Industry Articles - 2006
Boat & Motor Dealer / Marina Dock Age, December 2006
Avoiding negative publicity in 2007 is as simple as
minding one’s business
by Dennis P. Kissman
For the mainstream media, a story just isn’t a story without conflict. So it was no surprise when, earlier this year, newspapers in southern California reported on a county supervisor who was complaining to a private marina owner about raising his dockage rates by as much as 35%. The story hit the papers because some of the live-aboard boaters at the marina complained loud enough, leveraging public opinion in a clever public relations effort to gain sympathy for their cause and, ultimately, stop the steep price hike.
It was a troubling story no matter how one viewed it. The trouble was, no one was blameless. It was easy to be upset with the county supervisor for meddling in private business, the live-aboard boaters for complaining in such a public way, and the marina operator. One could argue there was plenty of blame to go around.
Avoiding the mess
Now it seems that the vast majority of newspaper consumers would likely agree that the “bad guy” in this conflict was the marina operator for appearing to gouge his customers for the sake of profit. It’s the story of the greedy businessman again. But this time, it was probably well-deserved.
It’s my informed opinion that the marina operator let a totally avoidable situation get out of hand. There is no reason why a marina should ever have to raise its rates 35% at one time if it is on top of the business. Taking such a draconian measure is just asking for trouble and, frankly, it makes the industry look bad.
So here’s a good piece of public relations advice for 2007: Marinas that want positive press coverage, or at the very least want to avoid negative publicity, should do themselves a favor by offering the best product and service possible.
Although this criticism may sound heavy-handed, it is really a question of best management practices. Marinas do not deteriorate, become obsolete, or have their operating costs dramatically increase overnight. All of these things occur over time, so my question is: Where was the management of this particular marina when all these changes were occurring?
One might argue that when the marina was purchased, it already had a lot of deferred-maintenance issues. If this was the case, the marina owner was already aware of the problems at that moment and should have developed a plan to resolve them. Boaters, in general, are a very patient group and if they believe a marina follows through on its promises to upgrade the property, they are willing to grin and bear it.
There’s plenty of anecdotal evidence to suggest that if a customer comes onto a property — whether it’s once a week, once a month, or once a season — and he or she sees something different about the place, even though he or she isn’t clear about what’s changed, then the marina has a successful upgrade and preventive maintenance program.
Paying for changes
Of course, this only brings us back to the issue the California news media focused on, which was the marina’s need to raise rates to pay for such upgrades. So the obvious question is: Where does the money come from to implement even a gradual program? It’s not really a difficult question to answer. The money comes from the boaters in the form of the fees they pay to the marina. However, instead of increasing rates 35% in one shot, it’s more palatable to increase rates annually. This not only covers operating costs and keeps the same percent of profitability, but also builds in an amount that the marina can use next year. With a program like this in place, it’s possible to maintain and upgrade one’s property. When customers can see continual improvements, they will pay their fees without complaining.
In order for this rate increase to work, the marina owner or operator needs to thoroughly understand his or her marina and have a little forethought. Let’s return to the bad media publicity experienced by the California marina. A customer at one of the marinas was quoted in the newspaper article as saying, “We have a 40-year-old restroom that needs improvement… and nothing is being done.”
It’s clear, isn’t it, that in the prior year, the 39-year old restroom worked just fine, but when it turned 40, it suddenly fell apart. This isn’t sarcasm for the sake of sarcasm. All marinas are likely to have somewhat similar situations, but if they’re run by prudent managers, then most of those marinas should be in fair-to-good condition.
Marinas should seriously consider a gradual improvement program for their facilities and focus on those items that are still in fair condition. For example, suppose the mirrors inside the restroom of a marina are badly discolored, two of the toilet bowls are cracked and the partitions are rusted and coming off the walls-all things that are still serviceable, but should be replaced. The marina could put off these repairs for another couple of years, but by then these items will be in worse shape and more items will become problems.
This author has previously discussed the concept of replacement reserve. In theory, this sounds like a good idea because when one needs to replace mirrors, toilet bowls and partitions, the marina will have the money set aside. In the real world, this simply does not happen unless the marina’s lender forces it to set up a reserve and that amount becomes part of the marina’s monthly loan payment.
Now let’s examine a “pay-as-you-go” plan. When a marina is preparing its budget for the coming year, it should start a separate list of capital items that need to be upgraded, repaired, or replaced. This does not refer to replacing light bulbs, but rather things like fuel or water lines, dock pedestals, computers, decking, and forklift engine rebuilds. Such items typically have useful lives over several years. Now estimate the cost to do this work next year, not 10 years from now. For the sake of a hypothetical example, let’s say the sum equals $40,000. This number represents the amount that the marina will need to build into its rates for the next year, above a normal increase, to cover increases in operating costs and maintain the same profit margin. If the marina charges dockage fees by the linear foot for 12 months, then divide the $40,000 by 12 months and then divide that answer by the number of linear feet that will have to be occupied, not the total amount in the marina. Remember, this is money the marina wants to collect, not what it should collect. This will give the marina the amount that should be added above any other increase in rates.
Next year, when the marina goes through this exercise, it should make sure it starts over with its base rate and not just add the capital requirements to last year’s total rate charged. If it doesn’t start from scratch, it may soon find itself priced out of the market.
Summary
If marinas follow this method of determining rates to pay for capital expenditures, they will be sure to avoid negative publicity when raising rates. But it’s far more than that. This is a painless way to get compensated for continually improving a property and showing good faith to one’s customers without having to increase rates by 35% and trying to justify the increase to some politician who probably has never set foot in a marina.
Boat & Motor Dealer / Manna Dock Age, December 2006
There’s good news and bad news for marina insurance in 2007
By Mark Yearn
Perhaps the year’s biggest story in the insurance industry is the one that didn’t happen — insurance companies dropping off by the droves following yet another horrific hurricane season.
If the 2006 hurricane season had turned out to be as bad as some predicted, it would have caused a further erosion in the willingness of insurance companies to provide coverage to marinas. Worse still, insurance companies that continue to provide coverage would have felt justified in increasing their pricing again. In light of such a scenario, marina owners would be best served to be skeptical of anyone, myself included, who came along saying he or she has “the” insurance solution for marine businesses located in the hurricane-prone areas of the country.
Fortunately, nary a hurricane has even come close to the United States, giving those high risks areas somewhat of a breather for this year. As a result of this lack of activity, there is even an indication that there may be some increased availability of insurance coverage for those exposed businesses in the typical hurricane zones.
So the good news for those businesses located in the hurricane-prone areas of the country is that coverage may once again become more readily available to marinas. The bad news? It will come at a price.
The bad news
Although this year’s hurricane season has been quiet, there has not been enough distance between the terrible seasons of the last three years for underwriters to forget the damage an aggressive hurricane season can do to the bottom line. A hurricane season with little or no activity, including the mild winter last year in much of the country, has allowed underwriters to reinforce their balance sheets and reduce the overall carrying costs of the losses from prior years.
When underwriters are more profitable, i.e., pay fewer claims, they have more capacity to write business and begin to look at ways to increase revenues, while not necessarily increasing their overall risk. How do they do that for marine businesses in high-risk areas? By providing coverage at a price they are willing to accept for the risk.
Hence, market competition will not drive the price; underwriter’s willingness to accept this risk will drive the price. If they cannot get their price for the insurance program they are offering, they will walk away from the business.
Although there is an indication that underwriters are willing to come into the market and assume the risk associated with writing hurricane business, it will not be at any great premium decrease. But coverage will become more readily available for those marine business operators who continue making upgrades, performing proper maintenance, and following sound risk management practices.
Many marina owners will be required to purchase coverage because of their loan requirements. To lessen the financial strain to one’s bottom line, these marinas should work with the insurance company and banker in structuring a program that provides the coverage protection that the bank is looking for at a premium that will not financially burden the marina.
And this overall indication of the willingness of insurance companies to entertain risks in the hurricane prone areas is good news for the marine businesses located throughout the rest of the country. This increased interest to write insurance results in greater opportunities to purchase insurance for marine businesses and should result in a few more options being made available for business owners to review. This has not resulted in an overall decrease in pricing, but rather in an insurance market that is very stable and one offering increased coverage protection.
A worrisome trend
In recent years, smaller, less experienced companies have begun entering the marine insurance market to offer protection to marine businesses, and this is a worrisome trend. Having been in this business for more than 25 years, I have seen many insurance companies enter the market to offer protection only to leave the market after one bad year. It may be in a marina’s best interest to seek out insurance protection from those companies that have supported the industry over the long haul, including those years when these companies continued to provide protection when other carriers withdrew the availability of coverage.
Some of those companies suffered tremendous losses from Hurricane Katrina and the other storms of 2005, but due to their commitment to the industry, have continued to provide protection to businesses in the marine industry, including those in the hurricane prone areas. These companies have shown their commitment to marinas and will be there when you need them.
When it comes to greater pricing stability and reduced insurance costs, staying with one’s current insurance company for the long haul will probably be the best option. Marinas’ overall goal should be focused on pricing stability, as opposed to wide fluctuations and swings in one’s annual insurance costs. Be careful not to get caught on the insurance roller coaster — the ride up usually is longer and slower than the ride down. Riding any drastic price swings down will always result in large price swings up in the very near future. And, who can budget their businesses based on wide price swings in either direction.
Focus for 2007
As far as one’s daily business operations are concerned, marinas should pay more attention to the contract language contained in one’s dockage, storage, and brokerage agreements. One marina contacted me stating that it was being sued over its contract language, which stated that boat owners needed to leave the premises in the event of a hurricane. If they elected to remain in their docks, they may be responsible for any damage that their boat may cause to the marina property.
Three slipholders left their boats in their slips, and after Katrina, the marina assessed each boat-owner for damages caused by their boats. Their insurance company even paid a claim for the damages these boats caused to the marina building.
The insurance company for the boat owners has now sued the marina over its contract language and is asking the court to legislate the legality of forcing boat owners to leave the premises in the event of a storm. In Florida, a marina owner cannot force any boat to leave the property, and this lawsuit even cites Florida law in its defense, although the suit was filed outside the state of Florida.
Business owners need to take the extra step to review contract language, making sure that it contains the proper language to protect one’s business. It should contain clauses that require boat owners to maintain insurance protection for a specified limit and it should name the marina owner as an additional insured.
A final caveat
Finally, it cannot be overstated: Deal with an insurance broker who is a specialist in the marine industry. This is one of the best lines of defense in properly insuring one’s business. By dealing with a specialist, the marina owner or operator will be working with an individual who puts the marina’s interest above the sale of insurance. Find the individual who acts as if the marina business is his or her business, the marina’s money is his or her money, the marina’s loss is his or her loss.
What happens all-too-often in this industry is that there are issues that the marina owner thought were covered, but were clearly not provided by the policy. In most cases, the local insurance broker — who may be a really nice person didn’t know if the coverage was provided or not, leaving it all up to the marina owner to determine or uncover.
Instead of bringing in three insurance agents to “quote” on one’s business, pick one marine specialist. Work with that specialist like one would work with an attorney, and let that specialist go to the market on one’s behalf and find the best deal for the business.
Here’s a final thought. A marina’s continued efforts to strive for excellence and customer satisfaction will not only pay off in terms of increased business and customer loyalty, but it will also make the business more attractive to the underwriters providing insurance protection and should result in a marina being able to find the proper coverage at a fair price.
Best wishes for a successful 2007!
Marina Dock Age, November 2006
Aging marinas must decide what to do — renovate, upgrade, or rebuild
by Jon Guerry Taylor, P.E.
Older marinas are under pressure to perform in a constantly changing modern marina environment. Many older marinas may be physically, technically, and functionally outdated. Materials for construction in older marinas are often outdated, worn, and inadequate for the harsh environments and heavy usage that marinas now experience. New boating patterns, different boat designs, government regulations and new adjacent uses may make that 20-year old decision to build a marina a prime candidate for reconsideration.
The decision to invest in a marina is much more complex now than it was 20-30 years ago. Between new marina financial factors, government regulations, and lending requirements, there are so many complex choices facing marina owners that they may need professional help in evaluating options.
Although each marina is site-specific, market-specific, use-specific and environment-specific, there are common approaches in addressing the decision to renovate, upgrade, or rebuild. For these reasons, the marina’s decision should not be approached haphazardly, but rather with a studied purpose.
Marina renovations
Marinas will usually consider a renovation when their facilities are functionally adequate and they only need to replace or modify certain areas or functions. Marinas should not confuse renovation with normal maintenance or repair. Maintenance is just keeping the marina up to its original service level. The marina annual budget should carry separate line items for maintenance and for renovation projects.
Typical marina renovation projects are: installation of a new decking system, power modifications, new gangways, and smaller structural and electrical modifications, such as replacing docks or piers. These types of renovation projects do interfere with normal business, and for this reason should be scheduled as much as possible in off-peak times. Many marinas use winter periods to perform renovation projects.
Marina renovations usually do not require marina permit changes. However, the construction component, if it involves buildings, may require a building permit from the local town or county. Marina renovations range from small to very large projects and may include upgrades of materials, systems, or services. They should be both time- and cost-justified and geared to produce additional revenue or to meet certain marina specific requirements (safety, parking, etc.).
Note: While normal maintenance and renovations should be different from a budgetary and practical viewpoint, most marina permits allow businesses to perform maintenance without a permit modification. Some agencies will allow minor modifications under the maintenance conditions; however if the renovation is substantial, the permitting agency may require a letter modification or permit modification if the overall marina footprint changes. Individual agencies vary and the marina owner should investigate and assess his/her own situation.
Renovation example
Bald Head Island Marina is located off the coast of Southport, N.C. The marina has successfully completed a renovation project in designated phases that included a rebuild of the ferryboat facility in conjunction with replacing a new bulkhead wall.
Renovation project description: Bald Head Island is a prestigious island development off the southern coast of North Carolina that is only accessible by ferry. The island faces the Cape Fear River on the west and the Atlantic Ocean on the east. It services boaters from the Atlantic Intracoastal Waterway and Cape Fear River, as well as residents of the island. A ferry service carries tourists and residents to and from the island on a regular basis. Bald Head Island Marina also hosts several fishing tournaments and other events on an annual basis.
The sheet-pile bulkhead at the marina had been in service for more than 25 years. The owners had conducted assessments of the wall conditions for several years. Because any wall installation would interfere with ongoing business, scheduled festivities, and tournaments, the marina decided to renovate the entire bulkhead wall in phases over the winter for two consecutive years. Because the marina function was not changed by the renovation, a minor permit modification was relatively simple to obtain.
Marina upgrades
Marina upgrade projects are required when some or all of the facility is functionally obsolete or no longer producing adequate revenue. The goal of a marina upgrade is to make the existing facility suitable for current users or to make new revenue inroads.
In some cases, current legal and regulatory guidelines may require marinas to undertake upgrades. In many upgrades, safety issues drive the projects. Marina upgrades do not occur often and should be handled on a project basis.
Marina upgrades may be very complex, requiring specialized design and construction. Often the construction can be done in phases, so there will be less interruption to the business, but normally upgrades do cause business interruptions and loss of revenues. For this reason, they must be time- and cost-justified, and matched to the increased revenue or meeting a deadline on a legal or regulatory requirement. The upgrade should lead to the overall increased value of the marina facility, and the marina should expect an extended life to result from the upgrade.
Usually marina upgrades require a new or modified marina permit. They almost always require a building permit. Typical marina upgrade projects are: changing from fixed piers to floating docks; installing new recreational facilities; installing fuel and gas service; changing the layout of the marina slips.
As long as the marina project stays within the same permitted footprint (the existing permit physical limits), and the marina does not increase the number of slips or docking area, then a formal marina re-permitting effort is not usually required. Some states require a modification or formal notice of change.
Marina upgrades should be undertaken only when there is a matched market reason that will produce a satisfactory return on the investment or when the regulatory process dictates the upgrade, e.g., ADA, codes, etc. The marina should recoup the cost of an upgrade within 3-5 years.
Upgrades, unlike maintenance or renovations, are infrequent projects and are scheduled and budgeted only when they are needed. A series of renovations may be replaced by a single upgrade project. Upgrades usually interfere with normal business activities, and because of this, construction should be planned when the marinas are not busy. Upgrades usually require the help of an outside contractor and will probably require professional design assistance.
Upgrade example
The Wilmington Marine Center is located on the Cape Fear River within the city limits of Wilmington, N.C. The original site, a rundown combination industrial use with docking and sleeping quarters for fishermen, was an eyesore for the entire area. For this reason, the city government and various environmental agencies were very cooperative in cleaning up the facility.
An engineering firm developed a master plan for the center that included a marina upgrade project, and the owners then instituted a phased approach for the upgrade.
Over a 10-year period, the marina has been upgraded to create larger slips to service large boats. The harbor has been deepened so that it can continue to have a serviceable large vessel haul-out facility, along with a boat sales and service center. The owners optimized their investment in the marina by purchasing adjacent property suitable for future development. Future phased development includes plans for a dry stack facility, dredging, and additional slips in the Cape Fear River. Most of the existing work was done under a permit modification of the existing permit.
Marina rebuilds
Marinas will be rebuilt when they are functionally obsolete and the materials are failing to the point that a renovation or upgrade will not restore functionality.
Rebuilding a marina is a major project undertaking that usually requires a major permit modification or re-permitting effort. It is different than building a new marina, because in the rebuilding project, the marina owner must accommodate or move existing clients. It is also still necessary to work with neighbors who may be familiar with the existing marina operation and may or may not be agreeable to a new marina venture.
Before considering a marina rebuild, the owners and manager must undertake a major effort to justify the financial outlay and be certain the marina will retire the debt. Just because a marina has existed somewhere for some years does not mean that it is a good marina site for today’s market.
Land values have grown substantially, especially on the water. Marinas should examine the possibility of replacing the rebuilt marina project with a current more remunerative use that may or may not include a marina. Some marina rebuild projects are now being planned in conjunction with adjacent condominium or housing projects that did not exist when the older marina was built. Some marinas are being rebuilt with adjacent commercial restaurants integrated into the new facility. Existing publicly-owned marinas are the most likely candidates for marina rebuild projects because their justification can be tied to public need.
Rebuild example
The city of New Smyrna Beach is located on the east coast of Florida, just south of Daytona Beach and east of Orlando. The city had an antiquated marina in the center of town that had become unsightly and no longer functioned as a public marina.
The New Smyrna Beach Marina lies very near the Atlantic Intracoastal Waterway and is surrounded by a yacht club, commercial marina, and charter boat operations. The marina site was created when a WW II Navy sub chaser facility was abandoned and left to the city. Remnants of the older operation, as well as past upgrade attempts that were in danger of failing, were not a pleasant site. In addition, an existing short-term lease with a group of private citizens provided little income for the city, while possibly incurring liability.
In deciding what to do with the marina, the city’s final plan included a new floating dock and fixed pier slips, new bathrooms, showers, and a marina operations facility with extensive landscaping, image enhancement, and public access.
The “rebuilt” New Smyrna Beach Marina included the demolition and removal of the old docks, removal of contaminated soils, and extensive utility and storm-drainage modifications. The sheet piles are installed and the cap has been formed for the concrete cap.
Summary
It is obvious that marina renovations, upgrades, and rebuilds can be substantial design and construction projects. These projects are not to be entered into without analysis of existing marina functions, developing markets, adjacent land uses, and revenue streams.
If maintenance is conducted on a regular basis, it will extend the physical life of the marina, but that alone will not extend the marina’s functional life. Smart marina owners keep an ongoing program of repair and renovation so that staff can install/construct these items in slack periods. Marina sites offer many opportunities that may or may not be boating-related. If maintenance is not conducted on a regular basis, it may require a marina renovation project. If renovations are not undertaken in a timely manner, it may lead to an upgrade. If upgrades are not completed periodically, it may lead to a complete marina rebuild project.
Updated from the September/October 2005 issue of Marina Dock Age.
Jon Guerry Taylor P.E., is Vice President of Zande-Jon Guerry Taylor P. E., Inc., in Mount Pleasant, S.C., a civil planning, design, and engineering firm that specializes in marina and waterfront projects. He can be reached via e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Marina Dock Age, November 2006
How to obtain financing for a marina’s major capital projects
by Andrew Cantor
The need for renovating and expanding existing marinas in the United States has never been greater; especially in light of our industry’s Grow Boating initiative. Demand for boat storage in both wet slips and dry stack is strong in most areas of the country. Unfortunately for boaters, the development of new marinas is being constrained by high waterfront land prices and an overly cumbersome permitting process. On the other hand, for marina owners with vision, this could be an opportune time to renovate or expand their marinas. Some of the benefits of undertaking a major capital project include:
• Increasing storage revenue by charging higher storage fees following a renovation;
• Improving the profitability by taking advantage of the better operating leverage associated with a larger facility;
• Gaining a competitive edge over other marinas in the marketplace;
• Attracting more upscale customers who are likely to spend more; and
• Opening the marina to newer boats, which are larger than those for which the docks were originally constructed.
Suppose an owner decided to expand his/her marina by constructing a dry stack facility or new slips and would like financing for the project. What can marina owners do to increase their chances of success with a lender? Although all lenders have different underwriting criteria, there are a couple steps marina owners can take to maximize their chances for success. The first of these is to understand the lender’s mindset or thought process.
Lender’s mindset
Given that a lender has no upside, its primary focus is on reducing the risk of loss. Despite what some may think, underwriting a loan is not an exact science and a weakness in one area can often be offset by strength in another. Some of the more important criteria upon which lenders focus include cash flow, debt service coverage, loan-to-value, asset quality, market conditions, management experience, and additional transaction support.
In most cases, the lender is looking at the marina’s cash flow as the primary source of repayment. In the case of an upgrade or expansion loan, the lender will look at both the historical cash flow for the last couple of years, as well as the projected cash flow assuming the completion of the proposed improvements.
Lenders use cash flow to calculate the debt service coverage ratio, which is the ratio of annual cash flow to principal and interest payments. Most lenders like at least a 1.2:1 to 1.3:1 debt service coverage ratio in determining the size of the initial advance as well as how much they will fund for capital improvements.
Loan-to-value represents the ratio of the loan amount to the marina’s appraised value. Lenders will look at this ratio in sizing both the initial advance and the amount to be funded for capital improvements. Therefore, they will ask the appraiser for two values — one for the marina “as is” and another “as if” the improvements were completed. Lenders generally target between 60% and 75% loan-to-value depending on the cash flow history, its predictability, and the complexity of the proposed improvements. A complete rebuild and repositioning of the marina in which cash flow is less certain is likely to be sized so that the lender funds between 60% and 65% loan-to-value on an “as if” completed basis. By contrast, an expansion of a marina that has a predictable cash flow already in place is likely to achieve 70% to 75% on an “as if” completed basis.
Asset quality encompasses many variables, such as the age of the docks and buildings, the type of construction, how well the facility has been maintained, the presence of any additional amenities, and the service level. Lenders want to provide financing to marinas that have been well-maintained with no significant problems that could impair future cash flow. The exception to this is financing the renovation of an existing facility, in which case the lender’s focus is on whether the proposed capital improvements address the deferred maintenance and bring the marina back to a quality level that will result in improved cash flow.
Market conditions refer to the level of current competition, the potential for future competition, and trends in occupancy rates and rental rates. A strong market is one in which there are increasing demands for slips or rack storage, 90% plus occupancy rates, regular increases in rental rates, high barriers to entry for new marinas, and limited expansion potential at existing facilities. Fort Lauderdale is a good example of a very strong market. By contrast, a weak market is highly competitive with marinas competing heavily for customers, low occupancy rates, flat rental rates, and ready opportunities for new marinas or the expansion of existing marinas. Lenders prefer to lend into strong markets and will evaluate the reasonableness of the cash flow projection in light of the market environment.
Management experience reflects how long the owner has been in the marina industry and his or her track record. A lender is more likely to fund a loan to someone who has successfully operated a marina for a while as opposed to a newcomer. This is particularly true if projected cash flow is to be relied on as a source of repayment rather than stable cash flow. This does not mean that one is out of luck if they don’t have marina industry experience. Lenders will often consider experience and success in similar businesses in lieu of direct industry experience.
Lenders will look for additional transaction support when they are relying on projected cash flow, as is the case in a renovation or expansion. They want to feel confident that they will continue to be paid should the projections not materialize as anticipated. The primary form of additional transaction support is a personal guarantee from a creditworthy sponsor. A lender may require a personal guarantee until a target debt service coverage ratio is achieved, at which point it may be reduced or eliminated. At minimum, when construction is involved, a lender will ask that the sponsor guarantee completion of the project.
Preparing a request
By understanding the lender’s mindset, preparing a loan request becomes much easier. The goal is to put together a complete, organized package that makes it easy for the lender to evaluate the project relative to the previously identified criteria.
The first section of the package should outline how much money is being sought, for what purpose(s), and when it will be required. If the marina intends to use cash equity along with the loan proceeds to expand the facility, the loan package should indicate so and bow much. Lenders often like to see a “Sources & Uses of Funds” statement in this section. The sources are loan proceeds and any cash equity. The uses include acquisition costs if this is a purchase, refinancing existing debt, and construction costs for capital projects.
The second section is a property description and a discussion of the planned improvements. The property description conveys the asset quality to the lender and identifies the improvements one plans to make. In this section, marinas should include supporting items such as a location map, site plan, dock layout, photos, and any marketing material.
The next section should include information on historical cash flow. Although each lender is different, they all like to see multiple years of operating statements plus year-to-date statements for the current year versus the prior year. This way lenders are able to analyze trends, as well as variations, from year-to-year. As a help to the lender, identify on a separate schedule any one-time items that are running through the statements for each year. Also, if the marina has added docks or other revenue-producing assets over the past couple of years, it is a good idea to let the lender know when they were completed. The marina might also include occupancy rates and rental rates to go along with the historical financial statements.
Following the historical cash flow section is a good spot for outlining the proposed capital improvements and their impact on cash flow. Besides outlining what one plans to build, marina owners should include a construction budget and provide a projected cash flow with assumptions highlighted. This latter item should reflect any disruption to current operations while construction is in process, lease-up once the improvements are completed, and what the cash flow will look like when the improvements are completed and the operation has stabilized. If the marina is building new docks or a dry stack, it should include any information on pre-leasing or waiting lists.
The final section should contain personal information and is especially important if the marina owner and lender do not know each other well. The lender is interested in knowing how long the applicant has owned the marina. If purchasing the marina, then highlight other marina industry experience. If the applicant has no direct marina industry experience, then the lender will look for other relevant experience to feel comfortable. In addition, the applicant should provide a signed statement of net worth. This is a schedule of personal assets and liabilities. A lender will want to see this to understand how strong the applicant’s personal guarantee is should one be required as additional transaction support.
Final thoughts
It is important to keep in mind that all the preparation in the world will not amount to much if one does not select the right lender. Applying for and receiving a loan is a two-way street. Just as the lender is trying to decide whether or not to make a loan, the marina owner must decide whether or not this is the right lender. A marina owner’s best bet is to work with a lender that has a track record for financing marinas, understands the business, and offers flexible solutions.
In closing, remember this quote from Joe Gibbs, who has enjoyed great success as both the coach of the Washington Redskins and in NASCAR, “A winning effort begins with preparation.” Although obtaining a loan for a marina’s next major capital project may not be as exciting as winning the Super Bowl or a NASCAR Championship, all three events require a level of preparation to maximize success.
Andrew Cantor is Vice President of marina finance for Textron Financial Corp., a specialty lender that has financed several marinas throughout the United States and the Caribbean. He can be reached by phone at (770) 360-1478 or by email at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Marina Dock Age, September/October 2006
Fabric roof systems for wet slips are the new kids on the docks
by Gene Spinazola, P.E.
There are a lot of reasons that boaters like covered wet slips. The roof covering provides protection from rain or the hot sun, the wax job lasts longer, the boat will stay cleaner and, of course, cooler. In many parts of the country, a boat that is docked under the roof becomes a summer cottage on the water, and the boat may only leave the slip on special occasions.
For all these good benefits, covered wet slips also have some drawbacks, such as being flammable, having a roof structure that can collapse from heavy snow loads, and/or a being susceptible to heavy damage from a hurricane ripping through the covered slips leaving behind a jungle of twisted frames.
This article takes a took at some recent advancements in covered fabrics, making them even more desirable for some marinas.
Analysis
The history of covered wet slips dates back to the early 1900s. At that time, the covered slip was referred to as a "boathouse." In the 1950s and 1960s, marinas across the country were building multiple boathouses and covered floating wet slips. The typical construction consisted of wooden docks with a wooden or steel vertical structure that held up the wooden roof truss. The roof covering was made of corrugated tin or aluminum, and the roof eve height was just high enough so that the average boat could get into the slip.
Over time, the industry has made some significant changes to the covered wet slip structure that has improved its survivability in adverse conditions, particularly in regards to fires. The wooden posts and the wooden roof trusses are gone. Because today’s boats are wider and, of course, taller, the roof line of the fabric covered slips is higher and the roof also has less pitch. Because of the higher eves and flatter roof pitch, heat build up under the roof, whether from the sun or a boat fire, is less and fire spread is reduced.
Today, skylights or “bum out panels,” made of translucent fiberglass, have become standard in most metal roof installations. These skylights offer two advantages. First, the panels allow light into the structure and, second, during a fire, the panel will quickly “burn out” and let the heat and smoke escape from under the roof, thereby reducing the lateral spread of the fire. The addition of “draft curtains,” which are vertical walls built from the roof ridge down to just below the eves of the roof, also serves to reduce the lateral fire spread.
Fabric covers
There is a growing trend in covered wet slips to use a fabric material for the roof covering. This trend first started in the 1980s, and there are some very good reasons for this upsurge in fabric roof structures.
First, the fabrics in use today are very strong, waterproof, and lightweight. They allow good light penetration, while blocking out most of the UV rays, and are guaranteed to last 12 to 15 years and even longer in some installations. Second, the fabric roof performs very differently in a fire situation. Specifcally, in a fire, the fabric will dissolve away or melt when exposed to high heat. This opening of the fabric and the quick release of heat and smoke acts much like an uncovered structure. There are many different fabrics available on the market today and each marina will need to determine which one will perform best in the specific environment.
Another factor to consider when using covered fabrics is wind load. If a marina is located in an area that is prone to hurricanes or tornados, that facility should consider designing the fabric material to blow off at some predetermined wind speed. For example, the fabric-covered slips at Hidden Harbor Marina (now Boat Tree Marina) in Sanford, Fla. were designed for 65 mph wind loading, at which point the fabric would blow off. According to Don Borum, CMM, marina manager, this is precisely what happened in 2004 when Hurricane Charley hit the marina. The fabric blew off the frames when the winds reached 60 mph, and there was no structural damage to the framework. In fact, Hidden Harbor Marina has been through two tornados and three hurricanes without any significant damage to its docks or the fabric framework.
Marshal Nowlin, CMM, general manager of Bayport Marina in Bayport, Minn., has 70 fabric-covered wet slips that date to 1986. In preparation for winter, his staff rolls back the fabric and lashes it to the structural frame. Nowlin does this because he knows that the older frame system was not designed for the Minnesota winter snow loading, but Nowlin is still very pleased with the overall performance of the 1986 system.
At Port of Sunnyside Marina in Stillwater, Minn., marina manager Rick Chapman has new fabric-covered slips. This new generation of covered wet slips was designed to stay up all winter and can handle the heavy Minnesota snow load. The roof structure is curved and the fabric is smooth, which allows the snow to slide off and prevents snow accumulation.
Another use of the fabric material is for dry stack boat storage. In Washington, the state has approved a fabric covered structure for dry stack storage of boats and this project would not be required to sprinkle the building. In this instance, the Authority Having Jurisdiction (AHJ) considered the fabric material presented in the specifications to be a “non-roof structure” for purposes of fire protection.
The future
So, should marinas consider adding a fabric roof in the future? The answer appears to be “Yes.” The quality and look of the fabric material and its structural support systems have improved considerably. As a result, my prediction is that the marina industry will see more fabric covered buildings in the very near future.
Gene Spinazola is a marina safety consultant who owns his own company, Gene Spinazola, P E. & Associates Inc. in Castine, Maine. He can be reached by phone: (207) 326-9147. www.marinafires.com
Marina Dock Age, September/October 2006
Over-designing a marina can lead to financial ruin
by Dennis P. Kissman
Planning to expand, upgrade or refurbish a wet slip marina? Then don’t design the Royals Royce marina for a Volkswagen market. The types of boats that are popular in one area are usually popular for a couple of reasons. It could be the body of water a marina is located on and/or it could be the income level of a marina’s customer base. Most likely it is a combination of both and, even more likely, those demographics are not going to dramatically change in the future.
When talking about overdoing it, keep in mind that what is being referred to here concerns the physical marina and not the level of service a marina provides. Good customer service will overcome many deficiencies in a marina, but even the best facility cannot overcome poor service.
Over the past 18 years of consulting in this industry, I have seen a number of marinas overbuilt for the market they are serving. Being overbuilt refers to the type of boats that the marina can accommodate and not the quantity of slips available. In most cases, this scenario has resulted in an overall reduction of slips because the trend seems to be that bigger slips are better. Yes, as a whole, the trend in the boating market is toward bigger boats, but what’s happening to the existing boat market? These boats make up the majority, and they’re still here. Nonetheless, marina owners and operators tend to focus on the larger boats — boats, that quite frankly, many of us can only dream about.
The trend among marinas is to focus on these “big” boats and the reason most often given is that they will pay more. The more a marina charges for dockage, the more the boat owner expects in return and, without exception, the bigger the boat, the greater the demands.
To help analyze whether or not the added investment is worth it, let’s look at the following example to see if changing a marina makes economic sense.
Hypothetical
Imagine a marina where two of its slips are being enlarged to fit two new beamier 46-foot power boats that will each pay $20 per linear foot per month. That’s a total income of $1,840 per month. Now, suppose that before the marina is reconfigured to accommodate these larger boats, the marina had three slips taking up the same area, but could only accommodate 35-foot boats in those slips and was getting $15 per linear foot per month. That comes to total income of $1,575 or $265 per month less than the two larger slips, or a total of $3,180 per year. Let's continue this line of thinking and assume that the cost to borrow the money to reconfigure the marina is at a 10% interest rate. That would mean that the cost to rebuild the marina to accommodate these two larger boats, with nothing left for increased profit, would be $31,800 ($3,180/.10) or $15,900 per slip.
It’s doubtful one could build one of these larger slips for $15,900 and include the increased utility demand for larger boats or the stronger dock and pilings required to handle the additional wind load and strain placed on the dock system by these larger boats. But for argument’s sake, let’s say that it would only cost $ 10,000 per slip to rebuild the marina to accommodate these larger boats. That would mean that out of the $3,180 additional profit, your debt service would be $2,000 (($ 10,000 x 2) x .10) and you would have additional profit of $1,180 for the year for the two slips. It should be clear that the cost of construction should be the determining factor when considering upgrading a marina to accommodate these larger boats.
But let’s take the hypothetical further. Suppose the marina owner misjudged the demand for these larger slips and one of the slips remained unoccupied for a year. That means the monthly income from the one slip is $920 per month. Compare this to having one vacant slip out of the three slips before the reconfiguration, and the income for the two occupied slips comes to $1,050 per month. Under this scenario, not only would a marina owner be paying off the additional investment to reconfigure the marina, he/she would actually be making less income. Granted, the unoccupied slip would be a short-term problem, but it still impacts cash flow in the short term and should be taken into account when making such an investment decision.
If these numbers are confusing at first glance, let me summarize my point here. To reconfigure a marina to accommodate changes that are taking place in boat design may not be the best business decision for a marina if it is currently occupied at an optimum occupancy level and in good condition. The owners of these older boats may change, but they are not disappearing from marinas.
However, the marina owner who plans to go forward with the reconfiguration should consider carefully what amenities are going to be expected by the new customer base. If these new boaters expect service on par with the Ritz Carlton hotels, the marina may find itself having to spend more than it planned to keep them happy. Above all, spending money without getting a fair return on one’s investment is a sure way to lose a marina to foreclosure.
Marina Dock Age, September/October 2006
Using phased upgrades to update older marinas
by Jon Guerry Taylor, P.E.
One of the most difficult things for people to accept is aging. The same thing holds true for marinas. When owners and operators look back on their facilities, one of the most difficult decisions they will have to make is determining when and how to upgrade their aging marinas. Here are some practical questions every marina owner and operator should ask in making this decision.
How does one determine if a marina rebuild is feasible, realistic, and doable?
Before a marina owner enters into a phased upgrade, he/she needs to make a concerted effort to determine what the end game is for the effort. Is the owner trying to improve the business for a long-run business, get it improved for possible sale, or get it ready to pass the family business on to other family members? This is a critical decision, because it determines the commitment of the owners to the upgrade program.
Once this decision has been made, the marina can then decide on the best way to accomplish the upgrade. When it comes to a marina upgrade, the guiding principle is this: It is possible to use good business planning and revenue-supported financing to upgrade old marina facilities. It requires that the owner have basic data on the existing marina that includes a boundary survey, copies of all permits, zoning, violations, and hydrographic (water depth) information.
The owner will also need to provide cost and revenue data on the existing marina operation. An integral part of future projections is an evaluation of other marinas in the area to see which services they are offering and how much they are charging for these services. In the long-run, the time and effort spent in securing this information, along with creation of a master plan and updating a business plan. will produce big payoffs because the resources for making financial, planning. and permitting decisions are always current and available. This information helps the marina to determine the direction and phasing and assures that the project can be guided by developing markets and current marina financial resources.
The benefits of this “up-front planning” are a reduction in the usual risks and costs of large-scale upgrades because the scheduled upgrades are driven by priorities set in a periodically updated business plan. The upgrades are usually made-up of segments of short duration that are implemented with little interruption to business. It may be as small as building new bathrooms or as large as a harbor dredging project. The harbor dredging may have been preceded by a short upgrade of the dredged material basin. As the saying goes, “You have to eat the elephant one bite at the time.” Upgrades of old marinas can be remunerative by steadily increasing the value of the business and the facilities. In the overall scope of the improved upgraded marina, the funds spent in good planning and financial programming are minimal.
The Wilmington Marine Center, located in Wilmington, N.C., is a good example of this principle. The facility had originally been used as a docking facility for commercial fishing boats. However most recently (late 1980s) it had been a contractor’s yard with scattered buildings. The facility was an eyesore for the community and provided only minimal use of the marina assets. When a group of investors purchased the facility in 1988, the heavy boat rail haul out facility was still in place, but in dire need of repair. The bulkhead was failing, and the enclosed harbor had been silted in and provided little space for permanent moorage. Overall, except for fueling facilities and the rail haul out, there were few existing facilities that could immediately be used to generate revenue.
The owners were committed to improving the marina as a long-range business venture by an initial investment, with only periodic “cash calls” to bridge gaps between revenue and cost of marina upgrades. These “cash calls” were paid back or transferred into equity for the investors. For this reason. each marina upgrade segment was balanced with cost for the upgrade versus increased revenue or increased value of the facility. By periodically revising the business plan (at least once a year), improvements were made in a programmed manner that capitalized on the market potential, while still coveting the mortgage payments and operating costs.
The first phase was the cleanup of the old marina facility. After cleanup commenced and business began to return, it became obvious that the owners would need to make more improvements to increase revenue so that the marina could continue to grow and prosper.
There were two important steps taken at this time. First, the owners and consultants developed an overall master plan and gave the marina a new name (Wilmington Marine Center). The new master plan gave the owners a focus and generated a “source document” for financing, permitting, and sales. Second, the owner developed a new “Business Plan” to support the master plan. The updated “Business Plan” called for the timely upgrade of existing facilities and the installation of new facilities to support boat sales and repair components.
How do you determine which marina, boatyard this will work at?
The Wilmington Marine Center is typical of projects that can use a phased upgrade approach. Some of the factors that make a marina a good candidate for phased upgrades include: an existing marina permit that can be renewed or expanded, existing working/almost working elements that with improvements can be made revenue-producing, a market that will respond to an upgraded marina, and owners with a shared vision on how to grow the marina business.
A major consideration is that the marina must also remain in business without a complete shutdown for the upgrade. Continuing in business is important for not only the revenue stream, but also for the improvement of the public image of the marina. In the case of the Wilmington Marine Center, the overall site was large enough and the facilities diverse enough to continue in business while the upgrades were installed. The Master Plan was changed several times to adapt to changing markets, land purchases, and new permitting opportunities. On a parallel course, the Business Plan has been updated periodically.
Note: Marina services are changing so quickly that it is always prudent to look at not just an upgrade of an older service but also the installation of newer features such as float docks, condo slips or racks, eco tourism, community activities, fishing tournament facilities, etc. Each new service should bring the opportunity, for increased revenue or new investors. If it does not fit into the financial picture with corresponding revenue, pass it by for a better investment. Don’t fall in love with a bad investment because you are emotionally attached to it.
Who guides this process and makes sure it works? What is the role of the marina manager throughout the rebuild process, and how are changes made based on technological advancements?
Early on in the upgrade process at Wilmington Marine Center, the owners made an important decision. They decided to add to the owner’s team a “hands on” marina manager [Skip Fry] who also had vision for marketing, managing, and growing the marina.
Fortunately for Wilmington Marine Center, this marina manager was very good at dealing with governmental agencies and representing the owners to the community, as well as in working with the owners to review progress. He worked closely with the design consultants and contractors. He reported frequently to the owners and prepared the owners’ annual meeting. He developed financial reports and made phased upgrade recommendations to the owners. Each upgrade was tested against cost considerations and revenue growth to support it. He was also very astute in meeting with permitting agencies, site inspectors and following up on environmental and permitting issues.
Where does funding coming from?
The marina business is becoming more complex and often requires a broad array of management and business skills. The ownership of a marina with a valid permit is a valuable asset by itself. A good management team and a knowledgeable design consultant can make it a much bigger asset by developing a corresponding action plan to show to bankers or investors.
Between 1988 and 1992, the emphasis at Wilmington Marine Center was on cleaning up the grounds, demolishing older structures, and repairing revenue-producing facilities (stiff leg crane, rail haul out facility, yard boat repair, fuel facility, and minimal dock repairs). There were large fishing and shrimping boats that needed to use the rail haul out facility for repair.
As the clean up advanced, the image of the marina changed and business began returning. The owners conducted periodic meetings to update the planning. Their financial reviews provided guidance on priorities and funding for improvements. Initial funding for each phase of the upgrade was owner-backed financing on a short-term basis until the notes were retired or converted to an equity position.
In 1992, a major boat retailer bought into the ownership of the marina with the intent of turning part of the site into a full boat repair facility to support boat sales and repair. This provided a new source of funds for upgrades, as well as adding a boat repair business and facility. With the addition of the boat dealer to the ownership, a new impetus was given to building new facilities that would support boat sales, i.e., travel lift, enclosed repair building, offices, parking, painting facilities, new wet slips, and so forth. Because the original owners had a master plan, the needs of the boat dealer could be easily integrated into an updated master plan.
Note: Older marinas need to be creative in looking for sources of financing. When doing so, it is important to have a presentation package to help find investors/lenders that are comfortable with the goals of the marina. This package should include the annual projections of costs, projections of revenue, a market statement/analysis and preferably an appraisal of the marina and the land. Remember to add as an asset the marina permit ($40,000-$400,000 depending on location and the size of the marina). The ownership of a good marina permit can save from one to three years over a start up marina project.
What roles does the government and its agencies play in the success or failure of a rebuilt marina?
Ask any marina planning a rebuild and the answer is that “nothing really happens on a marina upgrade until the permit is in order.” It should be noted that many marina owners are not very proactive at keeping up with permit conditions and renewal requirements. Once a marina has an operating permit, it is relatively easy to extend or moderately modify it — provided there are no violations and the marina complies with all conditions. If the marina neglects the permit and it expires or the conditions have not been met, the marina may be forced to start over on a one to three year process of getting a new permit that is also expensive.
The permit for the original Wilmington Marine Center would not allow a complete upgrade of the marina. However, it would allow some significant repairs of existing facilities and some limited expansion, including new structures. It should be pointed out that the City of Wilmington and the Coastal Area Management Act (CAMA) administrators were very cooperative in the permitting process. Everyone understood that an undesirable facility was being cleaned up under a program that would upgrade the total facility and would bring substantial benefits to the public and the community.
Timely minor permit modifications allowed the dredging, basin enlargement, bulkhead installation, and new docks to be advanced as long as they did not extend outside the original permitted facility. Only when the improvements extended beyond the original intent of the marina was a major permit application required. Thus, substantial improvements were accomplished under minor permit modifications. Ultimately, a major permit application was required to allow construction of a dry stack operation, along with additional wet slips.
As the project advanced, the owners, and the consultants provided updates for new developments in marketing, permitting, new regulations, and project facility requirements. Because the marina had little business to begin with, there was very little interruption of existing business until about two years into the new program, which was when dock improvements and dredging helped to bring in new business. Marina manager Skip Fry was the person most responsible for keeping the improvements moving forward, while still keeping the business side operational. Fry held periodic planning sessions that kept the owners informed and active in the planning and financing side of the marina.
How easy is it to design a rebuilt or upgraded marina?
It is more difficult to design marina upgrades than to design new facilities. Evaluation of existing structures, utilities, underground features, contaminants, and other unforeseen obstacles becomes an important step in the design process.
In the example of the Wilmington Marine Center, the design project became more difficult because a contractor who had previously owned the site had abused it in deference to his needs. There were few drawings and little knowledge of existing conditions. As a result, design changes were often integrated into the master plan to accommodate developing information on existing conditions. Many of these problems were worked out during construction. Design of marina upgrades usually requires a wealth of knowledge about construction and codes.
Note: The marina owners invested in the marina with the full expectation that the improved marina would increase property values. For this reason, they were judicious in purchasing adjacent property with the view to expand and ultimately develop this property. At present, much of the adjacent property has been developed (most of it in marine related businesses) and the remaining property has increased in value. These adjacent properties were master planned in conjunction with the updated Marina Master Plan.
Summary
To summarize the major findings of this article, it is possible for older marinas to upgrade their aging structures in a phased approach, as long as they perform good business planning and keep some revenue-producing activities ongoing.
Marinas can use the Wilmington (N.C.) marina as an example of how this can be done. Wilmington marina is one of the few marinas that has not had to sell its soul to condo developers and has enjoyed increased business as condo marinas run long-time customers out. Marinas need to work through the renovation and upgrading process, answering the following questions: What is the long-term commitment to the marina venture? How can I be innovative about financing through banks, investors, or partners? How can I prioritize an upgrade program to improve revenues, while still operating to produce a revenue stream? And how can I remain flexible on growing marina services while the upgrades are underway.
Jon Guerry Taylor P.E., is Vice President of Zande-Jon Guerry Taylor P. E., Inc., in Mount Pleasant, S.C., a civil planning, design, and engineering firm that specializes in marina and waterfront projects. He can be reached by phone: (843) 884-6415 or via e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Marina Dock Age, May/June 2006
Rate structuring should be more than a guessing game
by Dennis P. Kissman
With the boating season underway, marinas are hoping to earn a profit this season. And while every marina owner and operator would like to be profitable, the sad reality is that most of them do almost nothing to implement a plan to make profits a reality. In this article, we are going to closely examine how rate structuring impacts the marina’s bottom line.
Defining terms
Call them rental rates, dockage fees, slip fees, or berthing tariffs, no matter what you call them, every marina’s top priority should be to understand what goes into them.
For the purpose of this article, the various fees associated with dockage or storage will be referred to as a “rate structure.” It’s important for marinas to consider as many elements as possible when reviewing their rate structure. Often time, they overlook key elements. Try this for a fun exercise: think about the questions you have asked yourself when reviewing the rate structure for your marina. If those questions are like, “What are other marinas charging?” or “What did I charge last year?” then you are missing key elements to properly reviewing the rate structure for your marina.
Marinas should consider two components when developing their rate structure. First, how has the cost of operating the business changed since the last rate adjustment? And second, how has the value of the services provided changed in relation to what is happening in the marketplace? If this is the first time a marina is using this approach, then there is one more thing that it needs to consider. When was the last time the marina adjusted its rates, and was the adjustment sufficient to achieve a “fair” profit margin? If this was not the case, it may be time to ramp up with a couple of interim rate adjustments, rather than trying to correct the past all at once.
A question that always comes up is how often rates should be adjusted? We recommend at least once every 12 months. The time of the year that it should take place will depend on your location. In a cold climate, where dockage is contracted for an entire season, the marina should set a rate structure before signup begins for the next season. If the location is where the boating season last 12 months, then the agreements are written either on an annual or monthly basis. Then the implementation of a new rate structure will probably be governed by the wording used in the marina’s license agreement.
Establishing rates
Now let’s consider the first of the two components that are used to establish a rate structure: the cost of operating your business.
To analyze one’s electric bill, for example, one has to compare the same month this year to last year. To compare one month to the next will not take into account the seasonal changes in usage. The first step is to look at the rate per kilowatt. To do this, take the total amount of the bill and divide the kilowatts used. In many areas of the country, utility companies are adding a surcharge for the increased cost of fuel. This will raise a marina’s cost per kilowatt used.
Next, look at the number of kilowatts used to see if the usage is up or down. To find this, take the total number of kilowatts used and divide by the number of users in each of those periods. Let’s say that the usage has gone down from the previous year so even though your utility bills remained relatively the same from the prior year, your utility cost has actually increased.
If marina owners just compared the total cost of electricity from one year to the next, and they charged customers a flat monthly fee for an electrical hookup, they most likely would assume that there was no change, when in fact there was an increase. If marinas do not factor in a rate adjustment for utility costs and usage goes up for the same number of customers in the coming year, they would be losing revenue that they’re entitled to receive and not realize it until the next time they reviewed their rate structure.
Most of the other operating costs can be analyzed in a similar manner as the utility costs. Marinas should realize that some operating costs can blindside the facilities if they’re not vigilant. These include contracts that renew annually, such as insurance. If you adjust your rate structure and two months later your insurance premiums go up, you are going to live with increased costs for most of the insurance cycle without being able to recoup increased costs.
As a recent example, a marina in Florida this year had an increase in insurance cost on its docks. When we analyzed the increase, we found that it equaled an increase of $1.47 per foot per month for the total linear feet of rentable dock space in the marina. If a marina is not 100% occupied for the entire year to recoup the increase, the cost goes up even more per foot. Therefore, look for contracts that will be coming due in the next rate structure cycle and research what changes in costs you could be expecting and factor that into the rate structure.
More factors
When it comes to operating costs, marinas cannot and should not ignore the employee and employee benefit costs when figuring a new rate structure. If you have a position whose wage scale has not kept up with similar types of jobs in the marketplace and that person leaves, then you’ll have to replace him/her at the current prevailing wag, and this could have a negative impact on overall employee costs. The best way to minimize this impact and retain good employees is by paying employees the current wage rates in your area of the country.
The second component to the rate structure is how the value of the services the marina provides has changed in relation to what is happening in the marketplace. To ascertain this answer, marinas need to take an unbiased look at their operations and identify how one has improved operations since the last time a rate adjustment was done — and then subjectively decide the value of that change to the customer.
Customers are willing to pay for changes they can see, but they are not as willing to pay for changes they cannot see. For example, a marina’s water system to the docks is old and leaking, and it needs to be replaced because it’s wasting as much water as being used — and costing money. The boater does not see the leaks, and as long as he/she has water at the dock, there is no increased value to him or her.
On the other hand, if the leaks are occurring in the restroom and shower facilities, and the constant leaking of water has ruined the walls and floors, and the marina operator replaces the restroom interior when he/she replaces the plumbing, the customer sees the improvement and is willing to pay for it in the form of rate increases. This is just one example of increasing the value by investing in the property. The same thing holds true for improving service. Do not be afraid to charge for legitimate improvements.
Caveat
Readers will no doubt notice that in the previous paragraphs, we have not once looked at what other marinas in the area are charging. Why’s that? Simply because the rate structure analysis and implementation that’s been described in this article will always be competitive in the marketplace. Don’t let another boating season go by without putting this successful business model in place.
Marina Dock Age, April 2006
Market research can play an important role for marinas
by Dennis P. Kissman
When the owner of a small marina hears the words “market research,” that owner might immediately think of big companies and big dollars with no practical application for “my marina.” Marina owners with such thinking are missing an important tool to improve their profitability.
In simple terms, “market research” is nothing more than being in tune with those things going on around the marina that could or do impact one’s business. Marinas need to realize that market research can guide them in doing things that have little or no cost, yet can reap big financial rewards. This article describes some of those activities.
The setting
It is important for a marina to understand the local market it operates in — including such things as boater expectations, nearby marinas and recreational opportunities boaters can enjoy; new developments that will compete for the customer’s time and discretionary spending; and changing demographics of one’s customer base.
At the same time, it’s equally important to take a broader look at what is happening in these areas on the national and international level. Not necessarily to the same degree as in the local market, but to confirm that what is happening at one marina is similar to what’s taking place elsewhere. This information helps marinas stay on top of the trends that are shaping the way marinas currently conduct business. It also helps them find new ways to stay competitive. Important trends to consider include governmental regulations, fuel costs, insurance, and the popularity of recreational boating.
For example, the cost of fuel impacts one’s business on many levels everyday. High fuel prices generally lead to a drop in boating activity, which keeps boaters away from the marina, diminishes boat sales, increases the cost of shipping and receiving merchandise and supplies from vendors, and negatively impacts the marina’s ability to competitively sell fuel while maintaining a fair profit.
Given these factors, it is important for marinas to monitor the selling price of fuel in the local market to ensure the product is competitively priced. However, it is also beneficial to track national and international trends in fuel prices. Keeping track of the cost of fuel on the open market is a great way to stay ahead of the price curve when it comes to buying and selling fuel competitively. Changing fuel prices based on the market, instead of what the marina paid for the last load, will ensure continued fuel sales. For example, if a marina received fuel today, and two days later the price dropped 10 cents a gallon, the marina had better adjust its price accordingly or face the prospect of having that fuel in the tank for a long time. Likewise, if the price went up 10 cents a gallon, and the marina did not raise its price, then it missed an opportunity to increase profits.
Action: Because most fuel suppliers will provide the marina with any information it requests about fuel, the marina should ask for daily fuel updates and keep a journal of them to track trends.
Let’s also look at the cost of insurance, particularly in the states most recently impacted by recent hurricanes.
One Florida marina that we manage recently had to renew its dock insurance coverage. First, there was the question of whether or not coverage was even available. When we found out it was available, we also discovered that the cost per $100 dollars of coverage had tripled since last year. The effect of this increase meant that the marina had to increase its linear dockage space by $1.47 per foot per month just to break even. The marina could not absorb the cost of this increase, so it passed the increase on to customers, which had a significant impact on our position relative to other marinas in the market. This example clearly demonstrates the importance of how other market factors can affect the way one conducts business.
Marinas should closely monitor these and other trends to help foresee the issues impacting their businesses. Armed with this information, each marina can proactively plan for change. There are any number of good sources of market data, both on a broad scale as well as specific to your area that can help marinas. Many of these are right at your fingertips, such as the Internet. Then there are those that require your participation to be effective, such as your local marine industry association.
Other resources
National trade associations, such as the Association of Marina Industries (AMI) and the National Marine Manufacturers Association (NMMA), are good sources of information on the national and international marketplace. The AMI’s International Marina & Boatyard Conference was recently held in Orlando, Fl. At the show, the changes and trends taking place in the industry were highlighted — not just national trends, but also international trends.
Another way to keep on top of recent changes taking place in this industry around the world is through the Internet. Google, for example, offers a terrific, free service called “Google News Alerts” that sends the latest news directly to one’s e-mail account and only on topics one requests. The user selects key words like “marinas,” “boatyards,” and “dry stack,” and each day, the Google servers check millions of Web sites for any recent posting of articles that contains those words. Google automatically sends this information to the user’s computer.
As good as Google is. it’s not a perfect system. Much of the information may not pertain to directly to a marina’s business, but it does keep the user informed of the changes taking place in the industry.
Other good Internet sources include e-news sites, such as www.tradeonlytoday.com for national news and www.ibinews.com for international news. These sites search for press releases and newspaper articles about the recreational boating industry on a daily basis.
Perspective
In today’s world of high-tech and instant communication, there’s no excuse for marinas not being well informed and up-to-date on market trends. When it comes right down to it, market research is an indispensable tool for marina owners and operators because it keeps them well informed and helps them make better decisions based on solid information.
Marina Dock Age, April 2006
Stick with insurance companies that know and support
the marina industry
By Mark Yearn
Selecting an insurance program is a lot like building a house in that they both require a solid foundation before building a strong structure.
The foundation of a marina’s insurance program is the insurance broker. Marinas must select an insurance broker who understands the marina business, is committed to the marina industry and has the dedication to the marina to stay abreast of the specific developments that affect one’s business. Once a marina finds that broker, stay with him or her. Give that person trust, confidence, and commitment, and the marina is likely to be rewarded in more ways than the marina owner or operator can imagine.
Three-year rule
Having selected a reputable and trusted insurance broker, marina owners and operators should not go through the quote and bid process every year for a couple of reasons.
First, there are a limited number of insurance markets available to properly write an insurance program and if marinas quote and bid every year, more than likely, these quality markets have seen the insurance plan more than once. Many times an underwriter will be asked to work on account, only to be told that they have seen it every year for the past three years and are not interested in quoting on it any more.
Second, brokers who know that a marina owner is going to shop frequently are less likely to give him or her the benefit of their full commitment. That’s perfectly understandable. It works the same way at marinas. Marinas typically provide better service to its long-term customers than it does to the short-term price shoppers. Likewise, professional brokers tend to do more, provide more services, and have a greater commitment to their customers who they have a long-term relationship with, as opposed to those customers who “price shop.”
Marinas should shop for insurance or put it out to bid every three years. Be committed to the insurance broker and the underwriters for a three-year period — unless, of course, the owner/operator feels the marina is being used. At the end of the three-year period, discuss the market with the broker and determine if there’s a need to bring another broker into the situation. A broker who is well-positioned in the market can bring all the proper insurance companies to the table and can conduct a quote and bid process with all of them that will benefit the marina.
Finding the proper insurance company can be a little more difficult. A broker specializing in the marine insurance business can help place the marina with the right company.
There are only six or seven insurance companies that specialize in insurance for marinas. These insurance companies have been in for the long haul, are committed to the business and have been there through hard and soft markets.
How to choose
In picking an insurance company, choose one that has been in the market during good times and bad and has stayed committed to the market.
Currently, there are many insurance companies coming into the market, who were providing insurance to marina operators prior to the events of 9/11. After that tragic event, when insurance was hard to find and pricing was skyrocketing, these insurance companies elected to leave the marina market. They either cancelled the insurance on all their accounts or priced the account so high that the clients were forced to leave the market.
For the last three or four years, these insurance companies did not offer any insurance to marina operators. Now that the economy is improving, interest rates are rising, and the insurance market is becoming more competitive, these insurance companies are coming back into the market and offering insurance programs at reduced pricing. No one knows how long this will last, so it is better to stay committed to carriers that support the industry, than to work with those businesses that come in and out.
Real world example
In this article, it’s been stated that a marina will be better off in the long run to deal with carriers that are committed to the marina business, even though it may cost a little more in the marina’s insurance premiums. Here’s why.
Take, for example, the hurricanes of 2005. Marina operators and boat dealers in Louisiana, Alabama, Florida and Mississippi were devastated by the hurricanes last year, many being completely wiped out. Businesses that were insured by carriers not committed to the industry are having difficulty renewing their insurance, while businesses that may have been wiped out, but were insured by carriers committed to the industry are being offered renewals at reasonable price increases.
One carrier that had a long-term commitment and relationship with the marina industry experienced huge losses in the area. Not only are they paying their claims in a timely manner, but they’re also offering renewals to their clients with a 25-40% price increase. This is very reasonable given the severity of the damage and the amount of losses being paid.
These are the carriers marinas should work with when selecting insurance programs. It may cost a little more going into their programs, but when marinas experience a catastrophic event, they will feel confident knowing that next year’s renewal is secure.
For example, I negotiated a renewal insurance program for one of my clients approximately 30 days prior to the renewal. The client accepted the terms from the carrier, and the carrier agreed to place the account. Two weeks later, this client experienced one of its largest insurance claims ever.
The insurance company could have used this event as a reason to renegotiate the renewal program as all insurance is based on loss experience. But this carrier, which is committed to the industry and to the business of the client, looked at the loss and realized that it was the proverbial ‘act of God,’ and therefore unavoidable, so it renewed the insurance program as quoted. Consider the impact of such business dealings: the carrier, the client and the broker have enjoyed a long term, mutually trusting relationship from that day forward.
These are the carriers marinas want to seek out and do business with. These carriers are willing to work with marinas, are willing to accept risk, pay a claim and stay with a marina after that event has occurred.
Finally, every carrier has a specific niche they are good at, and some are better than others. Think of buying a car. There are many companies making a four-door sedan, all at a variety of prices, and the buyer truly gets what he pays for. The same holds true with the insurance program. Some carriers appear to be real competitive in their dock pricing right now, but upon closer examination of the policy terms and conditions, the coverage is actual cash value instead of replacement cost, or it excludes damage from ice and snow, or it excludes flood and wind. Marina owners and operators need to be extremely careful and cautious of these areas.
Final thoughts
A marina operator in the East recently requested a review of his insurance program. The review discovered that the elements critical to the business getting back in business after a loss were missing, yet, the outline of coverage highlighted all the add-on coverage the carrier was providing at “no cost.” Without the proper protection to get back in business, what good are the “free” extensions of coverage? Marinas need to know what they are getting, know where they derive their revenues, and then buy the proper insurance protection to cover the business should a loss occur.
And finally, one of the biggest mistakes marina operators make is purchasing insurance from their customers. A lot of marina operators have a marina customer who is an insurance broker. Most marina owners and operators allow that customer to quote the marina’s insurance. because he is a customer. Unless that broker is a specialist in the marina business, don’t do it. Buy insurance from a specialist in the marina business that knows and understands the market and its complexities.
Spend the extra time finding the right broker. Once a marina has done that, spend time with the broker determining the right carrier. Then work closely with the broker in getting the best coverage and pricing possible. With that kind of approach, the marina will have a stable insurance program that will avoid price swings and will have a broker who is as loyal to a marina owner as a black Labrador.
Mark Yearn is a marine insurance specialist exclusive to Marine Insurance Services based in Milford, Mich. He can be reached via e-mail at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Marina Dock Age, March 2006
How to Match Slip Size to Market Demand
by Dennis P. Kissman
When marinas have market studies done for them, one question that always comes up, regardless of whether it is for a new marina development or rehabbing an existing marina, is, “What size slips or racks do I need and how many?”
This is actually a rhetorical question. Most marinas have a preconceived notion of what they should build and, without exception, it calls for bigger slips or racks. When asked why they feel this way, marinas always give the same answer: the bigger the boat, the more they can charge. If it were only that simple!
If everyone just began building bigger slips and racks, many boaters would be forced out of boating. There needs to be a balanced approach. Marinas simply can’t be adding “bigger” slips because a bigger slip does not always mean that marinas can charge higher rates.
Market realities
One of the market realities that all marinas hear about is that manufacturers are building bigger boats. Although this is true, it’s important to define “bigger” when looking at a specific market, and how this affects a particular marina’s customer base.
When it comes to bigger boats, their greatest impact on existing wet slip marinas — especially ones with double-loaded slips — involves an increase in the beams of boats. For example, 10 years ago a double-loaded slip could accommodate two 35-foot boats and generate income for 70 feet of dockage (assuming you charged by the linear foot). Today, that same double slip can only accommodate one of today’s 35-foot boats. It’s still the same amount of space being occupied, but due to the wider beam of today’s boats of the same length, the marina owner faces a 50% reduction of potential income.
Let’s continue to focus on rehabbing an existing marina rather than building a new one. Although the problems are the same in both scenarios, the constraints are a lot greater for the existing marina owner who wants to upgrade.
If the owner’s major objective is to have a profitable marina, there are two issues that he/she needs to consider when planning a change to an existing marina.
First, the owner should understand the boats and boating patterns that exist in this market. It is almost impossible to change the type of boating that is done or the kind of boats that exist in a specific market. That does not mean, however, that local trends are not evolving toward the newer and beamier boats of the same type that now exist. Attempts to speed up the evolution process in a particular market can lead to some pretty lean years financially for a marina.
A second important reality is that marinas must accept the footprint it has to build on. If a marina wants to build a 100-slip marina today, it should understand that it will take approximately one and one half times the amount of area for the same slips of 20 years ago. This poses a dilemma: should a marina rebuild within its existing footprint with fewer slips than permitted (to accommodate today’s beamier boats) or should the marina expand its buildable area to accommodate the number of permitted slips, even though this often times is not a realistic option?
If a marina must reduce the number of slips, the argument that charging more for bigger boats falls apart, especially if the marina charges by the linear foot — which is how most marinas in the country figure charges. Thus, a marina will have made a large investment without any way of getting a return on that investment.
Let’s recap before looking at how to approach change. The market is evolving, and no matter what marinas believe, a change is in order or else marinas will eventually become obsolete. In order to update the facility, the marina owner must make a substantial investment. There is a strong possibility, however, that a marina will not be able to expand its buildable area. What’s a marina to do?
A realistic view
When Marina Management Services begins a market study, it begins by identifying the dominant types of boating that’s done in the geographic area (i.e. fishing, cruising, sailing). Once it identifies this type of boating, it examines this trends taking place in boat design that serve that type of boating. Trends include things such as power requirements, windage of these new designs, and boarding profile to name but a few.
Armed with this information, the market study looks at the depth of the market to determine the proper ratio or mix of slip sizes. For example, if 20% of the slips should be a certain size, and the marina is permitted for 100 slips, then it should dedicate 20 slips to that size. Similarly, if the marina was only permitted for 50 slips, then it should dedicate 10 slips to that particular size. Remember, although the market is evolving, not all the boats now in the marina are going to disappear. What a marina should be doing is to accommodate existing boat styles and prepare for new models.
Once the marina knows the proper slip mix, it must conceptually lay out the marina with the maximum number of permitted slips. Most likely, the marina will discover that this number will not fit in the buildable area. From here, the marina has to decide which slips it will reduce, while at the same time trying to keep them in the same ratio as previously determined.
It should be noted that we have seen a number of designs go awry at this point, because the focus is on getting as many slips in the given space as possible without regard for such things as current, prevailing winds, fairway size, and tidal changes, all of which could have a negative impact on your occupancy and the rates charged if they are not done correctly.
A final consideration
The last thing to consider when rehabbing a marina is the cost to make these changes and the return on investment. Marina should remember that they are still renting space, and this will not change with rehabbed facilities. What will change is how the marina owner charges for that space. It is here that the difference between a profitable marina and an unprofitable one shows up.
When summarizing the costs of owning a boat — regardless of size — the least costly item for the boat owner will most likely be the amount paid for dockage. Given this perspective, marina owners should not be afraid to charge what they need to get a fair return on their investment. Moreover, owners should not be surprised that their customers will understand this situation and gladly pay increased fees.
Overall perspective
When marina owners are considering an update of their marinas, they shouldn’t be afraid to seek outside consultation from someone with a broader perspective of the changes taking place in the industry. Marina owners should explore all scenarios on paper before driving that first piling; it will give the marina peace of mind and a lot less stress on one’s bank account.
Marina Dock Age, March 2006
What marinas should include in their marina insurance programs
By Mark Yearn
Every marina operator has a basic understanding of how to buy business insurance and what their policies should include — right? Not necessarily! A lot of the insurance programs marinas purchase are either missing critical elements or have simply been purchased on price alone.
This article describes what marinas should include in their marina insurance programs. Some of this information will be very familiar and some not so familiar.
Property insurance typically provides protection for buildings, business personal property, equipment/inland marine (travel lifts, tractors, trailers, unlicensed vehicles, etc.), docks, business income, and extra expenses.
In this area, marina operators should make sure they purchase:
| • | Replacement cost coverage, |
| • | Special perils/all risk perils, |
| • | Deductibles – $ 1,000 or $5,000 (dock deductibles will be higher), |
| • | Co-Insurance – 80%, and |
| • | Agreed value. |
Depending on the marina’s situation, the owner should also request the following insurance-ice coverage:
| • | Sprinkler leakage coverage – if any of your buildings have sprinklers; |
| • |
Machinery breakdown coverage – many carriers provide this as an extension of their property forms, otherwise, owners should purchase this coverage as part of a boiler and machinery coverage form; |
| • |
Blanket Limits – depending on the size of the marina operation, this option may not be available, but ask if it is and if so, purchase insurance on a “blanket” basis. |
Pitfalls to avoid
Although many insurance programs seem to provide all the proper insurance protection, operators and owners will find many hidden surprises contained in the fine print. This is why it really is important to review the coverage terms and conditions with a broker prior to placing coverage in effect.
Here are some pitfalls to avoid:
Floating buildings insured outside of dock coverage – Most insurance policies exclude all floating property under the property section of coverage. Despite this warning, there are buildings on docks insured on property forms typically used for dry-land properties. The most common reason for this is cheaper rates, i.e., dock insurance is much more expensive (for obvious reasons) than dry-land property insurance and hence many brokers think they are doing marina operators a favor by insuring buildings on the docks under the dry-land property forms for a cheaper premium.
With this insurance, the marina operator is automatically placed in a compromising position for two reasons. First, all the dry-land coverage forms exclude floating property, so a good claims adjuster could deny a claim simply based on that. Second, flood coverage is generally included on the dock form, but excluded on the dry-land property form. As a result, if a claim occurs from a flood, there would be no coverage unless the property is insured with the dock form.
And operators shouldn’t think that they can purchase insurance on the floating buildings through the national flood program. This program does not provide insurance on floating property.
In this area, marina operators should be very careful. They should not get caught trying to save a few dollars that could end up costing them thousands of dollars when the claim occurs.
Insuring to value
Have marina operators ever said this before: “I will never have a total loss, so I’ll just buy insurance for 50% of the value.” How many times has this misperception been said by a marina owner or operator?
Every insurance policy requires that one insures to at least 80% of the total value. If not, then one will pay a portion (and generally a large portion) of the loss when it occurs. If a marina desires Agreed Amount protection, it must insure 100% to value. If it wants replacement cost coverage, typically, it must insure to at least 80% to value.
What happens if a marina does not insure to value? Then it will participate in the loss with the insurance company, or it may have its claim denied. Again, do not jeopardize the insurance coverage or the marina itself by trying to save a few dollars that could again end up costing thousands in the long run.
Business interruption
Business interruption is the most misunderstood insurance coverage in the insurance business. If marina operators were to ask a group of insurance professionals a question on business interruption, they would most likely end up with a different answer from each. The bottom line here, be sure to purchase insurance protection for “dry” operations and “wet” operations. Remember what was previously mentioned concerning floating buildings being insured on dry-land insurance forms? The same theory applies here.
In order for there to be a business interruption loss, there must be loss or damage to an insured property from a covered peril. If docks are excluded from the property insurance coverage forms, so too will the business interruption loss on the docks. Conversely, if a marina has dock coverage and has purchased dock business interruption, but has dry-land operations as well, it should not assume that the business interruption coverage on the docks will provide any coverage protection for the dry-land operation loss.
It is very important to purchase separate limits for the operations-one for all dry-land operations, and one for all wet operations. Remember that wet operations will include fueling, dockage, repair, hoist rental, lease income (leasing of floating buildings), rentals and others.
Tools and equipment
The only time the tools and equipment of a marina are generally stored within a building is when the marina is closed, and hopefully the tools and equipment are put away in their proper place. This is the only time when these items are insured as “contents” of the building they are in. As soon as these items leave the building, they have very limited insurance coverage, if any at all.
To properly protect these items, marinas should purchase unscheduled tools and equipment coverage and/or employee tools coverage, or both. This coverage will provide protection for the tools and equipment while on the dock, in the back of the yard vehicles, etc. Typically, there will be a limit per item, and a total limit per employee, and so forth. This is a very valuable insurance protection, especially if one has high-valued items moving around the property on a continual basis.
Property enhancement
Many carriers provide coverage for manna operators that offers a broadening endorsement or Property Enhancement Coverage endorsement. Some of these carriers include Business Interruption on a blanket basis up to a $250,000 limit at no extra charge. Ask what coverage is available through the various carriers offering insurance protection on one’s facility and make this coverage a critical part of one’s insurance review and analysis when determining program and pricing.
General liability insurance is pretty simple. It provides insurance protection for business invitees who come to one’s property or for whom you provide services to for bodily injury and property damage they may sustain.
There is not much to be said here, but a few areas are:
| • | Do not purchase less than $1 million per occurrence; |
| • |
If owners lease a building, make sure the building insurance includes Fire Legal Liability Insurance Protection, or that the per occurrence limit includes coverage for damage to premises you lease. |
| • |
Ask about Broad Form General Liability Endorsement, and, if it is available, make sure to have it included. |
All general liability policies are based on revenues and are auditable. Many brokers will underestimate revenues, which will result in lower premiums at the beginning, but leave the marina with a large audit after the policy period. Some insurance companies will issue coverage based on a minimum and deposit, which is usually 25% less than the total estimated premium charge, so again, a great deal at the beginning ends up costing more money later on.
Marina owners should thoroughly review the revenues being used to determine insurance premium charges at the outset, line by line, to project premium charges for the current policy period. They should then pay them with current revenues, not from a future term.
Legal liability
This coverage provides protection for customers’ boats in a marina’s care, custody, and control for repair, hauling, fueling, dockage, and storage. Every insurance company writes insurance protection on this line, including a deductible. Smaller marinas, with a lower revenue base, will benefit from a deductible in the $1,000 to $2,500 range, while larger facilities will greatly reduce their premium by purchasing this coverage with a $5,000 deductible.
Legal liability coverage is based on revenues, and many companies audit this coverage line as part of the general liability audit. As stated in the general liability discussion, make sure that you thoroughly review the revenue base being used for your initial policy premium charge so that you can avoid a large audit at the end of the policy term.
Although legal liability coverage is generally cut and dry, there are a couple of areas marinas should pay attention to:
| • |
Most policies place a limit as to the miles from the premises that coverage will apply. Owners should make sure that the policy’s mileage limitation is far enough to cover all the operations the marina conducts. |
| • |
Most policies are limited to the premises described, yet, many marina operators have workmen who make “house” calls, i.e., they will go to their customers boats for repair, service, maintenance. Make sure the policy provides coverage to employees who are away from the premises, but still performing the services of hauling, fueling, repair, storage, or dockage. |
| • |
Many of the legal liability policies written have an exclusion contained in them for all damage as a result of ice and freezing. If a marina is located in an area of the country where this is a concern, they should purchase coverage that includes damage from ice and freezing. Otherwise, engine blocks improperly winterized may not be covered when the damage is discovered in the spring. |
Protection and indemnity
This portion of the insurance program provides liability coverage for those claims that may occur on the water. Boats being tested during the course of repair, boats being moved on behalf of a customer, boats being hauled and delivered on the water, are all areas that protection & indemnity (P&I) insurance covers.
Workboats are an often-overlooked area in a marina insurance program. Marina owners should purchase P&I insurance protection for the marina facility, whether there’s a workboat on the facility or not. Without P&I, the marina has a gap in coverage; with it, the marina is fully protected. It is not very expensive — it’s as low as $400 for a $1 million limit, so please be sure to purchase this coverage.
Coverage enhancements
If a marina’s employees work on the navigable waters of the United States as a normal course of their employment, then the owners should purchase crew coverage Incidental Maritime Employment Liability insurance protection as part of the P&I policy. This coverage protects against injuries the employees may receive while working on the water as “crew” to a vessel. The definition of “crew” has had a variety of colorful interpretations from the courts, so the best way to cover one’s self from these claims is to ask that “crew” coverage be included as part of the P&I program.
Umbrella coverage
This coverage provides excess liability limits over and above the primary limits one purchases on general liability, legal liability, auto, employers liability, and P&I coverage.
There are two types of umbrellas available to marina operators: traditional umbrella coverage and a bumbershoot umbrella policy. The traditional umbrella extends over the underlying coverage scheduled on the policy, while the bumbershoot has some unique drop-down features.
Although bumbershoot umbrellas are often more expensive, the additional coverage protection they afford is worth the extra premium charge. In addition, they allow for more flexibility in one’s insurance program, so they are a much better purchase option.
Many traditional umbrella policies exclude coverage for Marina Operators Legal Liability or care, custody, and control coverage protection. Again, a large number of marina operators purchase umbrellas that exclude Care, Custody and Control coverage, which is one of the most important coverage marinas need. When purchasing an umbrella, please make sure that it provides coverage over and above the care, custody, and control protection.
Assessment
This outline of insurance protection is focused primarily on the “Business Package Policy” that every marina operator needs to purchase. There are other areas of insurance protection that one may need to consider, based on an individual marina’s characteristics. With that in mind, marina owners should work with a marina insurance professional to assist in designing an insurance program that will properly protect the owner and the business.
One should never underestimate the importance of choosing a broker and working with that one broker to design the marina’s insurance program. In so doing, owners will avoid the last-minute stress associated with two or three brokers “selling” their programs.
Pick a broker and work with him or her. Develop a relationship with one person and stick with him or her because over the long haul, this will end up saving the marina thousands of dollars. Ask this question: Does the marina bid out its attorney or CPA every year? Remember, a lawyer or an accountant has the same responsibility as the marina’s insurance broker. Think about it.
Mark Yearn is a marine insurance specialist exclusive to Marine Insurance Services based in Milford, Mich. He can be reached via e-mail at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Marina Dock Age, January/February 2006
When Dealing with Customers, Marinas Need the Proper Documentation
by Dennis P. Kissman
Several times in the past I have written about the importance of having the proper documents In the event a problem arises with a customer and his/her boat while it’s at the marina. The two most important documents are the dockage, storage, or moorage agreement and the marina’s rules and regulations.
Before going any further in-depth about these two documents, it should be noted that what follows are good business practices based on several years of real-world experience in the marina industry. But first, a disclaimer: While employing some legal terminology, the following information should not be interpreted as legal advice or legal representation. It’s always advisable for marina owners and operators to check with legal counsel to make sure they are in compliance with all local, state, and federal laws.
Legally binding
The dockage, storage, or moorage agreement is a legally binding document between the marina and the customer. The marina rules and regulations describe how the marina expects customers to act while they and their boats are at the marina.
Because the agreement is a legally binding document, its name is as important as its contents. Use the term “Dockage License Agreement” rather than simply saying “Dockage Agreement” or “Dockage Contract.” The word license in the title specifically gives a person permission to use the marina. A license agreement is not a contract that binds both you and your customer. In other words, should a problem arise, it is easier to revoke the permission of that person than it is to break a contract. Basically it gives you, the marina owner, more control over any adversarial situation and keeps any litigation out of a tenant-landlord relationship, which usually favors the tenant or, in a marina’s case, the customer. Always have the agreement designate a start and end date — never make an agreement perpetual. Doing this means there can be no ambiguity concerning whether or not the agreement is in effect when you need to enforce the terms and conditions of the agreement.
The first thing the license agreement should contain is complete information on both the customer and his/her boat. Besides having the basic customer contact information — which should include daytime and after hour’s telephone numbers and an e-mail address — it should also have alternate and emergency contact information. If a customer gives a P.O. Box for a mailing address, be sure to get a physical residence address as well. Boat information should be complete, including make, model, chargeable length, beam, and, if appropriate, overall height or draft.
Marinas should also obtain copies of the current Coast Guard documentation and/or state registration and current liability and hull insurance coverage. The marinas should verify that all vessel documentation is in the same name and address as that of the registered customer. It’s actually happened that vessels are registered in one name and the marina customer is registered in another name. This can cause serious problems if the marina tries to collect on a bad debt at some time in the future.
The license agreement should also require a list of names of people who are authorized to board the boat when the owner is not present. Remember that the boat is in the marina’s care, custody, and control while it is in the marina. If the marina allows unauthorized persons to board the boat, the marina may be held liable.
Other points
There are other important points that should be included in the License Agreement. Keep in mind, this may make for dry reading, but given how critical this information is for marinas, it’s important to read it carefully and completely:
The agreement is not transferable or assignable in any way without the express written consent of the marina. This assures that the marina retains control of who keeps a boat in the marina. Any agreement with the previous owner is not automatically transferred to a new owner upon the sale of the boat.
The Marina Rules and Regulations are made part of the license agreement by reference. This allows the marina to make sure everyone follows the same rules and regulations. For example, if a marina’s rules and regulations are part of the marina’s license agreement when a customer signs an agreement, those are the rules the customer must abide by. If the marina decides it must later modify a rule and, unless the customer signs a new agreement with the change in it, the customer is not bound by the new rule. By making reference to a set of rules that is subject to change, the customer that signed an agreement now must abide with the change because the marina only made reference to them in the license agreement, and they are not part of the actual agreement.
In the license Agreement, the owner warrants and represents that the vessel shall be maintained in a safe and seaworthy condition at all times during the term of this agreement. It is not uncommon to find a few derelict boats in a marina. Most often, they were not in that condition when they arrived, but over time, they were let go. This statement will normally give the marina an advantage in getting rid of these types of boats before they become a serious problem without a major legal battle and a lot of cost.
Owner hereby grants to marina a lien on the vessel and a security, interest therein to secure the payment of any and all dockage or storage fees, charges, or other sums due hereunder and for any other services or materials rendered. This statement highlights the marina’s right to place a lien on the boat for non payment. Marinas don’t relinquish this right without this statement; it simply forces the customer to acknowledge this right.
Owner may not assume that the marina’s premises will be a safe, sheltered anchorage during severe weather conditions. It does not matter where in this country a marina is located, it’s going to be subject to severe weather from time to time. This statement helps the marina’s defense should a natural disaster occur. However, please understand that this assumes the marina owner or operator has properly maintained the marina and administered the marina’s rules and regulations fairly to all boaters so they understand what their responsibility is to protect their own boat under these conditions.
The marina reserves the right, at its sole discretion, to reassign, move, or transfer the vessel from slip to slip. There are times when it becomes necessary to move boats in the marina due to work on docks, problems with surrounding boats, pending weather conditions, or to make the marina operate more efficiently. This statement acknowledges the marina’s right to do so.
Subleasing of slips or transferring boats between slips is not allowed except by the marina. This keeps the marina in control of who is in the marina and where they are at all times.
The marina may terminate this License Agreement for any reason (with or without cause) upon written notice to the owner. This gives the marina the ability to immediately terminate the agreement should the customer not abide by the marina’s rules and regulations or any provision in the License Agreement itself, such as for non-payment of slip fees.
The marina reserves the right to rent the slip whenever vacant and all revenues received from such rental shall inhere to the marina. This allows the marina to collect rent from a slip when a customer is out for any length of time. This is a great income source where there is transient boat traffic.
The boat owners represent and warrant that their boats shall comply in all respects with Federal Water Pollution Acts (33 U.S.C. Section 1321) prohibiting the discharge of oil or oily water and (33 U.S.C. Section 1322) untreated sewage, as well as all other applicable Federal and State laws and regulations. This statement not only points out where the responsibility rests for polluting, but the last part is just as important. For example, if a boat does not have a current registration, normally it is not in compliance with state law. This is usually a sign that a boat is destined to become a derelict and gives the marina a way to quickly remove it from the facility before that occurs.
The boat owner hereby acknowledges that he has read and fully understands this License Agreement and the Marina Rules and Regulations. This reinforces how the marina intends to operate and its relationship with the customer. The customer is acknowledging that he or she has read and understands what is expected. This is not a guarantee, but it helps reinforce the marina’s point.
Conclusion
These are not the only points that the dockage agreements should contain and each marina may have extenuating circumstances that require modifying the language to fit its particular situation. In general terms, these signed documents should help minimize some potential problems marinas face. One final point: no matter how well or all-inclusive a marina’s documents are written, if they are not complete, current, and properly administered, they will not protect the marina against litigation.
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