Marina Consolidation

by / Monday, 06 August 2018 / Published in In the News

With the recent consolidation by a handful of large owner-operators and more private clients building their portfolios, one doesn’t have to look much farther than to the bull market we are in, the excellent industry growth, and current market for core assets to understand why so many investors are shifting their thoughts towards marinas for sale. In the 9th year of what is the second-longest bull market in U.S. history, core assets have gotten more expensive, cap rates are compressed, and for many, the yields don’t outweigh risk. With marinas, however, investors can put their money in a dependable asset class with multiple revenue streams and higher yields. The high barriers to entry are also very appealing, which not only forces investors to rely on existing marinas for sale, since there is no real material new supply in the pipeline but motivates both current owners and prospective investors to try and expand and upgrade existing facilities. For owners facing excessive cap-ex and an unwillingness to go through with needed upgrades to stay competitive, a disposition is one option that may be more fruitful than expected, since investors are currently looking for value-add and redevelopment opportunities.

For investors who are wary about the cyclical nature of marinas, the effects of a downturn are primarily felt in the boat sales sector. That’s because with the economy starts to contract, disposable income isn’t going to be directed towards purchasing a new or used boat as frequently as in an expansion. What we actually see is a decrease in the number of new boats being sold and new boaters getting out on the water. However, marina performance does not necessarily decline in response to a decline in boat sales, since boat owners will still need a place to keep their vessel. Current boat owners will tend to use their boats less frequently (i.e. lower fuel sales) but they still enjoy the atmosphere a marina provides and the camaraderie that comes with being a slip holder. For marina investors, we believe there are several unique characteristics of marinas that will help them endure the next downturn: strong fundamentals of the industry, a positive demand over supply imbalance in slip and rack space as well as institutional involvement in the asset class.

Some of the owners we speak with have plans to pass their marinas on to their children, as it has been a family operation for generations. On the other hand, we are seeing situations where the kids do not want to get into the marine industry, let alone run a marina, so those owners opt to sell. Given the current state of the economy, we believe it is a critical time for owners to look at their current operation and think about their hold period moving forward – analyze impending cap-ex, is there a loan coming due, is now the time to 1031 exchange into a larger marina or less management intensive commercial real estate (single tenant credit NNN assets), etc.

Financing has become more available as well, which is important for the average investor seeking marinas for sale, who typically leverages their acquisition. Almost equally important to providing the necessary capital to get a deal done, financing also allows an owner to make the necessary renovations that will not only grow the marina financially, but that will continue to build the customer base and provide a higher level of service and experience. Although traditional financing is tougher to obtain, lenders value more consistent and reliable income streams which comes down to the bread and butter of the typical marina – boat storage. Ancillary revenue streams are beneficial to any operation, as long as the expense margins are within line, but those revenue streams aren’t as easy to obtain financing for when isolated from storage operations because they tend to decline in a downturn (especially in tertiary markets). As the economy continues on this bull run, we can expect debt markets to become a little more constrained, as interest rates increase (with at least three more hikes expected this year), which will ultimately push prices down and cap rates up.

The factors sited heretofore, all play critical roles in the number of marinas for sale, as well as, how they are priced. For a successful acquisition and disposition to take place, buyers and sellers have to have a “meeting of the minds” or mutual agreement on an offering price and terms. In addition to great cash flows and value-add opportunities, investors can find favorable yields in marinas when other core assets are simply too expensive.

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