Institutional Investors Still Eyeing MarinasPublished on November 13, 2022
The frenzied pace of marina sales over the past few years has slowed a bit with fears of a recession, rising interest rates, and general unease about the state of the economy and world affairs, but institutional investors particularly, continue to see the value in buying marinas. The past few years have seen an influx of investment companies turning to marinas. Some want to buy and let others manage, while several both buy and operate new acquisitions. There are also companies that do strictly marina management and not ownership.
When the concept of marina investing came to light, buyers often came from a background in storage unit or apartment ownership seeing similarities between boat storage and slip leasing to these other businesses. However, today’s investors realize a marina is a unique property that offers the benefits of a multi-pronged business with staying power, but comes with a more complex operational environment with some inherent risks. A marina is no longer just for boat storage and institutional investors are stepping into the industry with open eyes.
Marina Dock Age sat down with Luke Radlinski, COO of Southern Marinas, to find out why institutional investors will keep putting money into marinas.
Why is a marina a great investment?
Above all, there is a scarcity of supply. Over the past decade and a half, new marina construction, and the associated slip count, hasn’t kept up, by any means, with the accelerated growth in boat ownership. This imbalance is even more acute when considering the shift in consumer preferences to larger boats and the lack of storage options for those boats. Many older, vintage properties can’t offer enough storage options for these larger boats due to physical constraints, outdated infrastructure, and more.
What are the challenges?
The biggest challenge is sourcing investment-grade acquisition targets and bridging the gap with seller pricing expectations. There’s very little publicly available data to provide visibility on asset performance (there’s no CoStar or Moody’s Analytics for the marina space), so the market isn’t particularly efficient regarding pricing expectations. This, of course, presents an opportunity to source off-market deals and create outsized returns in the longer term but requires a lot of leg work and patience.
How do marina investments differ from other businesses like storage units or apartments?
Depending on the property, the operations can be substantially more complex encompassing boat rentals, service/sales, food & beverage, and even cabins or RV parks. Also, a marina generally has a significantly higher touch with the tenant base. Marina management crosses over into hospitality much more than other storage-based asset classes, and the operational lift can be heavily seasonal depending on the market. Couple that with limited options for experienced/established management companies and it creates a significant hurdle for investors looking to enter the space.
What are the risks?
Certainly topical today in the wake of Hurricane Ian in Florida and the Carolinas, the effects of climate change present clear challenges for coastal properties, whether that be for older vintage assets and the need for heavy capital expenditures to fortify them against heavy weather and seas or the rising costs of insurance.
How do costs compare buying a marina vs storage units or apartments?
Depending on the mix of ancillary revenue streams, operating expenses can trend more in line with hospitality assets than storage.
Are certain regions/areas better for buyers?
The Southern Marinas portfolio stretches nationwide, including both the East and West coasts and we have a heavy presence in the Tennessee Valley. Cap rates vary depending on location, but broadly I think investment selection follows the same fundamentals as many other RE asset classes: proximity to markets with strong job growth, infrastructure, an affluent tenant/user base, etc.
Are there certain amenities, management structure, or business practices that make one marina more appealing than another?
Properties with revenue streams tilted towards annual storage contracts generally hold the most value for investors due to the reliability and “stickiness” of the tenant base….showing similar investment characteristics to self-storage properties. From a customer perspective, regardless of the amenity package, tenants prefer properties where they feel like they are valued, listened to, or even part of a family. We try to instill a customer-based approach with all of our managers and focus on making our properties fun, clean, safe, and enjoyable places to be.
Are there benefits to buying a marina that needs work? What are the cautions in doing this?
Value-add properties can create outsized returns but require significantly more management bandwidth, time, and attention, and the downside risks include cost/timeline controls, availability of time and materials, etc.
Why did you get into this business?
It’s fun! Who wouldn’t want to work in a business where you provide products and services to customers on vacation? Additionally, I get great satisfaction out of working with a talented and dedicated group of professionals at Southern Marinas.
What do you see as the future for institutional investing in marinas?
The industry has matured significantly over the past decade, but I think consolidation still has a lot of runway as the basic supply/demand imbalance will remain. Marinas will continue to attract real estate investors to the space who are looking for outsized returns compared to more established/mature asset classes.