Selling and Buying Facilities – Some Do’s and Don’ts

What can a buyer and seller have in common? Probably more than you would think, but one thing seems to rise to the surface in most any property transaction – greed. Most sellers want to optimize the sales price, and most buyers would like to pay as little as is necessary to close the deal.

Early on, I learned that if the seller thinks the price was not high enough, and the buyer believes that the price was too high, then the transaction was probably priced fairly.

Of course what’s fair is most always in the eyes of the beholder, which brings to mind a client of ours and his particularly unique way of purchasing properties. He would do his own due diligence to come up with a monetary evaluation, meet with the owner, walk the property, have a friendly conversation about the attributes and challenges, then tell the owner, “You have one shot of giving me what is a fair asking price for the property.” If the owner came up with what the buyer felt was not a fair price he would say, “Thank you very much, great meeting you – but I pass” – and he would just walk away. Some of the owners would then call me afterwards a bit befuddled, asking would I please let our client know they were open to negotiation. I had to tell them they had lost the opportunity. Our client was not looking for the low ball price, but what he considered to be fair – and he has a great deal of knowledge about marinas, their operation, physical plant and what he thought he could do with a property.

And for both the buyer and the seller, knowing what one can do with a property is key to undertaking a meaningful transaction. After all, one does not typically buy a property assuming that nothing can be undertaken to improve the revenue and net profit flow.

Years ago we would go through lots of number crunching and formula multipliers, etc., in determining a fair price. More recently, we have taken the owner’s asking price and said ok, but what happens when you start to deduct the cost of undoing the deferred maintenance and the cost of bringing the facility into total regulatory compliance? The costs can mount up quickly.

Our basic recommendation for both the buyer and seller is to really take a hard look at the facility and understand the good, the bad and the ugly – and do your homework. Determine what are the most meaningful and desirable aspects of the facility, as well as what are the biggest detriments.
In terms of buyers, I find there are three main categories – window shoppers who may be curious or testing the waters but not really looking to consummate; bottom feeders who are only looking to take advantage of a seller; and “real” buyers.

In terms of sellers there are also three main categories – those who are testing the waters; those who may not be forthcoming on a factual basis; and those that are really willing to provide a fair agreement.
In early conversations, it can become pretty apparent as to which category one falls into.

For the Sellers
Making meaningful information about your facility readily available will set a framework that you are serious and bring the discussion to a conclusion faster. A good and real buyer will try to and usually find out about issues quickly, so why not be up front?

A general clean-up of the facility is always helpful. It helps set a tone not only for potential buyers but for your existing and perspective customers as well. Assuming the buyer is looking to continue a marina operation, happy customers can be one of your best selling points.

Provide meaningful financial information with respect to all the different aspects of the business, include the number and types of boats in wet and dry storage, as well as seasonal vs. non seasonal, and if you provide service, sales, a restaurant or lease space to others, break it all out.

Create a binder of all of your regulatory approvals and related information, ranging from zoning to permits for docking facilities, buildings, stormwater, etc.

Include any operating plans or manuals, such as for fire, hurricanes, recycling, etc.

Provide the most recent surveys for both the upland (topographic is best but title is good) and in-water (hydrographic) areas.

Make available a copy of both your deed(s) and title insurance.

Point out the various attributes, and don’t hide the problems.

For the Buyers
Be up front about why you are interested in the facility and what you hope to accomplish, and don’t be bashful as to what you have accomplished in other acquisitions and what your alternatives are if a deal is not consummated. It helps set a tone as to one’s real interest.

Do not be shy in asking questions and listen carefully to what is said and how it is said. While we would hope all will be forthcoming, sometimes that is not totally the case!

Talk to the local municipal officials as to their attitude toward the facility and any long-term changes you might desire. Explore what the restrictions are for the property and what approvals would be needed for changes. Similarly, check with corresponding county, state and federal officials having jurisdiction. And in doing so, remember that there are the promulgated restrictions, as well as the current perspectives and interpretations of the agency representatives.

Look at the physical plant and what deferred maintenance may need to be addressed, as well as what is needed to bring the facility into total regulatory compliance.

Take a hard look at the financials and what is behind them.

Consultans and Brokers
For both buyers and sellers, using outside consultants can be beneficial, particularly if they know the area, the perspectives and the operations. Many buyers, particularly those that are in the business, believe that they can do it themselves and save a lot of money. We have seen many issues missed both on the plus and minus sides, particularly by larger organizations where they often seem prone to undertaking a quick cosmetic review but fail to understand many of the hidden issues.

Having a fresh pair of eyes and backgrounds can be one of the most meaningful investments that a buyer or seller can make. We are always amazed at what we can recognize as issues or advantages that have been overlooked by others. A good consultant, regardless of what side they are employed by, can provide some unique perspectives as to issues and potential revenue streams.

The use of real estate brokers of course is pretty commonplace, and like many professions, some are great and others may be not quite so good. But in either case, most look at properties only in terms of cash flow and capitalization rates. It seems to be a common tool. The problem with cap rates is that they fail to take into account the uniqueness of the property and the proper weighting of the various revenue streams and property attributes, as well as property issues and needed capital expenditures, particularly those that only allow for maintaining revenue streams as opposed to increasing cash flow.
In most all cases, we have found that candid discussions are one of the best ways to mitigate the greed factor on both sides, and can help provide the quickest path to either consummating a deal or realizing that there is no way to get the conflicting interests to coincide. After all, who wants to waste time when you could be spending that time out on the water?
Happy boating.

Dan Natchez is president of DANIEL S. NATCHEZ and ASSOCIATES Inc., a leading international environmental waterfront design consulting company specializing in the design of marinas and marina resorts throughout the world. He invites your comments and inquiries by phone at 914/698-5678, by fax at 914/698-7321, by email at dan.n@dsnainc.com.