Marinas, as a hybrid between real estate and operating business, have historically escaped the notice of real estate investors, particularly at the institutional level. However, that has begun to change.
In 2020, more than $405 million of marina investments traded hands. That’s compared to 2019, which saw $374 million in marina property sales. Investor interest in marinas emerged after the Great Recession as real estate investors began to search for yield as cap rates compressed in core assets classes.
Over the last decade, cap rates for multifamily, industrial, office and retail have all compressed by approximately 1.0 percent to 1.5 percent nationally. What’s interesting is that marinas have not shown an aggressive downward trend, and cap rates have remained higher than for all other asset classes even at the lowest point. In fact, marinas cap rates averaged 7.5 percent in 2013 and as recently as 2018 were at 7.4 percent.
Today, the marina space continues to provide a more favorable cap rate range than the core products. As the pandemic continues to put pressure on retail, office and even hotels, investors are looking for a safe place to put their money and marinas have transitioned from what has historically been considered a “mom-and-pop” business into a compelling investment property.
A compelling investment narrative
Driving the strength of marinas as an investment opportunity is the evolution of the boating industry. While boating was once viewed as a hobby for the mechanically minded, it’s now a leisure activity for the masses. Boats are bigger and better engineered, and engines are more powerful and fuel efficient than ever before.
The improved accessibility of today’s boats has created a larger market of boaters and a large percentage of boaters who require the services of a marina.
This increase in demand is two-fold. The trend toward larger boats has increased demand for dry dock and wet slip storage, while leisure enthusiasts look to marinas to elevate their experience. Boaters can call the marina and have their boat fueled and put in the water before they arrive, making a day on the water a hassle-free experience.
From a supply perspective, there is also a finite number of marina facilities in most markets. As such, the available marinas provide a predictable, recurring rental revenue stream from boat storage fees and commercial leases from on-site restaurants and other service offerings. In addition, the complexities of building new marinas limits the number of new marinas being constructed.
With a stable and growing stock of boats and a limited supply of facilities in which to store them, the fundamentals of the industry suggest marinas should be a compelling investment vehicle for years to come.
The impact of COVID-19 on marina investment yields
Remarkably, the COVID-19 pandemic—which has drastically slowed tourism and hospitality—has brought new attention to the recreational space and fueled more interest in marina properties. While higher income people might traditionally spend their money on European vacations or trips to Disney World, travel restrictions and rising cases in some areas have them looking for new ways to spend their time and money.
Throughout the pandemic, boating has stood out as one of the few activities that allows for social distancing. In nearly every state, health officials have deemed boating a safe activity as long as marina facilities and customers adhere to state and local health guidelines. As a result, boating activity has been extremely high recently.
Prior to March 2020, loans for boats represented the smallest category for Americans’ reasons to borrow, at just 0.07 percent. After the U.S. declared a national state of emergency, boat loans have made up roughly 0.34 percent of loan requests.
While it’s safe to assume that consumer demand will plateau in a post-COVID environment, boat sales are continuing to show strength in 2021. Moving forward, it is likely new boaters will remain in the space for some time after making such a large purchase. We can also expect many boaters to grow accustomed to their new lifestyle on the water and choose to spend more of their time boating in the future.
As restrictions are lifted, more people will also flock to destinations on the water and frequent restaurants located at marinas. These consumers will create a sustained demand for marinas and the services they provide, which bodes well for long-term interest in the space.
Unique aspects of the marina space
Before jumping at a marina investment opportunity, there are a number of intricacies that investors should understand. First, this investment is part real estate and part business. The real estate component is just part of a marina sale. There is a wide range of income-producing activities done at a marina, from dock storage to retail, repairs, and food service.
Oftentimes, the way a marina business is structured has an impact on cap rates. Two marinas producing the same net operating income can produce different valuations in the market. For example, a facility with significant storage, a leased restaurant and a leased service department is more valuable than a facility with minimal storage, an internally managed restaurant and service department, despite similar net operating incomes.
Second, more groundwork is required to fully understand the current market environment than with more mainstream investment products. As a comparison, someone who is familiar with multifamily can easily compile sales data online that provides a clear understanding of the current market environment within a desired region. 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 better understand the unique aspects of marinas and determine the profitability and value of a specific property, it’s recommended that you work with an expert in the space. This can be a reputable marina broker or vendor, or even an investor who is familiar with the product. There are also a number of trade associations that can guide you in your education.
While new investors are entering the marina market at an unprecedented rate, it is still a very connected industry and relationships matter. Take the time to understand the marina industry and build relationships before investing.
Andrew Cantor is a founding partner and managing director with Colliers Leisure Property Advisors, which specializes in the brokerage of marinas and other leisure focused properties throughout the U.S. and Caribbean.