A Rough Economy Slows the Booming Marina MarketPublished on May 1, 2023
Editor’s Note: Each spring, the Leisure Investment Properties Group releases its annual Marina Investment Report which is used by marina industry owners, lenders, appraisers, management companies, and consultants to understand the sales statistics of the past year and look ahead through the current year. Marina Dock Age sat down with a few members of their advisory team to get the highlights from this year’s report. The full report is available at www.leisurepropertiesgroup.com or by contacting LIPG at (813)269-1144.
How has marina transaction activity changed from 2021?
Brett Murphy: Buyer interest and marina fundamentals are still strong, but there are adjustments being made on both sides of a deal. This was not only reflected in lower transaction volume compared to 2021, but also in the slowdown noted in Q3 and Q4 2022. As the Fed aggressively raised rates, many investors hit “pause” to evaluate their financial situation, deals under contract were re-evaluated and many fell apart, and investors waited patiently on the sidelines. Our investment report analyzes the marina market in more detail, as well as the intermediate subset of transactions that account for over ~80% of sales each year.
Are institutional buyers as impacted by economic changes as private buyers are? Why or why not?
Jeff Spilman: Large Institutional investors usually have access to cheaper cost of funds. While they may be impacted, it may not be as much as private investors. However, their investors have return requirements that the institution must provide. As rates increase, their investors will likely increase their required return as compared to what else is available to them in other opportunities in the marketplace.
How have rising interest rates impacted the marina market?
Murphy: Higher interest rates mean more expensive debt to service each year, which results in less cash flow. Collectively, tighter lending conditions lead to lower offer prices, higher equity requirements (lower loan-to-value (LTV) ratios), and more selective lending decisions based on the specific marina, the location, or the experience and financial qualifications of a borrower. The investment report covers steps for investors to take in preparation for obtaining a loan, as well as other strategies to consider for short-term and long-term solutions to the more challenging debt market.
What are your predictions for the coming year as to how well marinas will continue to be bought and sold?
Spilman: In a typical market where the cost to purchase has dramatically increased (i.e. interest rates) there is usually an adjustment period where the spread between bid and ask increases. It frequently increases enough that it is difficult to bring buyers and sellers together until one or both parties mentally make the adjustment to the new market. If marina sales follow this typical scenario, then we can expect sales to be less than last year. However, there is still a strong demand by larger investment groups, family offices, partnerships, etc., to buy marinas. It will be interesting to see if that demand mitigates the cost of funds to some degree where we don’t see much of a change in cap rates.
How can marina sellers and buyers successfully transact in this changing market?
Murphy: Selling a marina is a complex and time-consuming process, and typically a “once in a lifetime” event for owners. Sellers can realize a much higher probability of success when they exercise proactive preparation, stay current with market shifts, and learn more about the transaction process. There is a detailed section in the report that covers the strategic analysis and best practices when preparing the marina for a sale – this is the first step we advise every owner to take because it establishes a baseline for future market shifts and operational changes.
Next, stay current with market shifts, and more specifically the implications to your marina and your exit strategy. A few current examples are the impact interest rates have had on marina pricing, rising insurance costs and their effect on cash flow and valuations, and fuel prices and boater activity. Not only will this knowledge help guide operational decisions as you continue owning the marina, but it can influence your strategic decisions based on net impact to value.
Finally, ask your marina advisor questions about the transaction process. It is much more complex than a home sale, and a few examples of questions that impact your day-to-day and current back-end management include: “What information do you need?”, “What will I have to do once the marina is listed?”, “How long will it take for my marina to sell?”, and “Will the buyer want me to stay on after the marina sells?”.
Buyers can be successful by maintaining a sense of urgency when they find a deal that meets their criteria, efficiently communicating with the broker, and getting pre-approved. For first-time buyers, study the marina and local market, ask questions, thoroughly review marketing materials and schedule a site visit.
Gaining a comprehensive understanding of the property and business on the front end will not only demonstrate credibility and strength in an offer, but will make for a smoother transaction down the road. Lastly, a buyer will typically look at numerous marinas before finding the one. They should use that time to get pre-approved, continue to learn about the industry, and learn more about the transaction process. That way when the buyer finds the one, he or she can purchase with confidence.