SACRAMENTO — Virgin Trains USA has received preliminary approval from a California state agency for the issuance of tax-exempt bonds to finance its Xpress West high speed rail project between Southern California and Las Vegas, Nev.
On Wednesday, the state Debt Limit Allocation Committee recommended that the company receive the first $300 million of its request, contingent on Virgin Trains providing an economic development plan that outlines its goals, and how it plans to achieve them, in the areas of housing, jobs, and workforce development.
In all, Virgin Trains will seek more than $3.2 billion of tax-exempt debt to be issued by a state agency, including more than $800 million in California’s share of U.S. Department of Transportation tax-exempt proceeds. Bloomberg reports the company will also seek $800,000 in bonds from Nevada, plus part of the federal allocation, providing a total of $4.2 billion in tax-exempt financing for the project.
Virgin Trains used a similar funding method to raise money to begin expansion of its Brightline service in Florida to Orlando.
Some readers have suggested that if this model is successful, it will be used elsewhere to replace Amtrak. I’ve a few thoughts on that.
One is that Las Vegas is a hot destination for people living in Southern California and I-15 is always crowded on weekends. The only drawback for this project is that it begins in the high desert which isn’t where the people are. They still would have to drive to Victorville. But many might be willing to do that for a quick traffic free ride the rest of the way. However, similar projects in other areas would not have the advantage of a Las Vegas playground as a destination. While LAX-SFO connects two cities people like to visit, they don’t have the same fun draw that Vegas has. Vegas is an excursion. LAX-SFO is transportation.
The good thing about this Virgin service is that it would be on new dedicated right-of-way. Amtrak is handicapped by the fact that it mostly operates on somebody else’s property. Passenger trains in most parts of the world are successful because they operate on dedicated trackage. Until this country commits to new dedicated lines for passenger services, the passenger train will continue to languish and will never achieve its potential.
I do hope that private enterprise will step in where possible and create new services. But there are a lot of hurdles to get over including the NIMBY’s and the high costs involved. I’ll never understand the motivations that NIMBY’s have. They can come up with a thousand reasons not to have trains in their back yard, yet they have little problem with expanded, noisy and polluting highways. Go figure!
So additional info regarding the comments about wondering if there is local opposition (like what has been encountered in FL) At the bond hearing there was enthusiastic support from local officials in Palmdale (which wont be reached until the High Desert Corridor is built) Victorville, Apple Valley LA County, San Bernardino County amongst many others. On the NV side Las Vegas is on board with it.
Of course Virgin/Brightline isn’t AutoTrain. I merely used that as a rail example of a company that expanded too quickly after initial financial success; one can find other examples from various industries. And of course, just about every example is different in some respect, so very few analogies are perfect. The potentially dangerous similarities are spreading resources too thin and diluting management focus. I hope that won’t happen here.
If both the Florida and Las Vegas lines are successful in the long term, they could be models for a real passenger rail renaissance in other markets, with Amtrak becoming increasingly irrelevant. (The great British physicist J. J. Thomson, 1856-1940, is reported to have once said something to the effect that if government had been involved in the production of stone tools back during the Stone Age, today we’d have marvelous stone axes, but no one would have yet discovered metal working.)
Thanks for the clarification Brian.
I’ll still stand by my comments tho if you replace the name Branson/Virgin with Fortress/Edens.
As I have been an active supporter of Brightline since it’s inception in 2012, I can tell everyone that the success or failure of Brightline (now known as Virgin Trains USA) will be due to the management team at Fortress/FECI/VTUSA.
Branson was basically paid (with future profits and fees) to put his brand on the operation so that it would have global name recognition of the Virgin brand. From various SEC and recent bond prospectus documents it was stated that his ownership is only around 2% with an estimated value of around $55 million at the time.
Branson’s Virgin Group will get paid a set amount for each passenger and a portion of the profits, if any. Branson has very little of his own money involved in VTUSA. The buyers of the bonds are the one’s who are the real risk takers here along with the equity that Fortress has provided.
I mention Fortress only because it’s founder, Wes Edens, is the true spark behind the AAF/Brightline concept back in 2010/2011. He and possibly others at FECI (Fortress owned FECR at the time and still owns FECI. FECI owns Brightline/VTUSA) came up with the idea to use passenger trains as a way to develop land adjacent to the FECR.
Mr. Edens should be properly recognized for his role in quite possibly starting a revolution in passenger rail in this country.
Branson’s role is to expand brand recognition and increase the profits/value of the company. Virgin Group has one seat on the board of directors of VTUSA out of 5, I believe, including the chair who is Mr. Edens.
Everybody remember something about that casino/hotel I hypothesized. It is speculation only – I have no idea what Virgin/Brightline has in mind for the property. I repeat: SPECULATION ONLY .
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Find your own damn psycho hose beast.
Remember eXpress West had secured all of the environmental approvals about five years ago. They just could not get the Feds to loan them $5B they need to build. Failing that the negotiations with the Chinese fell apart over control and US source content in the trains.
Omitted from the article was eXpress West’s and now Virgin Trains’ agreement with San Bernardino and LA Counties and/or CalTrans for an easement for a HSR in the median of the future High Desert Freeway (Hwy 138), which will run from Victorville to Palmdale, about 47 miles. On paper this would connect it to CAHSR. However, that may be years in the future. So, when completed it will connect with Metrolink; this leaves it a 2-1/2 hour slow train ride to LAUPT. My point is slightly closer to LA than Victorville, and possibly more riders.
How will they make money? Off the 38 Acres in Las Vegas. The train will be the loss leader to get the customer there. I suspect there may also be some residential luxury condominiums built on the property in addition to the hotel/casino.
This isn’t Auto-Train this is short distance corridor plus Casino which potentially means fare subsidy on top. Casinos used to subsidy air fares to Las Vegas before the Airline industry was deregulated, they subsidy tour companies with discount packages as well.
California couldn’t partner with Mr. Branson for the LA to Central Valley leg of the route? Wow, someone working for the state HSR project should get fired here, in my view.
My concern is that they may be biting off too much too soon. AutoTrain, after initial financial success along the east coast (Washington/Lorton to Florida/Sanford), expanded into the Midwest (Loiusville to Florida). That, together with some derailments, contributed to its financial collapse. I hope that isn’t the case for Virgin/Brightline.
I do think that they have to eventually get into LA itself, with perhaps one or two stops that have sizable parking lots outside LA (pick-up only northbound, let-off only southbound, with Victorville perhaps being the outermost one) so potential customers from outside LA won’t have to drive into the city.
Well there is a real estate play for CHSRA for the SJ to Bakersfield leg. Which is the only “backroom deal” with developers reason that became the first leg of the “plan” in the first place. Instead of starting on the LA side and surmounting the Tehachapis which is the hardest accomplishment. And running it along I-5 which would’ve made it much cheaper for at least three big reasons I can think of off the top of my head.
But that kind of real estate deal isn’t in Branson’s sweet spot. It’s building up a halfway affordable housing market for Silicon Valley workers in places like Merced and Fresno with a reasonable commute time. And I think Google is handling the SJ end mega development near Diridon Station on its own (they have enough $$$ and they don’t need or want Sir Richard butting in).
But the other big CHSRA challenge that I think Brandon is smart enough to avoid is the massive cost of tunneling under Pacheco Pass, the Tehachapis and the San Gabriels.
I wish him well with Victorville-Vegas. I agree with most of the other posters that stopping short of LA proper is problematic and will inhibit success, But I also think it will attract enough who don’t want the pain of fighting Friday or Sunday traffic on I-15, and will increase public pressure for rail links either down to the Inland Empire or the Antelope Valley or both.
In those corridors with lots of schedule options, that are too far or busy to drive and too short to fly, Amtrak alone has the market share. i.e. Chicago to Milwaukee, Northeast Corridor, etc. VA Amtrak service is also very popular. No reason this won’t work and I am sure it will connect direct to LA…Fortress hasn’t made a dumb rail decision yet.
“Virgin succeeds where CHSRA appears to be on the rocks”
CHSRA was considered by the Surface Transportation Board to be a common-carrier Railroad which came under Federal Employees Labor Act and paid into the RR Retirement Board. The STB ruled that “All Abroad Florida” was a “Rapid Transit” run by a contractor, was not a railroad passenger train, did not conduct transportation, was not under FELA and did not pay into the Federal Railroad Retirement System. A big difference in operating cost. CHSRA got into trouble with plans to run jointly from SF to San Jose. The first exclusion of FRA jurisdiction is Rapid Transit.
What will be interesting is if Virgin succeeds where CHSRA appears to be on the rocks. Would a successful Virgin operation encourage the LA- San Francisco high speed rail?
As I’ve said before I’m no expert, just a worn out truck driver. My disclaimers still apply. Also all too many police officers consider OTR drivers a bunch of psycho crazies. 🙂
I took a quick look at the Virgin Atlantic booking page to get a budgetary number. A month out, round trip LHR-LAS-LHR is about GBP 1600, or around USD $2K. Something about Europeans. They get a lot more time off than we do in North America. The norm is a month of vacation per year, and in many places you have no choice – you have to take it. Of course you can sit around the house for a month and many do, on the other hand there are those who want to see the Wild West and have the funds to pay …
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Find your own sleazy lawyer.
Interesting article, the question I had was 800,000 dollars of bonds from Nevada? LA to Las Vegas should not be that difficult to build, I just got back from Europe and I had heard that the passenger train network was great but great does not even begin to compare it to our country. I hope bright line can pull this off.
Let’s look at our hypothetical Las Vegas resort some more.
If we assume 500 sqft per room, we can get 2500 rooms on two floors, but then we have to figure corridors, elevators, and suchlike, call it three floors. Let us also have one floor of 500 rooms for the high rollers. Such a layout would use about 35-50 percent of the footprint discussed below, the rest can have swimming pools, outdoor cabanas, layabout lounges, and other ways to go happily to hell.
Four to six restaurants, one floor.
Gaming floor, one floor. This floor also has administration, etc.
Entertainment venue, two floors, but that also includes shops, theaters, and whatnot. Two floors because you will be needing high ceilings for some of the venues.
So we are looking at an eight story building.
Let us assume a 60 percent occupancy rate, $100/room for the cheapos, $200/room for the high roller rooms. This will give an income of $210K/day.
Figure 1.8 people per room, $30/day/person food cost, $30/day/person “entertainment”, this will give an income of $194K/day.
Figure a staff of 400, average salary $40K/year, daily cost $44K/day. Figure consumables at $15/day/person, fixed costs $15/day/person, that is $97K.
Running costs are therefore about $141K/day. Margin is $70K/day.
Now, the cost to build this thing. Figure $15M/floor times 8, $120M. Figure room cost at $25K/room time 3000, that is $75M. Rough cost to build, $200M.
If we assume money is at five percent, hiring the money will be $10M/yr. The margin on the hotel is $25M/hr, so the clearance rate on the investment is $15M/yr, telling us it will take 13 years to pay for itself.
This does not include concessions, floor shows, shops, fine dining, other ways to relieve the customer of his money, nor does it include income from the gaming floor. To have a decent estimate of the revenue streams from those sources I would have to do some work, it would take a while, and I won’t do it without being paid.
But you begin to see the potential of that 38 acre plot Virgin America has a lock on …
Mind you, I have no idea whatsoever what they are planning, but a casino, this being the Strip and all, is an obvious possibility.
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Find your own conniving bitch.
Anna, regarding parking in Las Vegas: Brightline has multi-story parking garages at all of their stations in South Florida. So depending on the height and land footprint of the parking garage building, one could hold several thousands of parking spaces on less than 2 acres. I believe that is what they are planning for Victorville.
It will be interesting to see how Brightline/Virgin plans to reach LA proper. I’ve read reports where they are courting local officials in the High Desert area as well as in LA. That is similar to what they have done in Florida. We shall see if they can replicate their success in getting political support in Florida out there in California.
Off topic, but there is a deadline coming up on October 3rd for Brightline to reach an agreement with Florida DOT regarding use of the highway ROW’s to get to Tampa and Disney. I am cautiously optimistic as the latest extension was for just a few weeks.
About that 38 acres in Vegas … you can figure an acre or so for the station, track to the station, etc. (I am considering only that portion of ROW actually on the property). But then there’s parking. If each parking stall is (a generous) 8 foot wide by 15 deep, that is 120 sqft per stall. This works out to 360 stalls per acre … but wait, that is just stalls, we must assume not more than a 50 percent utilization because there must be lanes and such so the cars can get in and out. So, call it 180 stalls per acre.
Let us assume we want a thousand stalls. That is five acres, plus another acre for access roads, ramps, and Who Stuck John. Six acres just for parking. Give over a chunk to car rentals, say 160 stalls, you still have 800 stalls for locals and other paying customers.
If we increase the station size to two acres (a busway, restaurant, second track) we are at 8 acres for the terminal, out of 38 acres. It goes fast.
What can you do with the remaining 30 acres? Well, that is 1.3 million (and change, but this is back-of-envelope calculation) sqft, or a plot roughly 1100 feet on a side. You can put a nice casino hotel on that property, and now we have an attraction (remember, this is all for canned tours by Europeans who want to see the US of A), complete with bus tours of the Strip, and slot machines to take their money on your home turf … and then you can bundle them out the door into the waiting train and a fast trip to Baghdad-Under-The-Smog.
Perhaps Brightline/Virgin don’t expect to make a lot of money on the rail service, but as part of a canned tour a 38 acre parcel in Vegas certainly has possibilities.
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Find your own damn mad scientist.
Brightline did a commendable job of countering the NIMBYs in Florida, so maybe they CAN make this work in California. Like Florida, I suspect they biggest part of their profit will be from the property surrounding their stations. This is not a bad thing. It may be what it takes to make passenger rail viable in America, but I’m not taking sides on the Long Distance/Short Distance discussion.
So much of Virgin formerly Brightline success is tied to the real estate aspect. In this case, a lot can be built on 38 acres that will be part of the Las Vegas station.
Time for California to hand over the high speed rail development between San jose/Bay to the Valley to private developer such as the Texas Rail/Japan folks. Give the private operator access on the peninsula into San Fran & hand over Caltrain’s 4th street station property in return for financing the final leg/tunnel into the new transbay center. To wrap it up and make it seamless, make them the exclusive operator on what is already being built in the valley and full development rights on stations & surrounding real estate in return for putting in the electrical catenary and providing the rolling stock needed.
PETER – My words exactly. I’ll believe it when I see it. This route has nothing going for it. Too long for a short haul, and hanging in air at the Victorville end.
Perhaps the time has come for a renaissance on short-haul passenger rail. Here is a link to an article in today’s New York Times. The conclusion of the article is that for runs of approximately three hundred miles or less, rail is competitive with air.
You read, you decide. https://www.nytimes.com/2019/09/20/travel/trains-airplanes.html
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. I could easily be the psycho next door with the chainsaw. You never know.
Some of my fellow readers share my skepticism about this project. It has a very, very tough road ahead in dealing with California. This project may be tied up in lawsuits, endless environmental studies and difficulties with financing.
Their best shot is to build additional trackage along UP Salt Lake City-Bakersfield and BNSF over Cajon pass. This route ought to be four tracks from Vegas to LAUPT. But, I will believe it when I see it, at the earliest it will be ready around 2030-2035.
Others have tried and failed to do this so this one may be no different but, if these people succeed then we may be looking at the end of Amtrak as we know it. Which in my opinion is a good thing. Developing high speed intercity corridors where there is a large market to serve is the way to go, not hauling strings of expensive to operate LD trains through small rural communities where people have vehicles that they want to drive and Amtrak is only something that makes noise in the middle of the night