Once upon a time, private passenger rail helped create modern Florida. This year, it began reshaping Florida again, with the state emerging as a national rail leader thanks to the Brightline passenger train. Brightline began service between Miami and West Palm Beach, started construction on the leg to Orlando and broached the idea of extending the line on to Tampa. Meanwhile, while a publicly financed bullet train effort in California is in shambles, Brightline’s parent is acquiring a company with the rights to develop private passenger rail between Las Vegas and Southern California and has been inundated with calls from other cities looking at its model.

Somewhere, Henry Flagler Is Smiling …

Gopal Rajegowda went to grad school at Columbia in New York and worked for years in Manhattan for developer Related Cos. Now leading Related projects in West Palm Beach, he’s ridden the new Brightline train more than 25 times since it began running between West Palm and Miami in May.

Fast, clean, comfortable, even chic, according to Conde Nast, Brightline marks the return of private intercity passenger train travel to America. “As a longtime New Yorker,” says Rajegowda, “I find it fascinating and exciting that the best train experience in the country is in Florida.”

Modern Florida arrived by rail with Henry Flagler, a 19th-century industrialist who co-founded Standard Oil and built what became Florida East Coast Railway down the state’s eastern coast. But by the mid-1960s, intercity passenger rail was foundering in the U.S., disrupted by the ease and comfort of auto travel on the expanding network of interstate highways. Ultimately, 20 railroads handed over their remaining passenger routes to a government-created corporation, Amtrak, which has operated intercity passenger service ever since— with heavy subsidies totaling more than $46 billion since 1971.

Beginning in the 1980s, various governments have talked of copying high-speed rail systems in Europe and Japan. Plans in Florida started and stopped under a series of governors. In 2000, Florida voters approved an amendment that wrote high-speed rail into the Florida Constitution, then changed their minds four years later and removed it.

The Obama administration resurrected the idea of high-speed rail in Florida and dangled $1.25 billion in federal funds to pay for half the cost of an Orlando-Tampa leg. As projected costs soared north of $20 billion for a statewide system — along with the prospect of the state getting stuck with a big ongoing bill to operate it — Gov. Rick Scott in 2011 followed the example of other states and rejected the federal money. California, which carried on with voter-mandated Los Angeles-San Francisco highspeed rail, has seen costs more than double to $77 billion in seven years. Completion — once targeted for 2020 — has been pushed back to at least 2033. Funding is uncertain, and California courts are jammed with train-related lawsuits.

Meanwhile, in 2007, as Florida seesawed over a government-run train project, New York-based private equity firm Fortress Investment Group paid $3.5 billion for Florida East Coast Industries, the freight line and real estate descendant of Flagler’s railroad.

Fortress’ basic strategy is to imagine new ways to reap money from old assets like the Florida railroad. Fortress cofounder Wes Edens, a co-owner of the NBA’s Milwaukee Bucks, has gravitated in his career from financial investments to company-building. Edens read author Les Standiford’s “Last Train to Paradise: Henry Flagler and the Spectacular Rise and Fall of the Railroad that Crossed an Ocean,” an account of Flagler and his railroad. “In many respects, it was the train that created Florida,” Edens says.

Edens thought there might be opportunity to reintroduce passenger service on Flagler’s old line. He sent Florida East Coast executives to study trains in Europe, Asia and the Northeast U.S., the only region where Amtrak’s routes, including the Acela, are profitable. They concluded that a viable niche existed for intercity passenger rail linking cities 250 to 300 miles apart, a distance “too short to fly, too long to drive” — a phrase that became a mantra at the company.

They reached another conclusion: Building high-speed “bullet” trains was too costly. True high-speed rail might shave 30 to 45 minutes off a 300-mile ride, but if trains travel at upward of 200 mph, they become subject to a host of regulatory and logistical considerations that make the cost exorbitant. Bullet trains, for example, need a road-free corridor or must be elevated. (One reason the California train will be so expensive is that it requires building essentially a 300-mile bridge between Los Angeles and San Francisco.)

Edens and the Florida East Coast braintrust decided the answer in Florida wasn’t high-speed rail but fast rail, with trains topping out at 79 mph in Southeast Florida and upward of 125 mph between Brevard and Orlando.

Florida makes an ideal test bed. Orlando and Southeast Florida are major population centers and tourism markets, the right distance apart with highly congested roads at each end.

In 2012, Fortress surprised the state and industry with a plan to develop passenger rail — to be built and operated privately — along a 235-mile course running from Miami to West Palm Beach and up to Cocoa along Flagler’s old route, with a new leg to be constructed from Cocoa to Orlando. At the time, company executives said the passenger rail idea came from group discussions. In reality, it was Edens’ vision. “I’ll take the credit if it works out,” he joked in an October interview. “If not, I might want to restate the history.”

Advantages

Fortress has things in its favor. It didn’t have to acquire real estate or rights of way in Southeast Florida since it owned the Florida East Coast Railway line, and though it sold FEC’s freight business and line to Grupo Mexico last year, Fortress and Brightline have a perpetual easement to run passenger rail on the line.

Meanwhile, urbanization and the return of residential living to downtowns — downtown Miami has 92,000 residents, more than downtown Los Angeles — provided another bonus. The advent of ride-sharing services such as Lyft solved the “last mile” problem of getting passengers to and from train stations.

Still, challenges abounded. Creating Brightline involved the $1.7-billion task of adding a second track to the existing rail line, along with the cost of constructing stations in Miami, Fort Lauderdale and West Palm Beach. The company didn’t meet its original schedule, but the Fort Lauderdale-West Palm Beach segment opened in January, and service to Miami began in May.

“The hardest part is honestly behind us,” says Brightline President Patrick Goddard. “Building on an active freight railroad with 180 crossings between Miami and West Palm Beach — that’s as hard as it’s going to get from a construction project perspective. We’ve been able to accomplish a fairly Herculean feat in terms of delivering what is the first passenger railroad privately built for over 100 years.”

This year, Brightline began the preliminary work to add a second track along the rail line to Cocoa, work that includes upgraded signaling, crossings and bridges. It will lay rail along the Beachline highway from Cocoa to Orlando International Airport, where its station at the new airport transportation hub is finished and ready for tenant improvements. The Cocoa-Orlando leg won’t have any road crossings, which will allow the train to run faster.

“Orlando is the key to their success. So much of it relies on tourism and, of course, Orlando is our tourist capital,” says Palm Beach County Commissioner Steve Abrams, who served on TriRail’s governing board and is knowledgeable about the train industry.

Construction of the northern leg should take 30 months and $2.1 billion, taking the total Miami to Orlando project cost to $4 billion. To fund the northern leg, Brightline is raising more equity. It will also sell another $1.75 billion in bonds to help out and to retire the $600 million in bonds it sold to fund the southern leg. It has begun talking with Treasure Coast communities — some of which have fought unsuccessfully in court and in Congress to keep Brightline from running through their region — about adding stations. It continues talks with Cocoa about a station. Jacksonville? Goddard says the business case hasn’t been made.

Targeting other cities

At the opening of the Miami station, Edens talked about taking Brightline to other cities. In March, Brightline proposed an Orlando-Tampa link. In September, Fortress announced it would buy XpressWest, a private company aiming to link Las Vegas to Southern California by passenger rail along congested I-15. Xpress West already has the approvals to build its route. Brightline will have to finance and construct the line, which will run from 38 acres Brightline owns near the Vegas strip to Victorville, about an hour and a half from downtown Los Angeles. Goddard said the ultimate aim is to extend the nation’s second private intercity rail from Victorville down into the Los Angeles basin.

Houston-Dallas is another pairing that intrigues Edens and Goddard. Texas Central, a private company, is far along in the regulatory process to build true highspeed rail between the two cities, which are 239 miles apart. But Brightline says its model can be done for a fraction of Texas Central’s planned $15 billion to $18 billion and can be built years faster than Texas Central’s high-speed dream. Brightline and Texas Central say they haven’t talked.

On the whiteboard in Goddard’s office is a list of other possible pairings. Edens says the “phone has rung off the hook” from cities around the nation anxious to get rail service. Goddard says announcements of expansions could come within six to 12 months. Earlier this year, a prominent Charlotte, N.C., business leader, in a major address to a business group there, extolled Brightline as the model for a 244-mile link between Charlotte and Atlanta.

Robert Poole, a Reason Foundation transportation expert based in Broward County, has said, “It looks to me that Brightline has identified a sweet spot where passenger rail can be competitive with driving and flying. Whether the demand will be high enough to cover debt service and a return on equity remains to be seen, but this is a model well worth continued attention.”

Indeed, Brightline’s finances are a hot topic, especially among Treasure Coast opponents of Brightline. Objecting to the prospect of fast trains crossing through their cities 32 times a day without stopping, a segment of the population and political leaders have suggested Fortress’ real motive isn’t making money on passenger rail. They see real estate plays, a way to fund the upgrading of the freight line, or a setup to get bailed out by the state. They’ve highlighted a small number of vehicle wrecks and deaths caused by people who put themselves on the tracks in the train’s path. And they funded a 2015 analysis by Brown University economics professor John Friedman that said Brightline wouldn’t be able to cover its debt payments.

Edens says Brightline not only will make its debt payments, but also “will be highly profitable. What we’ve seen thus far is incredibly encouraging.” Brightline’s market studies say it can make money if it captures just 0.74% of trips in the market. Through the six months ended June 30 — the Miami link was open only for the final two months — Brightline carried 180,870 passengers and lost $56.5 million on $1.9 million in revenue. Second-quarter ridership was up 42% over first quarter, while revenue doubled. Trains would have to run nearly full on every run to make forecasts.

In rating the $600 million in bonds Brightline sold to pay for the Southeast Florida leg as non-investment grade, Fitch Ratings noted that Brightline is an untested concept in an auto-dominant market but also said that it needs to capture only a modest market share to succeed and also will be supported by revenue from parking, food and beverage sales. Of late, the bonds, which are tax-free to investors, have traded at a premium. Edens says he thinks the debt markets will be receptive to Brightline and one day so too will the equity markets — hinting at least some type of stock sale.

Goddard says Brightline is on pace for its first-year ridership to exceed Acela’s first-year number. He notes that Euro- Star lost nearly $1 billion its first year. He says it will take three to four years for Brightline to ramp up. Projections are to top 1 million riders next year, climbing to 3 million a few years after opening to Orlando.

‘The experience is sugar’

Goddard is Brightline’s third top executive since the idea was announced. The company employs veteran railroad people, but Goddard, who joined in 2016, came out of the hospitality field and helped launch hotels around the U.S., Caribbean and South America for years. “I’ve opened some fairly big stuff in my career,” he says. “But this has been the most compelling and most interesting by a long shot. We’re changing the way people move around the state,” he says, talking anecdotally of lawyers and real estate agents working across counties now. He notes that the train opens downtowns to drawing from a larger labor pool while giving workers new options on where to live and work. Brightline already has made intercity trips — getting to Miami Heat games, for example — easier across the region.

Brightline riders tend to be leisure travelers, but Goddard says business traveler ridership “is going up about 5% to 10% every week.” Though not as cheap as TriRail, Brightline fares are cheaper compared to the cost of driving and parking, he says. Plus, “it’s about half the time and a better experience,” he says.

That experience includes — for highestfare customers — complimentary wines and brews in the private lounge, compli-mentary full-bar cart service on the train and other amenities. “I’ve learned from my days in hospitality that people are prepared to pay for a great experience,” Goddard says. “This is why they want to go to a farmers market instead of going to Costco. The transportation business is all about ‘can you get me there cheaper and faster than my alternatives.’ That’s the opener. The experience is the sugar.”

Among Brightline’s other early effects are improvements to crossings, including “quiet zones” in which trains, because of the crossing safety upgrades, no longer need to sound horns. Brightline also means TriRail, next year, will realize its long held ambition to run on the FEC tracks east of I-95 into downtown Miami. Until Brightline, TriRail was confined to a line farther west and a junction in northwest Miami-Dade with Metrorail.

Development play

Brightline stations are spawning development nearby — clearly part of the company’s overall strategy since it acquired land anticipating transit-oriented development. “We get to build our own beachfront property,” Goddard says. In West Palm Beach, that means building residences at the station. Nearby property owners are basking in the amenity dropped in their laps.

In Miami, Brightline’s most ambitious project is a six-block development surrounding its multi-story MiamiCentral station, itself a showpiece of lounges, art, airy floors and a digital wall. Within the six blocks, Brightline’s parent is building Park-Line Miami, two 30-story apartment towers, atop the Brightline platform. It’s had such success leasing two new class A office towers — one 12 stories, the other 10 — that it has both for sale. All the development sits just inside the edge of Overtown, a neighborhood not historically associated with class A development.

The developers of Miami Worldcenter, a 27-acre mixed-use project under development, paid $45 million for the old Miami Arena site to develop a convention center hotel that will bring their project next to the MiamiCentral station, which also becomes a TriRail stop next year and itself is next to stations for Metrorail and also the Metromover.

“We’re obviously big believers in what is happening here,” says Worldcenter managing principal Nitin Motwani. “The reality is our roads, our current infrastructure, can only handle so much congestion. The only solution is really transit, and Brightline sits at the center of it.”

There’s a limit on how much congestion relief Brightline can bring. Fully loaded running a full schedule, it can carry only upward of 8,000 people a day in Southeast Florida. Goddard says Brightline aims to connect hubs like Orlando and the Southeast Florida cities and then let the communities take care of connectivity within the cities.

Edens sees a big picture. Flagler’s train began Florida’s transition from a small southern state to the nation’s third-largest with a vibrant economy and a global role. “What I think you will see in Florida is an incremental and significant impact on economic development,” he says of Brightline. “When Henry Flagler built the train, that really did change the state tremendously.”

Read more in our December issue.

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