From the July-August 2008 issue of Personal Real Estate Investor Magazine:

The 3:10 to Profits

Why you should invest in light rail properties now

By Scott C. Seckel

Mass transit in the U.S. has been around since 1870. New York and a handful of other cities like Chicago and Philadelphia led the pack until the 1970s, when Washington, D.C., San Francisco and Atlanta followed suit.

Those are heavy rail systems - the train is driven by an engine. Light rail, where the train is driven by an exterior power source, is something newer in the U.S. Twenty-nine cities have light rail.

Two additional light rail systems will open by the end of the year in Austin, Texas, in the fall, and Phoenix, Arizona, in December. Investing in properties adjacent to light rail seems like common sense. Is there more to the story?

NO, NOT REALLY

Dallas Area Rapid Transit Light Rail Train opened its first two lines in 1996. A 2005 study found that betvveen 1997 and 2001, median values of residential properties increased 32.1 percent near the light rail transit stations compared to 19.5 percent in control group areas. Office buildings benefited too; 24.7 percent increase for properties close to lines, versus 11.5 percent for properties farther away.

A Denver, Colorado, public-private development corporation official told the Wall Street Journal that land values around light rail lines are up as much a 30 percent. Portland, Oregon's first light rail line opened in 1996. Metropolitan Area Express was an instant hit, according to Carla Muss-Jacobs, a buyer's agent in Portland.

In April, she sold a house close to light rail for about $215,000. A similur house without the location would have sold for $10,000 to $15,000 less.

MAKING A DIFFERENT FORTUNE FROM OIL

An obvious factor is the rising cost of fuel. ''It's awesome for our business," said Bryan Watkins, co-owner of Light Rail Connect, a commercial and residential company exclusively focused on a corridor one mile from the tracks of Phoenix's upcoming light raitline.

Properties don't have to be right on the line itself. If a home has easy access to a park-and-ride lot or a bus line, it's in demand in Portland.

ANTICIPATION IN AUSTIN

"We cannot wait," said Jay Carter of LivingInAustin.com in Austin. "We're excited about it."

The Capital MetroRail is slated to open in the fall. Buyers and investors aren't swarming the market for light rail properties, said Carter, an agent who blogs about Austin's coming light rail advantages and sells along the line's routes. It's not that they're not interested; they're just oblivious.

He expects more of a stampede, or at least a brisk trot, in sales once people start seeing the cars trundle through Austin.

Denver's first light rail line opened in 1994, and it's hugely popular. Coventry Development is building a 3,500-acre mixed-use project at the end of a line under construction. At build out, RidgeGate will have 10,000 to 12,000 residential units. Keith Symons of Coventry estimated light rail adds about $1 to $2 worth of value per square foot. When it's completed, he estimates RidgeGate values will rise to $3 to $5 per square foot. Buyers are cautious and circumspect until the line is actually finished. "It's never built until it's built," Symons said.

PHOENIX GIVES LIGHT RAIL THE BIRD

Unlike Austin, Phoenicians are hard-pressed for enthusiasm about light rail. It's been viewed as a three-year construction hassle creating a traffic nightmare in a place where the car is king.

Walkability is a huge issue in Phoenix. For five months of the year, temperatures reach well over 100 degrees. A three-minute walk that's pleasant in April can be hell in July. Even the Apaches didn't go out on a July afternoon. Forget a mile walk to a light rail station; it won't work, especially for those who must look presentable on the job.

That said, Don Mortensen and Bryan Watkins are all smiles about light rail. The Light Rail Connect wiz's know what they're talking about.

"We have done a lot of research nationally," said Mortensen. "The square mileage along Phoenix's lines is almost the size of the city of San Francisco. There are more than 100 apartment complexes of 100 or more units along the route. That's a lot of real estate."

What's stalling light rail investment in Phoenix is seller greed, Mortensen said. "There's a gap between the value sellers place on their property and what buyers are willing to pay."

The highs for commercial are $33 per square foot along Apache Boulevard in Tempe. The lows are $24 along Washington in Phoenix, a hard-core industrial area - train tracks, planes overhead, metal shops and homeless. An owner charging only $9 less per square foot in an unimproved area farther from downtown or Tempe needs to reassess their pricing, the partners
suggested.

For investors interested in buying now, Watkins recommended prudence, not passion. "Get in at the right price, not at any price," he said.