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Consolidation and Improvement within the Marina Trade – Cornell Actual Property Evaluate


Marinas, lengthy the area of native, impartial owner-operators, have seen growing curiosity from traders over the previous 15 years. Now dominated by a number of giant institutionally backed corporations, the trade has rapidly reworked from one comprised of properties that retailer and repair boats to at least one that has seen billions of {dollars} in capital inflows from corporations in search of to capitalize on operational inefficiencies and a scarcity of historic funding.  Mixed with the regular money move generated by these companies and excessive obstacles to the development of recent provide, the nontraditional asset class has garnered a fame as a severe alternative for funding. However how has the trade modified, what are the primary motivations of traders, and what does the long run appear to be?

Historical past of Marina Trade

Though the idea of a marina arguably dates to the Roman Empire, the marina trade in the USA has developed regularly because the 19th century.  After the passing of The River and Harbor Act of 1899, Congress gave the Military Corps of Engineers the authority to approve the development of any construction on or over navigable waters1.  Following an increase in client spending after World Battle II, leisure boating in the USA began to realize recognition, and like many different industries, thrived.  This growth led to additional improvement of marinas – by 1960 there have been 3,900 marinas and boatyards, 1,100 yacht golf equipment, and almost 8 million leisure boats throughout the USA.  Marinas have traditionally been native, family-owned operations.  New federal laws, such because the Water Air pollution Management Act, Coastal Administration Act, and the Clear Water Act of 1977, designed to guard the nation’s waterways in opposition to overdevelopment, air pollution, and the destruction of coastal wetlands have been at first tough to interpret  Coupled with double-digit inflation, excessive rates of interest, and an oil embargo, it’s stunning that the marina trade survived in any respect.  For the reason that Eighties, nevertheless, the leisure boating trade has grown steadily.  In 1990, about 8 million vessels have been registered, rising to a peak earlier than the Nice Recession of near 13 million vessels2.

Courtesy of Sewell’s Marina

What’s a Marina?

Marinas present docking, storage, and associated provides and providers to leisure boat homeowners.  Many promote gas, present restore providers, and a few even supply boat leases.  Marinas differ from ports in that they don’t deal with giant passenger or cargo ships, though some do present docking for yachts and mega yachts relying on dimension and entry to deep water.

Roughly 70% of the marinas in the USA are personal companies, about 1-2% are personal yacht golf equipment that solely cater to their members, with the remaining 30% being owned and operated by native and state governments, sometimes at low or no price to make use of1.  The standard marina enterprise mannequin is to offer docking to each boat homeowners who hire a slip (dock house) or mooring (anchored house) month-to-month or for the season, in addition to transient boaters who wish to hire a slip or mooring for one or a number of nights.  Many marinas additionally present dry rack storage, the place specialised forklifts transfer boats from racks on the property into the water when homeowners wish to use them, growing the variety of prospects the marina can accommodate.  Marinas take many styles and sizes. There are some very giant operations, similar to Marina Del Rey and Dana Level in California that may accommodate hundreds of boats, however the common dimension is 50 to 150 slips.  One pattern that emerged within the Nineteen Nineties was the idea of “dockominiums” the place the slips are handled like condominiums.  Homeowners possess an curiosity in a sure slip on the dock, which will be offered, inherited, or transferred like every other curiosity in actual property.

Marinas, like different hospitality sectors, are an working enterprise mixed with the possession of actual property.  Just like the operations of a marina, the actual property facet can get sophisticated.  Relying on the marina, an proprietor could have payment easy possession of the bottom beneath the water and docks whereas others could also be topic to a sovereign or submerged land lease, with the lessor being a state company or the federal authorities.  Regardless of its challenges, traders have elevated over the previous decade in search of yield in a low-interest-rate surroundings, trying to make the most of a fragmented trade that may profit from economies of scale and operational efficiencies.

Institutionalization & the Present State of the Trade

Just a few key gamers, similar to Secure Harbor Marinas and Suntex Investments, have led the push and attracted different well-capitalized traders into this area of interest house. Just a few key elements of the marina enterprise have attracted these traders and led to a change.  Demographic traits, such because the “silver wave” of ageing child boomers, are one of many key drivers of this consideration from institutional capital.  Not solely are most of the small-scale marinas owned by child boomers, who could also be trying to money out and retire, however leisure boating has been confirmed to be a well-liked passion on this demographic.  As 10,000 child boomers retire each day, boat gross sales and participation charges in leisure boating are being pushed up. This has led to occupancy charges at marinas trending upwards from 2011 to 2018, with 70% of marina homeowners surveyed reporting occupancy over 95%3.  Marina operators wish to prolong this progress to youthful demographics via on-site boat leases and entry to memberships with corporations like Freedom Boat Membership, which gives members entry to boats all year long, hoping that this may result in these customers ultimately buying boats of their very own.

Moreover, the competitors for waterfront websites from residential builders in main coastal cities has led to the absorption of potential marina websites by developments with increased potential profitability similar to waterfront condos, flats, and resorts3.   As these websites are absorbed, or worse, transformed from marinas to different makes use of, the remaining boat homeowners immediately have fewer areas to retailer their boats. In response to Baxter Underwood, CEO of Secure Harbor Marinas, “Theoretically to boaters, that’s a foul factor as a result of there’s much less slip house. For these left proudly owning slips, it’s an important factor as a result of there’s extra demand for fewer slips. With laws being what they’re within the water across the nation, I don’t see that altering.”

These excessive obstacles to new provide mixed with the favorable demographic traits have positioned marinas as a compelling funding alternative when pre-pandemic actual property costs for conventional asset lessons have been at historic highs.

One other facet driving consolidation available in the market is a traditional personal fairness technique – take a fragmented enterprise with operational inefficiencies, construct an working platform that may permit a portfolio of property to realize economies of scale, then exit with a hefty revenue having elevated the effectivity and profitability of that enterprise.  These economies of scale are particularly achievable on a regional foundation, the place corporations similar to Secure Harbor can make use of managers with native data, implement new enterprise plans, and make capital enhancements that the smaller homeowners could have uncared for over time.  The growth in marina transactions has not been unique to the coasts however has taken place throughout inland waterways as properly. In response to trade specialists, probably the most engaging states have been these with the very best variety of registered boats, each in saltwater and contemporary – California, Florida, Michigan, Minnesota, North Carolina, New York, Ohio, Texas, and Wisconsin5.

Current repositioning methods embody the ideas of branding and membership.  Secure Harbor pioneered this mannequin the place a boater might have a membership with the corporate and as they journey from harbor to harbor and may keep at one of many firm’s 100+ areas, anticipating a sure degree of service and facilities.  Billed as the biggest proprietor of marinas on the earth, and with preliminary backing from the American Infrastructure Fund, Koch Actual Property, and Guggenheim Companions, Secure Harbor was lately acquired for over $2 billion by Solar Communities, an actual property funding belief historically targeted on manufactured housing communities6.

Secure Harbor Newport Shipyard – acquired by Secure Harbor in 2019

Actual Property Round Marinas

Given the built-in foot site visitors and exercise round marinas, it is sensible that actual property builders could be drawn to them as investments.  Throughout the nation, builders have included marinas as a part of giant mixed-use improvement proposals.  One such improvement, on Saco Island in Maine, seeks to show a former industrial space near Portland right into a thriving mixed-use improvement with a marina, river stroll, residential models, business house, a lodge, and open house for the general public to take pleasure in.  Regardless of site visitors considerations, the neighborhood is worked up on the potential for elevated exercise on this underdeveloped space, anchored by a brand new marina.  Craig Pendleton, the chief director of the Saco Chamber of Commerce, shared his ideas on the challenge, from his viewpoint as chamber director and his background as a fisherman. “I’m excited we might probably have one other marina down right here. I think about whale-watching boats and dinner cruises on the river, he mentioned. All that potential is simply ready to occur.”7

It’s not simply coastal resort locations and underdeveloped cities in New England the place new marinas are being constructed. Touted as New York Metropolis’s first new marina in 50 years, OneO15 Brooklyn Marina opened to the general public in 2016.  Developed by Singapore-based SUTL Enterprise, which makes a speciality of marina improvement, the $28 million challenge on eight acres consists of 102 slips, alongside a neighborhood boating program totally free and low-cost boating.8

Courtesy of One 15 Brooklyn Marina

What does the long run maintain?

When wanting in the direction of the way forward for the marina trade, the demand and provide metrics definitely bode properly for continued funding.  One pattern that’s right here to remain is curiosity from institutional traders trying to unlock worth by upgrading marinas into locations surrounded by facilities and leveraging their manufacturers to ascertain model loyalty. In response to a market outlook by Marcus & Millichap, investments in dock upgrades, the addition of eating places, boutique resorts, and even boat leases will likely be additions that marina homeowners trying to create worth can implement.  Properly-located marinas with improvement potential will notably entice consideration from traders trying to develop mixed-use, residential, and lodge properties with built-in demand drivers. One such instance, the Hilton Fort Lauderdale Marina, traded for over $170 million in 2018.  Demonstrating that it’s not simply pure marina traders concentrating on the asset class, the client was an affiliate of Brookfield Asset Administration and the vendor was an affiliate of Blackstone, two of the biggest actual property homeowners on the earth. Granted, the property features a 589-room lodge with occasion house along with its 33-slip marina, however in accordance with Paul Weimer, SVP at CBRE Motels, the potential for redevelopment on the nine-acre property was the important thing motivation of the transaction. “With great potential for future redevelopment, this actually distinctive funding permits possession to amass fee-simple, waterfront actual property in a vacation spot the place demand continues to develop,” he famous on the time of the sale9.

In areas the place water frontage is proscribed, search for marinas to proceed investments in dry storage.  Automation is a comparatively new pattern within the dry space for storing that trade specialists see as a technique to negate the dearth of house accessible for storing the rising variety of boats within the water.  In contrast to forklifts, that are restricted in how excessive they will raise boats, automated methods which use an inner crane system can retrieve, maneuver, and retailer boats in a lot much less sq. footage. Whereas a forklift system is proscribed to a few to 5 racks in peak, automated methods can retailer and retrieve on racks over 100 ft excessive on a narrower footprint.  Like extra conventional asset lessons of actual property, this elevated density and earnings per sq. foot is a promising answer for marina homeowners trying to maximize revenue.  Given the emphasis placed on effectivity by conventional personal fairness traders, this will likely be a well-liked improve to marinas the place dry dock storage is already in use, or the place there’s adjoining land accessible, particularly when in comparison with the issue and value of putting in new docks.10

Automated Dry Storage System in Florida (courtesy of BoatTest.com)

On the planet of actual property, marinas are one of many extra distinctive asset lessons. Combining an operationally intensive, hospitality-style enterprise mannequin with waterfront property and the restrictions and limitations that these areas can carry requires inventive possession to maximise worth. Due to this fact, it isn’t stunning that institutional capital has entered and dominated this house as traders look to grab the chance in a fragmented and historically inefficient trade. When mixed with the potential to develop waterfront property alongside marinas, utilizing the enterprise as each an amenity and a requirement driver, the attractiveness is intensified, and the pool of potential traders is widened to incorporate extra conventional actual property traders and builders.  Because the variety of alternatives dries up, new know-how similar to automated dry dock storage will show integral to maximizing effectivity and subsequently the worth created on ever smaller plots of land.

 

References

  1. Encyclopedia of Enterprise, 2nd ed. SIC 4493 Marinas. Reference for Enterprise. (n.d.). https://www.referenceforbusiness.com/industries/Transportation-Communications-Utilities/Marinas.html.
  2. Lange, D. (2020, December 3). Leisure Boating – Statistics & Information. Statista. https://www.statista.com/matters/1138/recreational-boating/.
  3. Leisure Funding Properties Group/Marcus & Millichap. (2020, January). Leisure Funding Properties Group: 2020 Nationwide Marina Market Funding Report. https://www.leisurepropertiesgroup.com/wp-content/uploads/2020/01/2020-Marina-Funding-Report.pdf.
  4. Haynes, R. (2017, November 20). Searching for treasure at marinas. Commerce Solely Right this moment. https://www.tradeonlytoday.com/sellers/seeking-treasure-at-marinas.
  5. Traits Report: A Decade of Marina and Boatyard Trade Information. Marina Dock Age. (2020, March 3). https://www.marinadockage.com/trends-report/.
  6. Marinas, S. H. (2020, September 29). Secure Harbor Marinas Proclaims Merger Settlement With Solar Communities, Inc. https://www.prnewswire.com/news-releases/safe-harbor-marinas-announces-merger-agreement-with-sun-communities-inc-301140059.html.
  7. Saco island focused for $40 million improvement. (2017, Jul 25). Actual Property Monitor Worldwide Retrieved from https://www-proquest-com.proxy.library.cornell.edu/wire-feeds/saco-island-targeted-40-million-development/docview/1922874083/se-2?accountid=10267
  8. ABOUT ONE°15 Brooklyn Marina. One15 Brooklyn Marina. (n.d.). https://one15brooklynmarina.com/about-one15-brooklyn-marina/.
  9. Cohen, D. (2018, June 20). CBRE Brokers $170.6M Sale of Hilton Fort Lauderdale Marina. REBusinessOnline. https://rebusinessonline.com/cbre-brokers-170-6m-sale-of-hilton-fort-lauderdale-marina/.
  10. Weykamp, G. (2018, April 6). Automated Dry Storage Marinas Present Options to Many Waterfront Challenges. Marina Dock Age. https://www.marinadockage.com/automated-dry-storage-marinas-provide-solutions-many-waterfront-challenges/.
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