Has High-Speed Rail’s Economic Promise Been Derailed?

High-speed rail, Burlingame, Caltrain, Morgan Hill, San Jose, Northern California, Redwood City, Transbay Terminal, San Francisco, Peninsula, Millbrae

California High Speed Rail

By Robert Carlsen

After more than six years of wrangling with hardcore public and private opponents as well as the courts, California’s high-speed rail project is entering yet another limbo period. Real estate and development firms are apparently patiently waiting for the official groundbreaking in the Central Valley (what opponents call “The Train to Nowhere”), while municipalities along the line are investing time and money in pre-planning, including in the Bay Area. The most recent groundbreaking estimate was this spring or summer and the completion date sometime between 2029 and 2030. But now, who knows?

[contextly_sidebar id=”004acd4841a8b167a7a4e9a1f87c0f7f”]The latest blow came last summer when a state superior court judge halted the project and ordered the California High-Speed Rail Authority to follow exactly the provisions in Proposition 1A (the ballot measure with more than $8 billion in bond funding that voters approved in 2008) and its consumer protections pertaining to full financing of the initial 300-mile segment from Merced to Palmdale as well as full environmental clearances for that segment.

In January, Gov. Jerry Brown submitted a petition to the court to overturn those rulings since they could cripple the state’s ability to finance other large, expensive bond projects in the future. The case was brought before the court following a lawsuit filed by Central Valley landowners. The state Supreme Court recently rejected the governor’s request and asked the state appellate court to file written arguments by Feb. 10.

Funding has become the fly in the ointment, so to speak. In 2012, Gov. Brown signed an authorization for selling the first $4.7 billion in state bonds; federal matching funds would also go into effect once the bond money was secure.

So, while waiting for the courts to make a decision regarding funding, the rail authority is continuing to work on preliminary efforts in right-of-way, traffic mitigations and parcel acquisition issues. The authority has closed escrow on just five of the 380 parcels within the first segment between Madera and Fresno, according to the authority and Stoel Rives LLP, a Portland-based law firm that represents land development interests in the Central Valley. It has been approved by the California Public Works Board to use eminent domain on one property seizure case so far.

The first section of the $68-billion HSR project (the cost estimate at present) is Merced to Fresno. This “construction package No. 1” was awarded last year to the joint venture of Tutor Perini, Zachry Construction and Parsons Corp. Construction package No. 2 is for Fresno to Bakersfield stretch. “That section is still in the environmental documentation process,” said Annie Parker, rail authority spokesperson, with the final certification of the Revised Draft Environmental Impact Report/Supplemental Draft Environmental Impact Statement for the segment anticipated for this spring from the authority board of directors. Five construction teams, including the Tutor Perini JV, have submitted statements of qualifications. Selected qualified teams will then be eligible to submit formal design-build proposals sometime this year, according to the authority.

In all, the project is initially scheduled to run 520 miles from the $4.2-billion Transbay Transit Center currently under construction in San Francisco to Los Angeles. The system will eventually also connect Sacramento and San Diego, adding 300 more miles and totaling 24 stations. Trains will travel more than 200 miles per hour in the less populated regions (primarily the Central Valley and northern Los Angeles County).

Meanwhile, San Francisco is leading the state in HSR preparedness: A new neighborhood is arising around the new transit center, which will eventually include 6 million square feet of office space, 4,500 new housing units, 11 acres of new parks, 100,000 square feet of retail and 1,000 new hotel rooms. One of the centerpieces of the new district will be Boston Properties’ 60-story Transbay Transit Tower, which is scheduled to open in 2016 and will connect with the terminal. Also connecting with the terminal will be Jay Paul’s 181 Fremont St., a 54-story office tower that recently broke ground.

Also on the horizon in San Francisco is the proposed Caltrain underground connection with the terminal from the railroad’s current station at 4th and Townsend streets. Having recently received environmental clearance, the 1.3-mile tunnel project is still awaiting funding. In the meantime, the city is also looking at redevelopment around Caltrain’s rail yard with the prospect of tearing down a portion of Highway 280 at Mariposa and 16th streets. As part of the San Francisco-San Jose HSR route, the HSR authority last March released a memorandum of understanding with the rail line (and approved by the Peninsula Corridor Joint Powers Board) to use its existing two-track system; local Peninsula residents rejected an original plan to construct two additional tracks due to concern about seizure of private property along the route.

In addition, Caltrain will proceed with plans to modernize and electrify its system, with a price tag in the $700 million range paid for with state funds; its current diesel fleet would not be environmentally friendly in the tunnel and underground station.

And Fresno is moving ahead with redevelopment and development plans in light of its inclusion in the HSR’s initial construction segment. The city’s proposed downtown revitalization project, currently being planned and designed by AECOM, will wrap around its new HSR station at Mariposa and G streets. Facing a current unemployment rate of 12.6 percent, the city anticipates the new downtown upgrade and station would boost job opportunities and bump property values up to 60 percent.

And HSR’s economic benefits to surrounding communities continue to stir controversy, especially from opponents who feel the project is too expensive and will have no effect on property values. Two studies, though, offer a positive spin: The Mineta Transportation Institute in San Jose found that a “build it and they will come” approach is insufficient, but success is possible if factors such as proactive public sector involvement, the station’s central city location, multimodal connectivity, political vision and high quality station design and area development make a difference. And research from the University of California-Los Angeles and China’s Tsinghua University found that connecting second-tier cities to major hubs via high-speed rail results in real estate booms in those second-tier cities.

These second-tier cities, such as Fresno, can attract commuters from the major hubs looking to buy real estate for much lower prices, said Gabriel Galiothe, a graduate of the Gazarian Center/Craig School of Business at California State University, Fresno. “The cost of living in Fresno is definitely cheaper than San Francisco’s and Los Angeles’,” he said.

Overall, real estate developers are primed to move in as soon as the project moves forward, said the HSR authority, which added that once the initial operating section from Merced to the San Fernando Valley is up and running, “the opportunity for private investment is greatly increased and those private funds can also be used to pay for further system expansion.”

West Coast Commercial Real Estate News