By Terence Vanek ◊ Terence.Vanek@MarcusMillichap.com
Getting Your Marina Acquisition Approved By A Lender
Over the past decade, marinas have gotten a bad reputation from financial industries, commonly viewed as dangerous investments that are more subject to economic cycles because of their recreational nature. Translation, boats are expensive, thus vulnerable during hard times when consumers tighten their discretionary income. Slowly all the major banks stopped lending on marinas, leaving regional and local banks as the primary lending sources, all of which do not carry a sizable number of loans in their portfolio.
Lenders we have spoken with have a nearly universal consensus that marinas are recreational property and are therefore riskier loans than common property types like apartments, office, industrial or shopping centers (known as core commercial real estate). That’s partly true and partly false. They are recreational property. Because they are a special purpose property with usually multiple operating business elements, they straddle the fence between business and real estate.
At your disposal are several types of service providers that may even reduce the risk of a loan to a level less than that of core commercial real estate.
• Marina management companies can help you determine if the marina is operating efficiently. A simple annual review of the financial statements costs very little in relation to the benefits.
• Marina design and construction firms can provide condition surveys for the docks and piling as well as a schedule of reserve allocations necessary to keep the facility running as well tomorrow, as it is today.
• Marina appraisers can also examine financial statements and relevant comps and provide the support for the loan to value you are seeking so you don’t waste your time trying to obtain a loan that will not appraise.
• Initial condition reports can greatly improve your chances for loan commitment. This will help banks establish a mandatory reserve for their replacement escrow account. Based on the condition report, you can easily determine how much money needs to be set aside for reserves. Then the bank can make a requirement that a certain percentage be set aside in a reserve instead of what could be a much higher reserve level which ultimately reduces your loan amount.
• Hire an expert marina advisor/broker to examine the financial statements annually. By that we mean profit & loss and balance sheets. By examining the properties ratios, the business practices, the competition and buyer yields, the advisor/broker can tell you where an asset will trade in the market, what EBITDA a lender will consider lending on, determine loan to value (LTV), Debt Coverage Ratio, (DCR) and types of loans available so that you have a positive experience when seeking out a lender.
Example Terms for Marina Financing:
Loan Amount: Typically: $225,000 up to $15,000,000
Loan Term: 3 to 15-Year Terms (Up to 25 years for qualified SBA loans)
Amortization: 15 to 30-Year Terms
Interest Rates: 5%+ Fixed and Floating (Competitive rates based on risk profile and loan size)
Loan to Value: Up to 70% of Appraised Value for Conventional, 90% for SBA.
Origination Fee: Varies depending on loan size and credit profile.
Reserves: Standard Tax, Insurance and Capital Reserves required during loan term.
Sponsor/Borrower: Creditworthy individual(s) or entity acceptable to Lender.
Borrowing Entity: Single asset or special purpose entity required depending on loan size.
At the end of the day, most important to lenders is true profitability of the business. The first step in determining if a loan is worth making is to examine the financials. Unfortunately, marina owners generally make this a difficult thing for lenders. Marina owners tend not have a standardized accounting systems and software like other major property types. Owners can embed a variety of personal expenses in their financial statements that dilute net operating income and make the marina less attractive to a lender.
Once again, you can hire experts to restate incomes and expenses to give banks real numbers to lend on. Once you have the real credible financial statements, you can come up with a real debt coverage ratio (the amount banks require cash flow to exceed debt obligations) and loan terms that reflect the perceived risk of the investment. Not restating the income and expense statement or doing it without knowledge of how marinas operate, puts the loan at risk from day one. Debt coverage ratios vary significantly with marina loans based on perceived risk of the individual marina. One-size-fits-all works well with common property types, but not for a marina, as marinas vary so much in terms of business model, make up of slip and rack inventory, ancillary revenue services and market position.
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