Pricing a Marina: Not All CAP Rates are Created Equal
There are many marinas for sale in the market today. A quick search of LoopNet yields 93 active listings of marinas for sale or marina related properties in Florida alone. Some of these listings are individual slips or racks, some are boatyards, some are redevelopment opportunities and some are operating marinas. These listings that are offered by marina brokers, local residential and commercial brokers and owners alike have listed CAP rates between 3.30% all the way up well into double digits.
So what causes the wide disparity and what is the right CAP rate to list your property at to ensure the market of buyers is engaged and a transaction actually occurs without leaving money on the table? First, let’s start with the wide disparity. Marina owners often think that, because they have waterfront property, there is significant value over and above what the property returns as an operating business. While this can be the case, more often than not there are substantial restrictions on alternative uses and/or redevelopment. Whether it is overcoming stringent environmental issues with development in sensitive coastal areas or getting the needed zoning/density changes from local and regional governing bodies, unlocking that value potential can be difficult or even impossible. Nevertheless, that line of thinking often prevails. A second reason for the disparity, one that can be easier to overcome for a marina broker who is equipped with the data to support, is an under-performing facility. If a marina is underutilized (low occupancy rates compared to the market), over-managed (expense load much too high for the size of the operation) or has significant expansion potential, low CAP rate deals can be can be attractive for an adept operator who can quickly take advantage of the low hanging fruit.
So what is the right CAP rate for a marina? Most marina brokers and active marina buyers will tell you that the range is between 8.5% and 10% but, that may not always be gospel. As we looked at reasons that low CAP rate deals may still be attractive above, there are just as many reasons that “market rate” deals may not be. The quality of the revenue steam plays a huge part in applying the right CAP rate to a marina for sale. Low margin profit centers like F&B, service, boat sales and the like are considered to be much less desirable than storage. As such, many buyers would insist on valuing these profit centers separate from storage and fuel with business valuation metrics (earnings multiplier) as opposed to real estate valuation metrics (CAP Rate). Given that the appropriate metrics for business valuations in these categories can be anywhere between 2x and 6x, just because a marina is listed at a 10% CAP rate does not automatically mean it is a great deal.
A simple example would be looking at a facility that grosses $2M. $500K is from boat storage, $1M is from a restaurant and $500K is from used boat sales. The storage operation nets $100K, the restaurant nets $150K and boat sales nets $50K. Overall, the property nets $300K and, at a 10% CAP rate, would be worth $3M. However, given the labor intensive, low margin nature of F&B and boat sales, many buyers would say that the $100K net from storage is a 10% CAP ($1M), but the F&B net and Boat Sales net are a 5x multiple on earnings ($750K and $250K respectively) making the property worth $2M.
The marina brokers of the Leisure Investment Properties Group are well equipped to help you prepare your marina for sale. Our underwriting process goes in depth with each revenue stream and profit center to unlock value at every turn. Whether it is articulating where the low hanging fruit is for a buyer or converting F&B, boat sales or service to a 3rd party lease model which allows CAP rate valuation, no other marina brokers can help you net the most money is the sale of your marina.
Posted November 1, 2016