Marina Brokers Address the Surge in Sales and Preview What’s in Store for 2022
Published on January 17, 2022
Throughout the COVID-19 pandemic, there has been a demand for boating opportunities as people found boating to be a safe, outdoor activity they could enjoy with their family and friends. That led to waiting lists for slips at marinas, boat sales reaching record numbers, including many first-time boat buyers, and new investments in marina properties.
“The global health crisis of 2020 and into the first half of 2021 has left an indelible mark on society, structurally challenging how people live, work, play, vacation, dine and shop,” Steven Ekovich stated in the Leisure Investment Properties Group (LIPG) investment report.
After having worked as a brokerage division of Marcus & Millichap, Ekovich, executive managing director at LIPG, along with Brett Murphy and Jeff Spilman, LIPG’s vice presidents of investments, branched out on their own in August 2021 creating an independent leisure properties company focused on two asset classes, marinas and golf courses. “Leaving the commercial real estate firm we were with, allows our marina advisors to be in a better position to further execute on the LIPG vision of being the preeminent leader in business-driven, investment real estate and advisory services,” Ekovich said.
The team completed its first marina transaction since going solo with the sale of Hayden Lake Marina in the Coeur d’Alene region of Idaho to Southern Marinas in October 2021. “Hayden Lake Marina is a first-class marina in a gorgeous location. Our process generated multiple, competitive offers in just over two weeks, resulting in an excellent steward to carry on the great work and reputation built by the previous owners,” Murphy said. The company has several other listings available.
History-Making Sales
Colliers International’s Leisure Property Advisors (LPA) in Tampa, saw a slight dip in closed sales in 2020, primarily because transactions were delayed due to the initial capital markets pause brought on by COVID. However, 2021 saw them rebound even beyond the pre-pandemic norm. LPA managing director Dan Grovatt said the firm usually has 10 to 20 transactions each year. They sold 11 properties in 2019, nine in 2020, and in 2021 the firm had 25 properties sold or under contract by December. “The increased performance of the industry combined with record low-interest rates has created a healthy market environment where both buyer and seller have advantages to transact,” Grovatt added.
Since National Marina Sales represents both sides of sales transactions, the maritime real estate firm was credited with over $140 million in marina sales in 2021. “It was about half that number in 2020,” said Rick Roughen, owner of National Marina Sales. “We brokered seven major deals in 2021 and have over $100 million in the hopper already set to go for this year.”
“For anyone who owned or entered the marina market in the past two years, 2021 was an especially strong, even historic, year,” said George Ash, national director for Simply Marinas based in Coral Gables, Florida. “The more than $160 million in transactions handled by Simply Marinas was evidence of a solid investor market enjoying a wave of buyer enthusiasm.”
Ash said the marina market enjoyed a general bullishness not seen in years. Several marina owners they work with, especially those who own larger marina assets, opted to test the market at a time when marinas were selling at historic highs. “These larger ‘trophy’ marina offerings attracted lower cap rates and garnered the attention of the most eager and highly qualified buyers,” Ash said.
During the year, Simply Marinas listed and quickly put under contract several large marinas ranging in price from $18 million to $50 million. While they had some high-dollar sales, Ash said they also remained focused on their mom-and-pop offerings and helped secure multiple competitive offers on smaller deals at increasingly low cap rates.
Marina Dock Age asked these firms to share their thoughts on the 2021 market activity and what they foresee going forward this year.
What is driving the market?
Dan Grovatt, Colliers International LPA: Even prior to the pandemic, our team was already seeing an increasing interest in marinas as investments with fresh institutional investments in existing platforms and first-time buyers coming into the space. Drivers included better returns than they could get elsewhere and favorable tax laws relative to accelerated depreciation.
From a seller’s perspective, the increased revenues, low-interest rates, and increased buyer activity has compressed cap rates. From a buyer’s perspective, marinas are providing tax advantages and stable cash flow in an environment of heightened uncertainty due to the pandemic, inflation risks, etc. With interest rates at record lows, buyers can capitalize on these advantages while also locking in capital at cheaper rates. Marinas are being taken more seriously as an asset class that can provide stable cash flow and returns. The performance of marinas through the pandemic has provided confirmation to a lot of the investment thesis that might have been more theoretical prior to the pandemic.
Rick Roughen, National Marina Sales: I think we are seeing a mixture of consolidator greed and willing sellers. Consolidator greed consists of mega-buyers who have discovered low hanging fruit. They are acquiring mom and pops for distant stockholders who are laser-focused on instant and continuing return on investment (ROI). Monopolizing the industry, carving out the personal touch, and managing marinas from a tall building thousands of miles away is becoming a new reality.
The willing sellers are owner operators who find themselves in a sellers’ market achieving prices that have not been possible in the past. Having survived the crash of 2008 and having rebuilt value over time, they are ready to dump and run. Unfortunately, many are leaving significant value on the table because they do not have the expertise to manage the transaction.
George Ash, Simply Marinas: Marinas in general have enjoyed tremendous revenue increases across all profit centers (storage, service and repair, boat sales, boat rentals, food and beverage, etc.). Investors from Wall Street and from traditional commercial real estate assets, such as multifamily, office, retail, and self-storage, started paying attention and have been focusing on marina acquisitions. Groups that own marinas nationally continued to consolidate and compete for prime marinas. Today’s marina financing market is changing for the better with more financing resources available. And, today’s lower interest rates support a higher debt coverage ratio, a critical factor in lending.
While the market has seen an abundance of cash buyers, banks have been increasingly more receptive to lending on marinas, and even in some cases, offering interest-only financing at low-interest rates. These factors, along with an attractive financing environment and new funds dedicated to marinas, created a compression of cap rates in the marina space. Prior to 2021, we saw a cap-rate average ranging between 7.5% to 9%. In 2021, we sold marinas at 6 to 8%. As a result, some of the sellers who were on the sidelines in prior years decided to sell in 2021.
What are buyers looking for?
Grovatt, LPA: Existing cash flow as well as the upside potential to add rental units or increase rental rates is something that is highly sought after. More venturous types are also interested in the ability to add ancillary revenue streams beyond storage including boat rental, boat clubs, boat service, upgraded stores, and even dealerships.
Michelle Ash, Owner/Broker, Simply Marinas: Many buyers tend to favor marinas where a high percentage of gross revenue comes from boat storage, both wet and dry. They see this as dependable, recurring revenue. However, there are also buyers out there who prefer service and repair, fuel and retail, boat sales, and even restaurant revenue. Buyers tend to seek marinas with little or no deferred maintenance, in-place management/staff, attractive amenities, positive cash flow, and potential expansion/development or operational upside.
There are also unique buyers out there who like a project, and specifically seek out marinas with old, poorly maintained infrastructure, where a phased rehab of the whole facility is considered an upside play. Larger companies continue to consolidate with strict acquisition criteria, favoring slip/rack rental income and full-service facilities with popular amenities. Regional buyers are assembling marina portfolios with strategic geographical proximity, lending to efficiency and economies of scale. Most buyers assess their interest in a marina based on the income capitalization approach. Buyers are willing to pay for an established history of income. They also look at any upside potential they can take advantage of in the future.
We have seen an increase in investors from outside the marina space buying marina properties. What makes the marina space an attractive investment for them?
Grovatt, LPA: The performance of marinas throughout the pandemic has made marinas attractive. Most marinas had their best years ever while other asset classes, dependent on travel and in-person office workers, experienced declines. More generally, marinas offer several compelling reasons for investment. First, with boat sales at all-time highs, occupancies are very strong and should provide stable cash flow. Second, this demand for slips also brings with it the ability to raise rental rates (and thus revenues and property values) in the coming years. Third, marinas provide tax benefits that might not be available in other asset classes.
G. Ash, Simply Marinas: These investors view marinas as viable investments due to several factors including the rapid depreciation marinas offer, which shelters regular income while providing a solid long-term investment due to stable and growing demand. They see limited waterfront and other barriers to creating new marinas as a strong factor, contributing to steady growth. Marina cap rates are expected to be further compressed, and as a result their investment can see strong appreciation due to continued accelerated interest in recreational boating. In addition, by their nature, many marinas reside on prime real estate, making their potential for real estate appreciation a solid, long-term investment opportunity.
Roughen, National Marina Sales: On the one hand, the fact that a relatively unsophisticated market is so ripe with opportunities to exploit for pure ROI to investors. On the other hand, individuals with available cash who have a dream to own and be involved in a marina business are making the move and acquiring facilities with room to grow, make new friends, service customers, and enjoy the lifestyle.
What are some aspects for first-time marina investors that might be different from retail, residential or other areas they are coming from?
Grovatt, LPA: Marinas are more of a hybrid real estate/business investment versus a true real estate investment like a retail building or multi-family building. There are nuances to owning/investing in waterfront property that might not exist on a non-waterfront asset. Capital requirements for a marina asset should not be underestimated; marinas are a more capital-intensive investment than more core real estate assets.
G. Ash, Simply Marinas: The main difference is that most marina operations bring additional complexities in management and oversight, as compared with the relative simplicity of owning and operating a triple net leased retail property or a 200-door apartment building, for example. That said, given the more rigorous management requirements, and the marina industry’s heavy segmentation, investors new to the marina space often find that marinas generally trade at higher cap rates than traditional commercial real estate asset classes, such as multi-family, office, self-storage, and retail. Even first-time buyers seem to sense the opportunity they have before them. They often bring savvy deal analysis and conduct thorough research of the market and the marina property before making an offer. Several of these new investors can raise funds and secure financing, which has allowed some to acquire multiple marinas and enjoy greater leverage on their investment.
Brett Murphy, Leisure Investment Properties Group: The different business elements of a marina, such as restaurants, service yards and rental fleets, can be a lot to take on for first-time marina buyers. It’s a cool business to be in, but most importantly you must treat it like a business.
What do you predict for 2022 and going forward?
Grovatt, LPA: We try to avoid predictions as no one has a crystal ball. If you asked me this same question at the end of 2019, none of us would have predicted a global pandemic that would completely transform life as we know it. Nor that it would ultimately lead to major spikes in boating activity and boat sales. That said, I think the marina industry is well positioned for growth in the coming years. With the influx of new boaters and increased demand, marina owners can focus on retention of those new customers and position their facilities for strong occupancy and revenue growth for years to come.
M. Ash, Simply Marinas: Limited marina inventory and high barriers to entry for developing new marinas, coupled with recent and continued growth in recreational boating, indicate that marina market activity should continue to grow. We see no signs of a slow-down in both buyer and seller interest and expect that Simply Marinas, and the marine industry in general, will have another great year in 2022.
Roughen, National Marina Sales: It is highly likely that 2022 will be a continuation of what took place last year. Greed will continue to drive the mad acquisition rush for “Walmarts of the marine industry” to flourish. We all hope that a similar experience for boaters regarding service will not be the result.
B. Murphy, LIPG: Marina occupancy will continue to be up into 2022 and the flight of boat owners to the suburbs will continue as they seek lifestyle changes and areas that are seen as safer than big cities. This in turn will continue to drive interest in boating, marina resorts, second home, and vacation areas.
While technology makes it easier for people to work at home rather than reporting to the office every day, what happens when employers start asking their workers to return to the office or there become fewer options for remote work? How will that impact the recent momentum in the marina and boating industries?
Murphy, LIPG: We are not seeing as much concern as in other leisure industries, as most marina owners have been staying incredibly busy. Even if people start going back to the office and don’t have as much free time, they are likely still paying slip fees to the marina and/or having service work done as work orders can be completed and parts are available. So, marina owners can expect to see more sticky income than other leisure industries. Certainly, there is a concern when we go back to a more normalized work environment, and I think this is when we will see more first-time, casual boaters start questioning their boat purchase, the upkeep, etc. and eventually decide to either sell their boat or pull it out of the marina and store it in their back yard.
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