From Durango Herald of Dec. 19. My only editorial comment is how can you haul that many people and still be "cash strapped"?? happy holidays-jim

City, D&SNG strike land deal

By Tom Sluis
Herald Staff Writer

The city of Durango and the Durango & Silverton Narrow Gauge Railroad have struck a deal that will enable the cash-strapped railroad to remove itself from bankruptcy proceedings of its former parent company.

Under the deal, the railroad will sell 1.5 acres of prime real estate at the southeast corner of Camino del Rio and College Drive to the city for $2.5 million. The city will also get permanent rights to a sewer line under Narrow Gauge Avenue as well as a 99-year lease for the 132 parking spaces on the street.

ItÂ’s a sweet-smelling deal, mainly because it will help control what type of business can be built on the empty 1.5 acre lot, considered to be the entrance to the downtown historic district, said city and railroad officials who met with The Durango HeraldÂ’s editorial board Tuesday morning, .

Both sides said they want something on the lot that will mesh with the downtownÂ’s old-West flair. Translation: No one wants visitors to be greeted by a chain store such as Walgreens, which wants to buy the lot from the railroad.

Railroad owner Allen Harper said Tuesday that the deal with the city will help remove a legal and financial cloud that has hovered over the railroad for the past few years. Harper bought the railroad from Florida-based First American Railways in July 1998 for about $13 million. His problems began when First American declared bankruptcy in 1999.

Under bankruptcy law, certain transactions that take place before a company declares bankruptcy can be revoked, to ensure that the company did not make any back-room deals before seeking court protection.

Besides First American declaring bankruptcy a relatively short time after selling D&SNG, there was another potential red flag for the court. Harper had helped found First American and had been First AmericanÂ’s chairman before leaving the company to buy D&SNG.

Jeff Jackson, senior vice president at D&SNG, said in the worst-case scenario, the sale of the railroad to Harper would be revoked.

"The theory is that the train sale could have been brought into the bankruptcy proceedings under the theory Al paid too little for the railroad," Jackson said. "But weÂ’ve had two independent studies saying he paid about $2 million too much."

However, Harper said Tuesday that an independent lawyer overseeing the bankruptcy said the railroad could be excused from the proceedings if it puts up more money.

Jackson said the bankruptcy was basically a lawyer feeding frenzy in Florida, and that the longer the case is drawn out, the more money will go toward attorney fees.

Jackson said about $500,000 of the $2.5 million from the city will go toward capital improvements at the railroad, part will go to Harper and former railroad owner Charles Bradshaw, and the balance will go to the bankruptcy court.

City attorney David Smith said the deal may suffer from a public perception problem. "The community thinks Narrow Gauge Avenue is a public street, so why is the city ponying up a lot of money for something it already owns?" he said.

Narrow Gauge Avenue is not a public street, he said. The city leases the parking spaces on the avenue from the railroad for $1,740 per year. Under the new agreement, the city will pay about $47,000 per year to lease the parking spaces on Narrow Gauge Avenue.

Smith said the parking revenue generated from Narrow Gauge Avenue would be similar to what the city would pay for the lease under the new agreement.

The city will dip into the $3.2 million parking fund to buy the land, City Manager Bob Ledger said, but the fund is not earmarked for any short-term projects.

The city also has a permit from the railroad to run a sewer line under the avenue, but the permit theoretically could be revoked with 30-daysÂ’ notice.

Ledger also said although the railroad would never revoke the sewer permit, the city will have greater peace of mind knowing it will have a permanent easement for the sewer line.

Smith said the railroad will have a five-year option to re-acquire the downtown lot. If it exercises the option, the railroad can either repay the city $2.5 million plus 4.5 percent interest, which is the average return on city investments, or pay the then-current appraised value of the land, whichever is greater, Smith said. Harper said the money is not a loan because the railroad has no obligation to repay the money. Harper said he was "99 percent sure" the railroad would repurchase the property within five years.

Harper said he was concerned that whatever is built on the lot reflect the tone of the historic district.

"I didnÂ’t want Walgreens as an introduction to the historic part of downtown," Harper said.

Instead, the railroad plans to build a small, upscale hotel on the lot, he said.

"We have talked to hotel developers, but itÂ’s not easy to find investors for a hotel project in todayÂ’s economy," Harper said.

Jackson said the hotel would probably have fewer than 100 rooms. If the railroad does not exercise its option to repurchase the lot within five years, it will have first rights to buy it if the city decides to sell.

"This gives the city ability to control the corner to some extent," Smith said.

Jackson said the deal should be finalized by the court by mid-January.



Wrinnbo@aol.com

My guess is the D&S is "cash strapped" for two reasons. The current owner probably paid a high price, financed by a BIG loan, so the loan payments soak up much of the revenue. Secondly, he bought it from a company of which he had previously been a senior officer, shortly before that company filed for bankrupcy. I would guess the creditors of the bankrupt company have justifiably challenged the sale, and need to be paid off. The sad truth is it doesn't take too many bad decisions to destroy good companies.

>As a person with some familiarity with running a steam powered railroad in the 21st Century, I can readily understand how an outfit that hauls so many people can be "cash strapped".
Typically, in the Private sector (read "real world") you are supposed to make enough money to pay all the bills on a regular basis.
Running a railroad is expensive, more railroad you run and the harder you run it, the more expensive it gets.
Add steam locomotives and passenger cars to the railroad and the costs increase exponentally. Especially if you try to maintain your equipment to better than minimum standards (remember: 49CFR, part 230 are MINIMUM standards) and pay your people enough so they can raise families and have a decent life.
Folks who have worked with me know that I have a reputation for being a penurious illegitimate: I always try to get the most out of a dollar. Trust me when I tell you: it is bloody hard to just break even with a steam powered railroad, let alone come out ahead at the end of the fiscal year.
At the Valley Railroad, we don't make anything on our railroad operations, it always shows a loss. We make money from our gift shop and from special events like "Thomas", "Theodore Tugboat", "Your Hand on the Throttle" and "Polar Express".
It is very difficult to stay in business while keeping up with rising costs (especially labor) and with equipment which is getting older all the time.
It is very possible that the future of the steam locomotive (and perhaps historical railroads in general) lie soley with the Public sector where it is not necessary to make ends meet.
I'll get off my soap box now.
Have a pleasant Holiday Season!
J. David

jdconrad@snet.net

Good report JD. I can see exactly where you are coming from. As I read about costs of restorations, and operating expenses, I can see where nobody is making any money in tourist railroading, let alone operations with expensive steam locomotives. I applaud everyone who simply keeps going making money on the intangibles that you mentioned, and wonder why others don't do more EXTRA operations for the same purpose.

One other intangible we should not forget. Even though an operation may not make a profit, it provides a lot more than that. Employee salaries, upkeep to the fiscal plant, and dollars to the area. So, while it may be a break-even or loss on the books, it is really a quite possible effect on more than just the immediate bottom line.

Happy Holidays

Greg Scholl

Videos and such
sales@gregschollvideo.com

My only
> editorial comment is how can you haul that
> many people and still be "cash
> strapped"??

How much does it cost you to carry that person and how much does it pay?

And the best of the season back to you Jim.

Economics of operating tourist railroads - a large subject that has't been discussed and considered enough.

First, tourist railroads are in the entertaiment industry and not railroading. Potential tourist line operators might want to hire performing arts managers from day one.

Economic fallacies we have accepted for too long:

A. we can always get a better engine from another park and use it up after we finish off this one to the point where its reconstruction would not be economically feasable.

B. this piece is worth what I have invested in it, no matter how stupid I was to put that much into it myself.

C. I can sell this restored piece for big bucks and more than recover the costs of acquisition and restoration.

D. if we build it they will come.

E. the track can last for another season without a lot of maintenence.

F. it is cheaper to pull all she can handle as many time as we can per day than to run less intensively and wear things out less quickly.

G. it isn't necessary to run full trains intensively to recover capitalization in the line and equipment. Notice the conflict with F?

H. running trains in an area without any tourist activity will bring economic prosperity to the region and cover its operating costs as well.

I. we don't need to consider marketing strategies like time and money commitments we ask from potential riders - let the existing abandoned ROW dictate to us. Most 3 year olds love to sit quietly for 4 hours at 10 MPH in a hot car.

J. its MY railroad and I can do what I please with it indefinitely whether it pleases customers or not.

K. it HAS to run to fill a personal emotional need.

L.we can compromise on maintenence to save money and not worry about reliability.

OK, I think the point has been made about variables and sacred cows. besides, we only have 26 letters in our alphabet.

Like real estate, the key to prosperity is LOCATION. Be where tourist already are, looking for diversion. Make the diversion suit the tourists requirements. Invest adequately in the infrastructure so you can operate reliably and not risk using up the margin in the physical plant.

Even with these variables under control, poor management will kill your railroad in just a couple seasons - we are now experiencing one such casualty in a Florida location which should have been a license to print money.

Yes, it is an interesting and challenging business. How about next TRAIN conference we hold a 3 hour seminar the day before on economics of tourist railroads, with a lot of information from the most successful operators?

Dave



irondave@bellsouth.net

Reading your message conjures an image of a board filled with nails .. all hit on the head! Currently a disenchanted member of a dysfunctional "attempt" I see a lot of points that definitely need pondering. Several of mine are; How do you attract a body of volunteers that bring value to your operation? Can you depend on volunteers or do you need a backbone of employees? How do you perpetuate preservation? How do you convince folks that equipment and infrastructure need constant attention?


lamontdc@adelphia.net