap,” Hammel said. “What happens to fuel if it goes to 10 or 15 bucks a gallon? And it could. It would be nice to have the ability to park your car and still get around.”