Marina Dock Age, September/October 1998

Maximize the Value of Your Marina on Paper
by Dennis P. Kissman

With the recent flurry of activity by Wall Street to get into the marina industry and make a quick buck on the consolidation play, there is no shortage of funds for these people to acquire marinas. They make their money on the difference in value from when they buy your marina and when they sell the group of marinas they acquired to the public through a public offering. Right now we see a lot of huffing and puffing, knocking on doors and jockeying for position but still not many deals closing. The bottom line is these groups cannot overpay for a marina and make their plans work. It all comes back to the same dilemma this industry has always faced, “What is the real value of a marina?”

What is happening today is not the same as what happened to our industry in the mid to late 1980s when there was a lot of money floating around to buy marinas and prices were paid way beyond the level the marina could support. We all know what resulted, and many of you in the business today profited by picking up foreclosed marinas at less than half their true value when lenders would take anything just to get rid of the marina. Today, lenders are much smarter and are not going to fall into the same trap. Even though consolidators today say they have the money, they still need the traditional lender to finance the deal in order to realize their expected returns. Now the question is how does today’s lender value a marina. The consolidator got your attention, but it is the lender that will make the final call on what your marina is worth.

The value of your marina is going to be based on the income it produces. Simply put, the lenders take a reportable income and apply a multiplier or cap rate to that number. Then they take into consideration costs associated with an owner/operator and deferred maintenance items, and they adjust the net operating income accordingly. Thus lenders arrive at an amount they will lend on a property. The cap rate that is floating around the industry today is 12 percent, and lenders may lend up to 80 percent of that amount. What we are saying is that if the adjusted net operating income is $300,000, the value of your marina is $2.5 million, and the lender will finance $2 million. The difference must come from the consolidator. Continue »