Marina Dock Age, May/June 2004

Do the Homework Before Hanging the “For Sale” Sign
by Dennis P. Kissman

Being involved in the realm of marina sales has occupied a substantial amount of time for our company during the past year or so. Some of the deals closed, but a majority of them did not. A number of things went wrong in those instances where the deal did not come to fruition, and some of those problems are very common and worth a further look, especially before you hang the “for sale” sign in front of your marina.

There are three very important reasons a buyer would kill a deal. The most significant one is if the business lacks any creditable financial statements that cover the last three years. Second, many deals break down when the subject comes to what “is” or “going to be” permitted by the various agencies at the marina. Third, there can often be a misunderstanding when it comes to the monetary value of the marina you are selling, and its perceived worth to the buyer. If top dollar is expected for a marina facility, each of these items must be addressed before it’s decided that the marina should be put up for sale.

Cash vs. Ieveraged money

Anyone looking to buy marina property is going to seek financing. A buyer may have enough cash to buy a marina, but that is not the prudent thing to do, because equity dollars typically are more expensive than leveraged dollars. What does this mean to the seller? Anyone with cash will expect more in return on his or her money than a traditional lending institution will provide.

To illustrate how this works, assume that your marina has an appraised value, and sells for $3.6 million. If a buyer were to pay all cash, the buyer expects a return on that investment of 12%. Therefore, your marina would have to show verifiable annual net operating income of at least $432,000. The key word here is “verifiable.” For this example, we'll assume that the best a marina facility can show after the buyer’s due diligence, and based on your not-so-complete records, is $300,000 of net operating income. If you expect the deal to close with all cash from the buyer, you will have to adjust your sale price downward to $2.5 million, or a decrease in value of $1.1 million if you expect this sale to go through.

Continuing with this example, if the $300,000 of net operating income is correct and can be supported with an income tax return, along with two years of similar returns, what would it take to make this deal go through? A traditional lending institution will look at those returns and accept them as accurate. It will also examine the real estate appraisal of the property and the selling price to determine the amount it will lend.   Continue »