By Mark Jaffe
The Denver Post
Build it and they will come — especially if you have a railroad. That appears to be the Broe Group’s recipe for industrial development and, coincidentally, for running a railroad.
The Denver-based private equity firm, founded and run by Pat Broe, is using its short-line railroad company OmniTRAX to power development in Colorado, and soon in Oklahoma and Texas.
“A manufacturer, heavy manufacturing, needs a really good transportation system,” said Eric Berglund, president of Upstate Colorado Economic Development in Greeley. “Railroads are a lure, and you can’t put in a railroad where a railroad wasn’t.”
In the last six months, OmniTRAX has acquired short-lines in Oklahoma and Texas, bringing its holdings to 19 railroads in 10 states and Canada.
That makes OmniTRAX the third-largest short-line holding company in the U.S., behind publicly traded Genesee & Wyoming Inc., based in Connecticut, and privately held Watco Companies, in Kansas.
Still, all those OmniTRAX railroads only add up to about 2,200 miles of track — with the shortest just five miles long and the longest 627 miles.
The longest line, the Hudson Bay Railway Co., carries grain from farms across Canada to Port Churchill, Manitoba, the OmniTRAX ship terminal on Hudson Bay.
The short-lines connect factories, grain elevators and warehouses with major railroads, such as Union Pacific.
“We are moving goods the first mile and the last mile,” said OmniTRAX CEO Kevin Shuba.
In Colorado, OmniTRAX’s Great Western Railway carries products — from wind turbine blades to beer bottles — from its Great Western Industrial Park in Windsor
From a new terminal outside of Chicago, OmniTRAX’s Illinois Railway hauls sand to be used by the oil and gas industry in the process of hydrofracturing, or fracking.
In its newest venture, OmniTRAX will run the Brownsville & Rio Grande International Railroad and develop an industrial park with the Port of Brownsville in Texas.
“We are looking to create growth opportunities — whether it is on the rails or in an industrial park,” said Richard Montgomery, OmniTRAX vice president for industrial development.
Big holding companies
The short-line industry was created in the late 1970s as major carriers went through consolidation and sold off or leased their short-haul rail.
There are more than 500 short-line railroads in the U.S., and at least half are owned by big holding companies, according to Jeff Stagl, managing editor of the newsletter Progressive Railroading.
“It has been a pretty stable business,” Stagl said. “But the consolidation has been going on for quite a while.”
This year, short-line traffic is up about 2 percent over last year, buoyed by growing shipments of oil, sand and grain, Stagle said.
For Broe, the rail lines and industrial real estate development have gone hand in hand, OmniTRAX’s Montgomery said.
The company began industrial development in Windsor in 2003 with 100 acres for an Owens Illinois glass factory producing bottles for Colorado beer-makers.
Two years later, Broe acquired another thousand acres, Montgomery said. The park now includes a Vestas Wind Systems blade factory, a Kodak Alaris plant and Front Range Energy, which turns grain into ethanol.
In the past few years, the park has attracted companies in the Front Range oil and gas boom, including Halliburton Co.’s $20 million fracking sand terminal and Musket Corp. terminal to ship oil out of Colorado.
In September, Schlumberger Ltd., the world’s largest oil field services company, announced it was building a $20 million facility in the park.
Along the 80 miles of Great Western track, locomotives haul in sand, grain and steel, and they carry out turbine blades, glass bottles and crude oil to connections with the Union Pacific and BNSF railroads.
“The park has been a big economic boost for this region and a big employer,” Upstate Colorado’s Berglund said.
OmniTRAX is hoping to duplicate its Colorado success in Oklahoma and Texas.
In June, OmniTRAX acquired for an undisclosed sum the Sand Springs Railway, which operates on 32 miles of track between Sand Springs and Tulsa, Okla.
“This is also an area that is seeing a lot of energy development,” OmniTRAX’s Shuba said.
Benefited from a synergy
In the energy business, OmniTRAX has benefited from a synergy with another Broe Group company, Great Western Oil and Gas Co., Shuba said.
OmniTRAX also won a 30-year franchise in June to run the 45-mile Brownsville Navigation District and develop a 1,200-acre industrial park there.
“We talked to OmniTRAX for more than a year before we decided,” said Eduardo Campriano, CEO and director of the Port of Brownsville.
“In the end, we thought it was a good fit,” he said. “They are in the land development business, and we have a lot of land. They are in energy business, which is big here. They have a port.”
OmniTRAX is banking on new-energy development, just over the border, as a result of reforms to the Mexican oil and gas industry, Shuba said.
As part of the agreement, OmniTRAX will spend $8.5 million on common infrastructure for the new 1,200-acre industrial park, Campriano said.
The first project will be a business incubator on a 227-acre site that will offer loading docks, tracks and scales for startup companies, OmniTRAX’s Montgomery said.
“This infrastructure is expensive,” he said. “But by designing it as shared services, it will cut the costs.”
One of the things that made OmniTRAX attractive was the marketing experience of the company and the Broe Group’s ability to bring in new business, Campriano said.
When it comes to business, private railroads have “traditionally waited for the phone to ring,” Montgomery said. “Our company is proactive, and we are always looking for growth.”