A commercial real estate investment is based on the following fundamental premise: a property is acquired, the space is leased to rent-paying tenants, rental revenue is used to cover operational expenses and debt payment, and any money left over is paid to the property owner.
This business plan applies to several popular commercial real estate asset classifications: office, retail, multifamily, industrial, hotel, and self-storage. It also applies to less typical asset classifications, such as…a marina.
We will define a marina, discuss the dangers, benefits, and economics of owning one, and argue why a solid argument exists for investing in this asset class.
A marina is too narrowly defined as a site where people rent boat slips. They serve as petrol stations, new boat dealerships, storage facilities, boat maintenance shops, boat rental places, retail businesses, and restaurants.
Given the variety of boat-related service offerings, it is more realistic to define a marina as a diversified, full-service boat-related business aiming to cater to all its boat owner clientele’s demands.
The Advantages and Drawbacks of Marina Ownership
The following is the business case for marina ownership:
- Real estate: Marinas, by definition, must be on or near the water. As a result, the real estate they occupy is frequently in a desirable, difficult-to-replicate position, which may assist marina owners in reducing investment risk.
- Income Diversification: As previously stated, marinas benefit from several revenue streams, which may help level out seasonal differences in visitors and income. For example, although summer is peak boat slip rental and restaurant season, money from haul-out dry storage and maintenance in the winter may help marina operators make it during slower seasons.
- Except in the most popular sites like New York and Florida, there may only be one or two marinas near a freshwater lake or seaside location so that you can put lake marina for sale. With less competition, marina for Sale in Florida owners have more pricing power and a better chance of maintaining their slip occupancy high.
- Credit Risk: According to the US Coast Guard, 69.8% of boaters had yearly household incomes of $75,000 or more. As a result, they tend to be reasonably rich folks with minimal credit risk.
- Income: If properly managed, a marina venture should generate a consistent stream of distribution income for its owners, resulting in a reasonable return on investment.
A marina, however, is not without peril. The advantages indicated above should be balanced against the hazards listed below.
The Dangers of Marina Ownership
Some dangers associated with marina ownership appear comparable to typical commercial real estate assets. These are some examples:
- Missed Payments and Collections: Boat slip tenants may pay their rent late or refuse to pay it. Following these payments can require much work and resources, much like a traditional property, which might affect a property’s profitability.
- Liability: Boating is an inherently dangerous sport exacerbated by a marina’s closeness to the sea. Slips/falls and boat accidents are two possible sources of harm. Furthermore, people who sell fuel may face much greater danger.
Aside from these dangers, several are exclusive to the marina business. They are as follows:
- Summer is the busiest season for the marina industry. Other seasons may have much lower sales volume and cash flow. Other industry lines may be able to lessen this risk, but the simple truth is that boatyards are often seasonal small businesses.
- Natural disasters: Marinas are especially vulnerable to unpredictable weather catastrophes since they include waterfront property. During the summer, they may be harmed by a storm or flood. Marinas in the north may be ruined by approaching ice or exceptionally severe winter storms throughout the winter.
- Wear and tear: This is a concern for saltwater marina managers. The salt in the air and the wear and tear caused by tidal variations can significantly harm wet slip constructions.
To prevent these hazards, marina owners must spend the necessary money on maintenance expenditures and adhere to all environmental rules to maintain the marina’s safety for both human and aquatic occupants.
A marina may not be the first asset-class commercial real estate investors consider when looking for possible investment possibilities. The beachfront sites, diversity of revenue streams, relative rarity. And high net worth customers, on the other hand, provide for a strong business argument. Those interested, however, should measure these advantages against the hazards of seasonal income fluctuations and vulnerability to potentially severe weather occurrences.
Marina ownership has comparable economics to a regular commercial real estate asset. Income drivers include, for example, the number of slips available for rent. The size of the boat that those slots may accept, and the supplementary services offered. Property taxes, insurance, maintenance, security, and utilities are examples of operating expenditures. The resultant net active income is “capped” at rates ranging from 9.5% to 10.5%. However, there can be substantial variation depending on the property’s specific features and the dependability of its cash flow stream.
Financing a marina acquisition may be difficult because of the few lenders offering these facilities. The conditions will most certainly be more expensive than a standard CRE credit. Investors must incorporate these words into their Proforma to ensure their return targets are reached. If the economics work out, people who invest in marinas may discover that it is a unique, successful, and enjoyable venture.