2017 Nov Dec Marina World

FINANCING & VALUATION
How do you value a marina?
There were a significant number of notable marina transactions in the USA between January and
September 2017 and the demand is expected to continue as more qualified investors target this
asset class. But when it comes to valuing marinas, there is no clear cut formula. Gerard McDonough
examines some methodology.
Unlike other asset classes, such as
self-storage, offices, apartments and
lodgings/hotels, which have a plethora
of published income and expense
information, as well as capitalisation
rates or income multipliers, similar
information is not readily available in
the marine industry.
The lodging industry, for example,
has extensive information regarding
various categories such as luxury
hotels, mid-range and limited service.
The marine industry also comprises
various types of facilities, such as
marinas with only wet slips and limited
upland area, and
full-service marinas
with significant upland
area dedicated to
boat maintenance
and repair, summer
and winter upland
storage, rack storage,
marina stores, and
fuel and commercial
retail oriented
tenants. However,
there is little available
data regarding
income and expense
ratios, capitalisation
rates, or income
multipliers for marinas
and boatyards.
Currently, in the marina sector, the
typical unit of comparison is price
per slip. However, it’s also one of the
most unreliable units of comparison,
particularly when a facility with 100
slips and a 30ft (9m) average boat
length is compared to a marina that has
100 slips with an average slip length of
55ft (17m). In this instance, the most
relevant unit of comparison is price per
linear foot, which is derived from the
total linear feet of boats in the basin
area. The comparison can be further
compromised by the amount of upland
area, which may include significant rack
storage facilities, outside boat storage,
multiple retail tenants and a robust
boat maintenance and repair business.
In most instances, trying to utilise the
traditional sales comparison approach
is akin to hocus-pocus.
The aforementioned ‘income
multiplier’ is, however, one component
of the sales comparison approach
that is rarely utilised in the valuation
of marinas but worthy of closer
consideration. It is derived by dividing
the purchase price by the revenue
generated at the time of sale. For
example, a $2 million sales price
divided by income of $500,000 results
in an income multiplier of four (4).
However, a multiplier adjusted for cost
of sales is preferred. One of the issues
in developing this unit of comparison
is consistency in determining which
income the appraiser must consider.
For example, applying an income
multiplier extracted from a marina
where the income is entirely generated
from wet slip and upland storage to a
marina where a significant portion of
the income is generated from fuel sales
and boat maintenance/repair can result
in a very misleading conclusion.
The income approach is the primary
approach utilised in the valuation of
marinas, and the values are derived
through capitalisation of the net
operating income. When someone is
aware of a transaction, the first things
that must be established are the price
per slip and the capitalisation rate.
As previously noted, price per slip is
very unreliable, and the capitalisation
rate conclusion can also be very
misleading unless like-for-like facilities
Gerard McDonough
are being compared. Comparing a
capitalisation rate abstracted from a
marina that only has wet slips to a
full-service facility is not a relevant
comparison. Even if capitalisation rates
are taken from like-kind operations,
the derivation of the net operating
income must be analysed closely to
make certain that similar expenses
were deducted from the adjusted gross
income in deriving the net operating
income. Some of the primary expense
categories that can
result in a misleading
comparison include
maintenance and repair
expenses, on-site and
off-site management
fees and reserves
for replacement. If
these expense items,
for example, are not
treated similarly,
the reliability of the
capitalisation rate
comparison and
selection process is
compromised.
Due to the
diverse physical
and operational
characteristics of marine facilities, a
more meaningful and reliable unit of
comparison in the valuation process
may be an income multiplier (adjusted
for cost of sales) as opposed to the
traditional capitalisation of the net
operating income.
Gerard H. McDonough, MAI, FRICS,
is the senior managing director of the
Rhode Island and Connecticut offices of
Integra Realty Resources (www.irr.com), a
national property appraisal company with
offices throughout the USA that provide
commercial property market research,
valuation, counselling and consulting
services. McDonough is also president
of Marinevest (www.marinevest.com),
based at the Newport Shipyard in Newport
Rhode Island. Recent marine-related
valuation assignments have been completed
throughout the US, Caribbean and Central
America.
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www.marinaworld.com - November/December 2017