With a growing amount of boats worldwide and a limited amount of space to put them… investing in a marina seems like a more and more appealing prospect.
Marinas are a mix between real estate and operating business, they have historically escaped the notice of real estate investors, especially at the institutional level. However, things have begun to change due to the sudden increase in boat stock and shortage of boat storage.
In 2020, $405 million of marina investments traded hands. That’s compared to 2019, which saw approximately $374 million in marina property sales. Interest in investment in marinas started after the Great Recession as real estate investors began to search for yield as cap rates compressed in core assets classes.
Over the last 10 years, cap rates for multifamily, industrial, office and retail have all gotten smaller by roughly 1.0 % to 1.5 % nationally. What’s more interesting is that marinas have not shown a sharp downward trend, and cap rates have remained higher than for all other asset classes even at the lowest point.
It transpires that marinas cap rates averaged 7.5 % in 2013 and as recently as 2018 were at 7.4%.
Currently, the marina space continues to provide a more yielding cap rate range than the core products. As the pandemic continues pressuring retail, office and even hotels, investors are looking for a safer place to put their money and marinas have transitioned from what has historically been considered a risky business into a promising investment avenue.
Behind the increased strength of marinas as a solid investment is the evolution of the boating industry. Boating was once seen as a hobby for the rich and mechanically minded, it’s now a leisure activity for the masses. Boats are bigger and more efficiently designed in all areas, making them more appealing than ever before.
Accessibility to boats nowadays has created a bigger market of boaters and a huge percentage of boaters who need marina services. This increase in demand is sudden and undeniable. The recent fashion trend for bigger boats has increased the need for dry dock and wet slip storage. Boaters can call ahead to the marina and have their boat fueled and ready before they arrive.
From a supply and demand perspective, there is a small number of marina facilities in the markets. So, the available marinas provide a predictable, recurring rental revenue from boat storage fees and commercial leases. On top of this, the complexities of creating new marinas limit the number of new marinas being opened.
With the increase in demand for marina usage and the growing stock of boats worldwide, the fundamentals of the industry suggest marinas should be an intriguing and promising investment vehicle for years to come.
Impacts of COVID-19 on marina investment yields
Interestingly, the COVID-19 pandemic, which has ground tourism and hospitality to a halt, has brought new life to the recreational space and powered more interest in marina properties. While the richer people might normally spend their money on vacations, travel restrictions and rising cases of COVID-19 has people shifting their ideas in ways to spend their money.
Naturally, due to the pandemic, boating has been an obvious way to participate in outdoor activities whilst respecting the rules of social distancing. Health officials in almost all countries have deemed boating a safe activity as long as marina facilities and customers stick to the health guidelines and requirements. As a result, boating has skyrocketed during the pandemic.
Even though it is safe to assume that consumer demand will plateau in a post-COVID world, boat sales are continuing to show a positive trajectory and looking forward, it’s safe to assume that new boaters will stay in the space for some time after purchasing something of such vast expense. It’s also safe to assume many boaters will grow fond of their new lifestyle on the dreamy waters and give in to the beauty and romance of living a life on the water.
As restrictions begin to be lifted more and more, a larger number of people will flee their current situations and naturally head for an environment with more freedom and fewer restrictions, and if they have the money, the boating lifestyle will likely be a top contender. . These consumers will create a prolonged demand for marinas and the services they provide, which is a good thing for those looking to invest.
Unique parts of the marina space
Before jumping in with two feet so to speak, there are many intricacies that investors should understand before taking the plunge. Firstly, this investment is part real estate and part business. The real estate aspect is simply part of a marina purchase. There is a wide range of income providing activities used at a marina, from storage to retail, boat repairs and restaurant services.
Two marinas producing the same net income can produce different valuations in the same market. As an example, a marina with large storage, a leased restaurant and a leased service department is more valuable than a marina with minimal storage, an internally managed restaurant and service department, despite similar net operating incomes.
Secondly, much more groundwork is needed to understand the current market environment. For comparison, someone who is familiar with multifamily can easily compile sales data online that produces a clear understanding of the current market environment within the desired area. However, because most marina sales are both real estate and business transactions, publicly available data does not fully present a clear picture of potential yields.
To gain a better understanding of the unique aspects of marinas and determine the profitability and value of a specific property, it’s strongly recommended that you work with someone who has a lot of experience in this field. This can be a reputable marina broker or an investor who is familiar with the product.
While new investors are entering the marina market at an unprecedented rate, it is still a very interpersonal industry and relationships matter and reputations matter. Take your time to understand the marina industry and build trustworthy relationships before taking the plunge.
“Arguably one of the most interesting things about the industry, as an investor, is that it’s very difficult to build through supply,” Underwood says. “Boat sales are cyclical, but if boat sales go down, it doesn’t hurt a marina’s performance, or not as much as you might think. Even as boat sales are going up and more boats are entering the market, the supply of slips is not going up [because] it’s so difficult to build a marina. That limitation on supply, from an investor standpoint, is a very positive thing.”
Underwood’s description could be an alarming prospect for an industry that 10 or 15 years ago was concerned that slip access would all disappear as marina owners sold out to condo investors looking to make a quick and large return on their investment.
“So what happens if these marinas are consolidated into the hands of a few, and what if slips are taken out of the water to build hotels or condos?” Underwood asks. “Theoretically to boaters that’s a bad thing because there’s less slip space. For those left owning slips, it’s a great thing because there’s more demand for fewer slips. With regulations being what they are in the water around the country, I don’t see that changing.”