Trends in Marina Sales: Tips for Improving Seller AppealPublished on November 12, 2019
In many areas of the country, the 2019 boating season came to an end after the Labor Day holiday and the arrival of cooler weather. It’s also the time of year some marina owners may start questioning if they want to run the business another season or list the property for sale.
Deciding to sell is a major decision that may be prompted because of retirement, a partnership dissolution, the owner seeking a new project, excessive workload, or relocation. Once the decision is made, owners should be proactive in preparing their properties for sale and there are a number of factors to consider.
“For an owner who is considering a disposition, a marina transaction can often be unchartered waters. It’s a point in time for the business that comes with uncertainties, questions and unknowns,” said Brett Murphy, investment sales associate/senior analyst for Leisure Investment Properties Group (LIPG) of Marcus & Millichap.
Decisions will need to be made regarding estate planning, market conditions and overall economic climate, tax implications, major capital expenditures needed at the property, financial health of marina operations, and long/short-term investment strategies.
A marina advisor can help with some of these issues. George Ash, national director for Simply Marinas, said owners should also consult with their CPAs or financial advisors. He advises owners to:
• Understand how the deprecation will affect the net after a sale;
• Discuss how the deal structure can affect the bottom line and what is the best allocation of price to the real estate, assets and business, assuming there is a mutual agreement with the buyer on the allocation that can create a win-win;
• Examine an exit strategy.
Creating Curb Appeal
Just like with selling a house, creating curb appeal can be key to selling a marina.
“The first impression on a buyer is imperative,” said Steven Ekovich, LIPG national managing director. “When a buyer steps on-site, what they see sets up the rest of the tour for either positive or negative expectations.”
Common issues may include a dirty marina entrance, lack of parking lot signage, chipping/faded paint on buildings and safety curbs, derelict boats on land/in the yard, forklift drops and drystack floors in need of pressure washing, and overall marina cleanliness.
“We typically recommend minor cosmetic “touch ups” to these areas, as these efforts will stand out significantly in the marketing process, are of minimal expense, and simultaneously enhance the boater environment,” Ekovich said.
“A well-maintained parking lot that is newly striped or has a new layer of fresh gravel and landscaping will go a long way in a lasting first impression, as will an organized service department and fully-stocked ship’s store.”
Marinas with impending capital expenditures such as repairs to old or weather-beaten docks, failing bulkheads, rusted racks or boat launch concrete caving in, will face lower market valuations because additional upfront capital will be required by the purchaser.
“Often, it’s better to repair what you can ahead of marketing your marina for sale,” Ash said. “Any changes you can make to get your marina ready and up-to-date in serving customers will further facilitate the sale. Manage liability risks so the buyer does not negotiate you down.”
While curb appeal will go a long way in making a good first impression, many prospective buyers want to see financials before they spend the time and money to make a site visit. At a minimum it is best to have monthly and annual reports for the trailing 12 months that detail revenue streams and expenses for all departments. Buyers will also want to see at least three years of Profit and Loss (P&L) statements to review the historical performance of the marina, especially those with high seasonality.
“We see challenges arise when the financial data is not detailed for several reasons,” Murphy said. “First, buyers purchase off what is in-place on the P&L, but they also need to see a clear path to growth and how better returns can be created down the road. When this detail is overlooked it can affect market valuations and create uncertainty for a buyer as to where efficiencies can be created.”
Both Murphy and Ash also stress the importance of leaving upside and potential additional revenue streams for the new owners. “Giving prospective buyers a clear path to upside will significantly increase the seller’s chances of sticking to their asking price, assuming the marina is priced at fair market value,” Ash said. “A buyer with new motivation and deeper pockets can be in a better position to act on projects that create additional value.”
Murphy said, “Future improvements and expansions will cost additional capital, but these projects can increase long-term yield for buyers and are much-desired growth opportunities.”
In addition to the financials, the due diligence package should include environmental impact statements, land surveys, relevant information on permits, tax assessments and insurance information, payroll reports, assets list, tenant leases and service contracts.
Marina owner David Finkelstein was under contract with a prospective buyer for his Surfside Marina when he discovered there was a problem with the property’s deed that dated back to previous owners. He had owned the marina for 13 years. Fortunately, he was able to complete the process to clear the deed and the sale went through.
“Make sure you have a clean and clear title and an up-to-date survey on what is actually owned. That is by far the most important thing; know what you’ve got before you go to sell it,” he said. “You may open up a can of worms, but if you’re going to sell it, you’ve got to know what’s in the can.”
Finkelstein believes in the “you have to spend money to make money” adage. He said owners should not fire their staff to try to make the financials look better. “Invest in the property, make sure it’s clean and operating like it should be,” he said. “Don’t walk away. Until it is sold, you still own it. Run it, invest in it like you’re not going anywhere.”
Murphy agreed it is important that owners continue operating the marina as normal. “A declining NOI (Net Operating Income) can dissuade buyers from making offers or even lead to a deal falling out of contract if the income or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) goes down during the period it is under contract,” Murphy said.
Ash said some owners even offer to stay on during an initial transition period, if it is helpful to the buyer. “We see sellers offering to stay on for anywhere from a few weeks to a year as a consultant. A seller’s availability for a solid transition period will put a buyer at ease and help facilitate the deal,” Ash said.
On the Market
You’ve made the decision to sell, you’ve got your financials in order. Then what happens?
Ekovich said a marina may be on the market on average 300 to 350 days, although it can vary depending on how the property is priced and marketed. For larger marinas (priced more than $10 million), a typical marketing timeline is 60 to 90 days with closing usually within 180 days.
Murphy suggests marina owners use a high level of marketing, which is where enlisting the help of a firm or marina advisor can be beneficial. “Because the market for marina buyers is relatively small, it is important that an owner does whatever they can to stack the deal in their favor,” Murphy said.
In addition to marketing, Murphy said LIPG’s team answers questions, schedules site visits for investors, clarifies misperceptions, generates offers, and ultimately helps match the right buyer with the property.
The number of offers an owner receives depends on several variables, with the two most prominent factors being the specific marina (size, NOI makeup, quality of amenities, services, etc.) and location. Murphy said most marinas around the country will typically receive only one to three offers.
“A person needs to be realistic,” Finkelstein said. “The first offer is usually the best offer even though it might not be the numbers you are looking for.”
Ekovich said the exception would be a saltwater marina priced at more than $10 million and located in a major boating area near a big city. LIPG generated six offers on a deal that was well above $10 million and after arranging a call for offers, the buyer was selected, and the deal moved forward.
“These assets typically have quicker closing timelines as well because the buyers tend to be well-capitalized, buy all-cash, and have prior (or partnered) marina experience,” Ekovich said.
As with all real estate, location is key for marinas as well. Ekovich said year-round boating, destination locations and the popularity of boating make the Eastern Seaboard, specifically the Southeast, the largest region for marina sales. The Chesapeake is another popular market on the Eastern Seaboard.
“Buyers in the market have been heavily seeking opportunities in the Southeast and along the Eastern Seaboard,” Murphy said, “and those sales affect the value of marinas in the same area, ultimately playing a role in an owner’s decision to sell.”
The Mid-Atlantic and Northeast also make up a large portion of sales. “Even though they are more seasonal, winter storage operations do very well,” Ekovich said.