Marinas, as a hybrid between real estate and operations, have historically escaped the attention of real estate investors, especially at the institutional level. However, that has started to change.
In 2020, more than $ 405 million in investments in marinas were traded. 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 seek returns as cap rates were squeezed in core asset classes.
Over the past decade, cap rates for multi-family, industrial, office and retail housing have all fallen from about 1.0% to 1.5% nationally. What is interesting is that marinas did not show an aggressive downtrend and cap rates remained higher than for all other asset classes, even at their lowest. In fact, marinas cap rates averaged 7.5% in 2013 and until 2018 they were 7.4%.
Today, the marina area continues to offer a more favorable cap rate range than the commodities. As the pandemic continues to put pressure on retail businesses, offices and even hotels, investors are looking for a safe place to put their money, and marinas have moved on from what was historically considered a “mom-and-” business. pop âinto a compelling investment property. .
A compelling investment story
The evolution of the boating industry is driving the strength of marinas as an investment opportunity. While boating was once considered a hobby for mechanics, it is now a leisure activity for the masses. Boats are bigger and better designed, and engines are more powerful and fuel efficient than ever.
The improved accessibility of today’s boats has created a larger market for boaters and a large percentage of boaters who require the services of a marina.
This increase in demand is twofold. The trend towards larger boats has increased the demand for dry dock and dry dock storage, while recreation enthusiasts are looking to marinas to elevate their experience. Boaters can call the marina and refuel and launch their boat before they arrive, making a day on the water a hassle-free experience.
From a supply point of view, there are also a limited number of marina facilities in most markets. As such, the available marinas provide a predictable and recurring rental revenue stream from vessel storage fees and commercial leases from on-site restaurants and other service offerings. In addition, the complexity of building new marinas limits the number of new marinas under construction.
The impact of COVID-19 on investment returns in marinas
Remarkably, the COVID-19 pandemic – which has dramatically slowed tourism and hospitality – has brought new attention to recreational space and sparked more interest in marina properties. While high-income people traditionally spend their money on vacations in Europe or trips to Disney World, travel restrictions and increasing cases in some areas are pushing them to look 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 considered boating a safe activity as long as marina facilities and guests meet state and local health guidelines. As a result, nautical activity has been extremely high in recent times.
Prior to March 2020, boat loans were the smallest category for Americans’ borrowing reasons, at just 0.07%. After the United States declared a national state of emergency, boat loans made up about 0.34% of loan requests.
While it is safe to assume that consumer demand will stabilize in a post-COVID environment, boat sales will continue to show strength in 2021. Going forward, new boaters are likely to remain in the market. space for a while after making such a large purchase. We can also expect many boaters to get used to their new lifestyle on the water and choose to spend more time sailing in the future.
As the restrictions are lifted, more people will flock to destinations on the water and frequent restaurants located in marinas. These consumers will create a sustained demand for marinas and the services they provide, which bodes well for a long-term interest in the space.
Unique aspects of the marina space
Before jumping on a marina investment opportunity, there are a number of subtleties that investors should understand. First, this investment is partly real estate and partly commercial. The real estate component is only part of a marina sale. There is a wide range of income generating activities performed at a marina, from dockside storage to retail, repair and catering.
Often the way a marina business is structured has an impact on cap rates. Two marinas producing the same net operating income may produce different valuations in the market. For example, a facility with large storage, a leased restaurant, and a leased service department is more valuable than a facility with minimal storage, an internally managed restaurant, and a service department, despite having net operating income. similar.
Second, more groundwork is required to fully understand the current market environment than with more traditional investment products. For comparison, a person familiar with multi-family can easily compile online sales data that provides a clear understanding of the current market environment in a desired region. However, since most marina sales are both real estate and commercial transactions, publicly available data does not fully present a clear picture of potential returns.
To better understand the unique aspects of marinas and determine the profitability and value of a specific property, it is recommended that you work with an expert in the space. This could be a reputable broker or marina seller, or even an investor who knows the product. There are also a number of professional associations that can guide you in your education.
As new investors enter the marinas market at an unprecedented rate, it is still a very connected industry and relationships matter. Take the time to understand the marine industry and build relationships before investing.
Andrew Cantor is a founding partner and managing director of Colliers Leisure Property Advisors, which specializes in brokerage of marinas and other leisure-oriented properties in the United States and the Caribbean.