Demand on the rise for limited metro-area properties with access to freight rail service

The Albuquerque area is far from its heyday as a railroad town a century ago, but freight rail service remains a key cog and supply line for the metro economy.

“A company can save a lot of money shipping by rail if it’s durable goods,” said Jon Priest, regional vice president of operations at Fidelitone, a third-party logistics company headquartered in Chicago with Albuquerque operations. “One standard boxcar can hold four truckloads and, on average, the cost is the equivalent of three truckloads.”

Freight rail service is provided to Albuquerque by Fort Worth-based BNSF Railway, formerly Burlington Northern Santa Fe Railway, through what amounts to a monopoly.

	Inventory of rail-served property •55 active rail-served properties under private ownership with buildings of 10,000 square feet or more. • Rail-served properties have a combined 3.6 million square feet of space, or about 13 percent of the metro’s total industrial square footage. • The average building on rail-served properties was built in 1973, 10 years older than the average for all industrial buildings in the metro. - SOURCE: Jim Chynoweth, managing director for CBRE in New Mexico

Container and boxcars earmarked for Albuquerque are “busted up” or consolidated in Belen from the 100 or so daily freight trains traveling BNSF’s main east-west rail line. The cars are assembled into trains that typically make their deliveries into the metro at night, when the Rail Runner isn’t operating.

New Mexico, by far, is a net exporter of goods and material, mostly coal, using rail, BNSF reports. Freight rail accounts for just under 10 percent of incoming manufactured goods to the state.

Increased demand

In its first-quarter report on Albuquerque’s industrial real estate market, Grubb & Ellis New Mexico noted increased demand for rail-served properties as “suppliers are fine-tuning their multi-modal distribution strategies using cargo ship, rail and trucking.”

Rail service is delivered to properties by spurs that branch off the main north-south lines that the state bought in phases from BNSF through a 2005 agreement. These spurs make up the informal infrastructure, pieced together over decades, of freight rail service that we have today.

“BNSF owns some of the rail spurs in the Albuquerque area, others are owned by individual industries and some are owned by NMDOT,” said Manon Arnett, spokeswoman for the New Mexico Department of Transportation, in an email.

CBRE tracks 55 rail-served properties in the metro that meet the commercial real estate services firm’s criteria of being privately owned with a building at least 10,000 square feet in size, said Jim Chynoweth, managing director of its Albuquerque office.

“Twenty-five years ago, the number of (rail-served) properties would’ve been three times larger,” he said.

Few new sites

The existing inventory of rail-served properties in Albuquerque will continue to generate interest when available for lease or purchase because new sites aren’t being developed anymore, said Robin Dyche of Rio Real Estate Opportunities.

Dyche and business partner Tim Cummins led an investment group that recently bought 8.4 acres of rail-served property with 50,000 square feet of open storage at 3800 Broadway SE. Although the future use of the property hasn’t been disclosed yet, Dyche said, “We wouldn’t have bought it without rail service.”

The property had been home to Capital Lumber Co., a Phoenix-based supplier of lumber and other construction products. Last fall, Capital bought the Albuquerque operation of competitor J.M. Thomas Forest Products of Ogden, Utah, and consolidated at J.M. Thomas’ rail-served facility in the North Valley.

Dyche’s investment group could be considered fortunate because more often than not, companies searching Albuquerque for a rail-served property come away empty-handed. A recent example is Admiral Beverage Corp., which has a local beer distributorship dating back more than 70 years.

“We originally had looked for a rail-served property,” said Trevor Hatchell of CBRE, a land broker who represented Admiral in its property search. “However the number of available sites was very limited either by lack of acreage, truck access or environmental concerns.”

Admiral settled on a parcel near an interstate but without rail, basically making a concession to limitations of the market. Other companies, particularly out-of-state companies, won’t make a concession but instead will take their search elsewhere.

‘Must-have’ for some

“We’ve seen circumstances where companies are excited about coming to Albuquerque, but have specific ‘must-have’ needs such as rail service,” said Keith Meyer of NAI Maestas & Ward Commercial Real Estate Services. “If Albuquerque falls short, they go to another city. We miss an economic development opportunity.”

Rail-served properties, especially those without serious issues or problems, don’t become available very often because “owners know once they got it, they better not give it up,” he said.

For example, Meyer is marketing Ameron Pipe’s 28.5-acre site served by rail in the South Valley for $2.8 million. The concrete-pipe plant was mothballed in 1985 but the company hung on to the property for nearly three decades. The decision to sell was made after Ameron was acquired by another company.

Although rail service is provided to some of the biggest names in Albuquerque’s business community – Albuquerque Publishing Co., American Gypsum, General Mills, PNM Resources – most users are behind-the-scenes suppliers of goods suitable for bulk shipping.

Construction material of all types is a major commodity shipped into Albuquerque by rail. Idaho-based Boise Cascade, a supplier of wood products in the South Valley, averages 25 freight cars or containers a week to keep up with demand from customers including Home Depot.

Products for transport

Other rail users involve petroleum products, ranging from asphalt to fuel, and petrochemicals. Most new vehicles sold in the metro and Northern New Mexico come through BNSF’s Albuquerque Intermodal Facility in the South Valley.

Fidelitone and companies like it provide a means for rail delivery to businesses that don’t have rail service. Fidelitone’s Albuquerque operation averages from seven to 15 rail cars a week, Priest said.

The downturn in construction has reduced demand for materials like lumber and roofing shingles that lend themselves to rail transportation. For example, local commercial construction – industrial, office and retail – is currently running at less than 4 percent of the level of 2007, according to industry statistics.

The construction downturn has reduced demand for rail service by many companies. Kinney Brick Co. in the South Valley, for example, only uses rail two or three times a year despite a distribution network that extends across six states outside New Mexico.

“When the economy was better, we used it more often,” said owner Ralph Hoffman.

Interest in freight rail service also tends to correlate with the price of diesel fuel, which has a big impact on the cost of shipping by truck.

“We see an increase in inquiries (about freight service) whenever fuel prices go up,” said BNSF spokeswoman LaTonya Finch.

The tipping point for interest in rail seems to be when the price of diesel fuel hits $4 a gallon, Meyer said. The price has only reached that threshold in New Mexico three times in the past four years, most recently in March and April.