Denver awards $2.1bn transit PPP

The Regional Transportation District of Denver has selected a private consortium led by engineering firm Fluor and Australian investment bank Macquarie Capital to deliver a $2.1 billion portion of Denver’s 122-mile transit rail system , marking the first project of its kind to ever be awarded in the US.

Rail transit in Denver: about to get bigger

“I think this has world implications,” Chris Martinez, director of the Regional Transportation District’s (RTD) board of directors, said at a press conference today.

“It is our transit industry that I think is going to benefit the most. Not just our agency but other agencies across the country, because many of them will hopefully be able to duplicate this same type of project,” he added.

The project is the first of its kind to move forward within the Federal Transit Administration’s Public-Private Partnership Pilot Programme, which allows for private participation in the financing of public transit infrastructure, such as commuter rail lines. Right now, such projects are primarily funded by the public sector through a combination of Federal, state and local transportation funds.

Denver International Airport

But the RTD is short $2.2 billion in building its planned transit network for Denver, called FasTracks, using solely public funds. So it will instead give the Fluor and Macquarie team, known as Denver Transit Partners, the responsibility to design, build and finance two of its six planned transit corridors: the 22.8 mile “East Corridor” and the 11.2 mile “Gold Corridor”.

The East Corridor will connect downtown Denver’s Union Station with the busy Denver International Airport, while the Gold Corridor will connect commuters with the city’s nearby western suburbs.

Cost savings

Denver Transit Partners said it can build the two lines for about $2.1 billion, or about $300 million less that the RTD's most recent cost estimate for the project, nicknamed “Eagle” from the combination of “East” and “Gold”.

The cost savings enabled Denver Transit Partners to beat out a rival team, known as Mountain Air Transit, which included investor HSBC Infrastructure as an equity partner. Malcolm Macintyre, the former head of North America social infrastructure and transportation group for investment bank Babcock & Brown, helped Mountain Air make its bid.

I think this has world implications Chris Martinez

“They were certainly a worthy competitor in this process,” David Parker, executive director of Fluor's infrastructure development division, acknowledged at the press conference.

Private investors won’t foot the whole $2.1 billion bill for Eagle’s cost. RTD will still contribute about $777 million, with the remainder coming from a combination of Federal grants and private equity and debt. The federal grants, which would come from the Federal Transit Administration, could total up to $1 billion, according to a board presentation.

Members of the Denver Transit Partners declined to comment on their contribution, citing ongoing negotiations.

40-year marriage

Denver Transit Partners will also be awarded a stream of 40 years of service payment from the Transportation District in exchange for operating and maintaining the rail lines once they are completed in 2016. Those payments will total $7.1 billion, according to a board presentation. In today’s dollars, that’s $1.1 billion.

RTD general manager Phil Washington called this arrangement a marriage and said he hoped it would create jobs now and in the future for Denver’s youth.

We are looking to bring down our unemployment rate Phil Washington

“We are looking to bring down our unemployment rate in this region,” Washington said, referring to the Bureau of Labor Statistics' 8.5 percent unemployment estimate in the Denver metropolitan area. Washington hopes the Eagle project will create 5,000 jobs.

Martinez, the RTD board’s director, added that he sees other, less measureable benefits from the project, such as the increased connectivity for Denver’s major economic centers.

“The East corridor line in part is something very significant to our community. It connects two of the largest economic centers in our region,” he said, referring to downtown Denver and the Western suburbs.

Growing industry

The Eagle project also has implications for the larger industry that’s growing around private investments in public infrastructure projects in the US. Private investors have been able to put equity to work in public highway projects. But the transit sector, until now, has not afforded investors any successful opportunities to deploy private capital.

Nicholas Hann, the managing director at Macquarie who’s leading his team’s equity participation in Denver Transit Partners, indicated that this could soon change. 

“I’m absolutely confident [the Eagle project] will be a landmark transaction in the delivery of US transit projects,” Hann said.

I'm absolutely confident [the Eagle project] will be a landmark transaction in the delivery of US transit projects Nicholas Hann

Hann added that “the cost savings that RTD is seeing are actually quite typical of those achieved in public-private partnerships,” a factor which could prompt other cash-strapped metropolitan areas in the US to reach to the private sector to help them build out their transit networks.

So far though, aside from Denver, though, only Houston, Texas has been selected to participate in the Federal Transit Administration’s Public-Private Partnership Pilot Programme.

The total cost of RTD’s planned FasTracks transit system for Denver is $6.9 billion, according to the FasTracks website. The Eagle project is the single largest contract within FasTracks.

Pending financial close, construction could begin as early as August, according to Washington.

“Now, you know, every time I say [August], people say, ‘Well Phil, you’re too aggressive,” Washington said, before adding: “We’re going to break ground in August.”