Adapting to a Changing Market

Take a few minutes and think about all that has changed in the world of boating and marinas over the last 10, 20 or 30 years. In the 1980s, narrow hull designs were most common, while today boats are much wider (to say nothing of the increase in the number of catamarans). While 30 amp shore power was once all a boater needed, now 50 amp and 100 amp power are more common.

Where is the industry going next? More drystack? Electric powertrains? Older boaters? More of the “sharing economy” through boat clubs? Marina owners need to be prepared for changes beyond their control that might change the business case for their marina entirely. Very few people enjoy the prospect of change, but as General Eric Shinseki said, “If you don’t like change, you’re going to like irrelevance even less.”

Changing Market Conditions
While adapting to changing market conditions can be a little less stressful when a marina is fully occupied and generating revenue, it is much more challenging when occupancy is 50-70%. In our work on hundreds of marinas across the country, we have seen a troubling pattern repeat itself over and over again – most often in publicly owned facilities, but in privately owned facilities, too. It often starts with a storm, or some failure due to old age, and there isn’t enough money to make proper repairs. In public facilities, this is most often caused by not keeping up with market rates and inflation, so quality starts to suffer. Staffing levels go down, and repairs are deferred. Once quality starts to go down, so does occupancy, and now there is even less money available to maintain the facility, and the cycle reinforces itself. At some point, the marina realizes it must raise rates to generate funding to make the improvements needed to be competitive in the market again, but of course no one wants to pay more for a facility before it is brought back up to standard. Of course, if a facility is only half full, the operator can’t possibly raise rates high enough to make up the shortfall anyway. So, what to do?

This is exactly the situation the Lakefront Management Authority (LMA) of New Orleans found itself in at South Shore Harbor Marina on Lake Pontchartrain. Originally constructed in 1987, the facility was badly damaged by Hurricane Katrina. Repairs were undertaken, but with the oldest infrastructure now nearing 40 years of age, maintenance of fixed finger piers, rotting timber bracing and aging piles has become a never-ending task. At one time an adjacent casino facility with restaurants and activities helped fill the 479-slip marina to capacity, but today the casino is closed, and occupancy stands around 50%.

Despite the efforts of a very dedicated marina team, there simply is not enough staff or budget to keep up with all the work that is needed. Over time, the result has been a long, slow decline in the quality of the experience, with boaters resisting rate increases. The customers with the nicer boats tend to leave for other facilities as soon as they can, and boaters who don’t take care of their boats as well stay for the low rates. Just like a homebuyer, no one wants to live next to someone who doesn’t take care of their boat, so the customers with the means and willingness to pay for a high-quality experience choose other options.

Developing a Strategy
The Lakefront Management Authority (LMA) is determined to turn things around at South Shore Harbor, but it needs to do so without having the funds to pay for a complete renovation of the facility to modern standards.
South Shore Harbor is organized in eight main piers and one row of covered slips. The eight piers are fixed structures with a concrete deck and timber piles. Each finger is a timber frame structure supported by mono-piles. While there are structural deficiencies in the timber bracing and structures throughout the facility, the individual finger piers are in the worst condition. Electrical utilities are no longer compliant with the most recent codes.

Developing a strategy for renovation was based on a thorough regional marina market analysis and a comprehensive physical condition assessment of the existing marina infrastructure. The market analysis included the eight most relevant facilities in the area, and it identified current occupancy, condition of infrastructure, type and quality of amenities and slip rates. This effort helped to determine which marinas were most successful in meeting the needs of the local boating community, and what specifically they were offering that attracted boaters and earned the highest slip rates.

The two most relevant facilities were South Shore Harbor’s sister LMA facility, Orleans Marina, and the adjacent New Orleans Municipal Marina. Both of these facilities are fully occupied with waiting lists and charge average slip rates of $84 per linear foot and $97 per linear foot respectively, compared to South Shore Harbor’s average rate of $56 per linear foot. While both of these facilities are located closer to downtown New Orleans, they are also in what is considered to be a more desirable neighborhood. Just six miles east of Orleans Marina, the areas immediately around South Shore Harbor were very hard hit by Hurricane Katrina and have still not fully recovered. While South Shore Harbor has good security and is located immediately adjacent to a high-quality private airport, the lack of activity in the immediate area adds to the feeling of isolation.

New Orleans Municipal Marina was recently completely rebuilt with all new concrete floating docks, setting the standard for the region. Floating docks are relatively less common in this region compared to other parts of the country, but they are still highly desirable. To tolerate the hurricane storm surges, very tall guide piles are required, which greatly increases the cost. It is more common to see fixed dock systems that are designed to be submerged during hurricanes. Critical infrastructure, such as electrical transformers, are often placed in towers to keep them above the highest water levels. Orleans Marina shares many of the same construction techniques (and maintenance challenges) as South Shore Harbor, including fixed concrete main piers and timber finger piers.

So, while the location can’t be changed, the infrastructure at South Shore Harbor can be improved. LMA has adopted a strategy for South Shore Harbor that begins with consolidating all the existing boaters that are currently scattered across all eight piers onto only the four easternmost piers. The idea is a simple one: concentrate all of the boaters on the fewest number of piers possible and then focus all immediate maintenance efforts on those piers only.

This will cut the amount of dock maintenance in half, making every maintenance dollar twice as effective at no additional cost. Further, by concentrating all the boaters on fewer piers, there will be much more interaction between boaters, creating a much more active environment that feels safer and livelier.

With only half the dock area to renovate, electrical and utility upgrades will cost much less and can be completed more quickly. With these improvements, the marina can justify significant rate increases to better match the local marina market. While not likely to catch up with Orleans and New Orleans Municipal Marina in the near term due to its location, there will be real justification for higher market rates at South Shore Harbor. Building on this success, LMA is working with local developers to explore possible public-private partnerships to revitalize the abandoned casino building into a food hall and performance venue to bring local music to the waterfront and activating the marina to drive increased demand.

Future Development
The piers that were left empty when the boaters were consolidated will have the damaged fingers removed, and the main concrete spines stabilized. This will allow the marina to utilize these main piers as flexible broadside transient mooring in the near term and set the stage for phased expansion of the marina in the future as demand warrants. LMA plans to “expand” back to the full original capacity slowly over time and utilize accurate market demand and waiting lists to provide only the size and number of slips that can be leased consistently. This may well mean a smaller number of total slips when fully built out, but from a financial perspective, the facility will be on much firmer ground. Over time, LMA may consider the addition of further upland development that supports activating the waterfront for the neighborhood, including public waterfront parks, more boater amenities and even potentially mixed-use residential development.

The bottom line is that we actively change for the better or passively allow change for the worse. The LMA is taking a very proactive approach to bringing South Shore Harbor back to life for the boaters and residents of New Orleans.

Greg Weykamp is president of Edgewater Resources. He can be reached at gweykamp@edgewaterresources.com.