Industry Articles - 2007
Boat & Motor Dealer / Marina Dock Age, December 2007
Is branding marinas good for the industry?
by Dennis P. Kissman
We live in a branded world.
Why? Branding gives recognition to a product or service; the more recognition achieved in the marketplace the easier it is to sell what you have to offer, be it a product or service.
Today there is a trend in the marina industry for brand recognition, and why not? It works in other industries. Branding is not new to marinas either. Back in the mid-1980s, Westrec Marinas pioneered the idea of branding by acquiring marinas in a number of entities and managing them under the Westrec banner. Others have attempted branding through the years with varying degrees of success, and today there is a growing push to brand an image for everyone from regional boaters to the global mega yacht market. There are a number of firms investing in acquiring marinas to build a portfolio and offer a brand image to the boating community.
Branding techniques use different approaches to create specific levels of expectations for marina customers. The most important approach to creating a brand image is through the look of the facility. I remember many years ago when a Howard Johnson’s or a Holiday Inn didn’t require signage to identify the facility. When you drove by one of its locations, you recognized by the shape of the building. Pizza Hut has successfully used this technique as well.
Properly using logos is another approach to create brand recognition. I believe everyone reading this article recognizes the Chevrolet and Nike logos, yet neither have any identifying words in them. Besides the use of a logo, a marina could use a particular name, slogan, color, or design format to create a brand image. One of the most important approaches to creating a brand image for a marina is best described as customer expectations. This is best exemplified by Best Western Hotels, which sets the standard to which independently owned and operated hotels adhere. No two of its hotels look the same, yet a customer checking into a Best Western Hotel expects a certain level of service and quality from the facility. The pinnacle of branding occurs when the brand name eclipses the product category such as Coke (how many people ask for a carbonated beverage?), Kleenex, and Scotch Tape.
How does the marina industry fit into the branding scheme of things? First, branding is for the consolidator, those individuals or entities that are accumulating multiple marina properties. However, just because one is consolidating properties does not mean branding is the answer.
Let us go back to that old industry cliché “no two marinas are alike.” If we buy into that statement, then what is there to brand? We go back to branding customer expectations. This works if your customer base is transient and your properties are located on the route the transient boater typically travels or, if your properties have overlapping markets. By this, I mean your customer has more than one of your marinas to choose from for his boating enjoyment.
Because of these characteristics, a regional marina owner would have a greater success in branding its marinas than one serving multiple market areas; particularly in separate bodies of water. One successful sales tool for promoting a branded portfolio of marinas would be some form of reciprocity at other marinas within the portfolio. To date, there has been little investigation into the levels of participation of boaters who are offered reciprocal dockage benefits. Boaters by their very nature are mobile, particularly wet slip customers with boats that have sleeping accommodations would view reciprocal dockage benefits as a plus as long as those marinas are within the boaters comfort zone for cruising. This would not have much appeal to dry stack customers, whose boating patterns are shorter and more confining than the larger boats that are kept in wet slips.
However, branding is a double-edged sword because reputation will follow the brand. For example, in a portfolio of branded marinas, if one property does not live up to the set of standards established for the entire group of marinas, it would have a negative impact on the entire organization. In this scenario, the converse is not true; one outstanding facility will only raise the expectations for all other facilities in the group.
Branding is not a cheap proposition and a decision to proceed shouldn’t be taken lightly. To be successful, you must continually promote (through advertising) what you have to offer. The larger your ambitions, the greater the challenge and the greater the risk.
Before a portfolio of marinas decides if branding is the right move, focusing on who the brand is to target will help make the right decision. Is the focus to capture a niche market or boaters in general? It is less risky to target a niche market as long as all the facilities cater to that particular niche. A marina portfolio that caters to a wide spectrum of boating interests and customers with various economic levels runs the risk of either over or under promoting a particular property that can affect the entire image of the brand.
The company that pioneered what I would refer to as segmented branding is the Marriott Corp. They have identified several market niches from Marriott Hotels and Resorts to the Fairfield Inns. Each of these brands provide sleeping accommodations, yet cater to completely different markets, while maintaining a standard of quality associated with the Marriott name.
As the ownership of marinas becomes more concentrated, branding is the logical way to improve market share and can help awareness to the entire marina industry. However, this is still a cottage industry and will be so for the foreseeable future. Should one of these groups that are using branding to promote their image fail, the fallout could have a negative affect beyond just those marinas in the portfolio. Since there are so many success stories of branding in other industries, particularly in the hospitality industry, we could all learn from their experience and avoid the pitfalls that limit success.
Marina Dock Age, November 2007
How to determine a marina’s financial strength
Knowing current financial strength key to successful growth
by Dennis P. Kissman
As the 2007 boating season comes to a close, marina owners may be reflecting on this summer’s boating season results and wondering if this is the year to buy that new condominium on that warm, sandy beach in Florida.
Before doing anything, you must know the state of your finances. Sounds like common sense, right? You’d be surprised at the number of marina owners who don’t know if their businesses are financially sound.
My purpose isn’t to delve into financial ratios and indexes learned in business schools. This article is about common sense recordkeeping, and then trusting what those records reflect.
There are only two fundamental rules to follow to understand the financial strength of your business. The number one fundamental rule for recordkeeping is consistency. If you ever want to compare how you are doing from one period to the next — whether it’s month-to-month or year-to-year — you must keep your data consistent.
For example, let’s say last year you had an income line for wet slip revenue, and this included long-term slipholders and transient dockage. To get a true comparison of how your business is doing, you cannot change the methodology of what comprises these numbers year-to-year. If you start splitting out these numbers, you will then have to wait a few more years to establish a trend in each of those line items in order for those numbers to be valuable. You can attempt to go back in time and split the income from past records. Chances are that if you don’t do this while you’re accumulating this information, you will most likely over time come up with another revenue split and never accomplish your original objective of understanding how well your various revenue streams are producing.
The second fundamental rule is to match your accounting of cash received with the services rendered. People’s pattern of paying bills may differ year-to-year, so if you book your revenue as received, rather than into the period it actually covers, the results can be misleading. This is important due to the seasonal nature of the marina business. If marinas received a steady flow of cash year round and expenses were relatively constant from month to month, this would not be as critical.
Marinas usually collect dockage fees before the boating season, yet the marinas incur the largest amount of operating expenses during the peak boating season. As a result, there are a number of marinas that operate strictly out of their checkbook. This is okay if you are a strong disciplinarian when it comes to managing money. The common scenario is this: If there is money in the bank, spend it now without any regard for what it is going to cost in the future when you have to provide the services the customer not only expects — but has paid for in advance.
Matching the accounting of cash received with the services rendered is really about the accrual method of double-entry bookkeeping. It has been around a long time, and it’s how every successful business maintains its financial records. To understand and use this type of accounting system does not require a degree in finance or accounting. You are probably thinking to yourself, “That’s why I hired a CPA to figure out that stuff.” Your CPA may know accounting, but the professional doesn’t understand marina operations like the owner or operator knows it.
If you are willing to trust the success of the marina to someone other than yourself, here is what you need to know.
Basic bookkeeping
Double-entry bookkeeping consists of two basic financial statements — the balance sheet and the income statement. The balance sheet consists of three sections, which are your assets, liabilities, and equity.
Assets, obviously, are what you own — such as real estate, accounts receivable, inventories, and bank accounts. Liabilities are what you owe on items you own — such as loans on the property, unpaid vendor bills, and customers for deposits and/or dockage you have not yet provided. The third section, equity, is the money you have invested in the business when you bought it, subsequent amounts you have invested over time, and the accumulated profits or losses of the business. When all three sections are combined in a balance sheet, the assets less the liabilities and equity will balance to zero, thus, the term “balance sheet.”
The financial statement, composed of revenues less cost of sales and expenses, can be manipulated to reflect any profit you want to see. However, you must be sure that you are keeping track of the items recorded on your balance sheet (this requires double-entry bookkeeping). It is easy to get a false sense of financial security if you’re not watching the accounts receivable balances or vendor payments that are due.
By practicing consistency in one’s recordkeeping, monitoring the dollars recorded on the balance sheet, and taking the time to understand what these financial statements are saying, the marina owner will be in the position to understand, with confidence, whether he can buy that condo on the warm sandy beach in Florida this year or next year.
Manna Dock Age, November 2007
Protecting marinas against frivolous claims
By Mark Yearn
Show me a personal injury attorney who is going after a marina, and I’ll show you a marina owner who understands the sentiment expressed by the Shakespearean phrase, “Let’s kill all the lawyers.”
In today’s world, marinas need as much practical advice as possible about protecting themselves against frivolous claims. The following paragraphs provide some examples of how this plays out in the real world.
Criminal activity
In this first example, a marina owner discovered how a crime that occurred at his facility — which he was not involved in — nevertheless made him a lawyer’s target. Here’s the case.
One evening, an employee of the marina’s restaurant was delivering cash to the night deposit box and was shot by a gunman. Fortunately, the employee wasn’t killed. However, the injured employee not only brought suit against the restaurant operator, but also the marina operator. The suit against the marina operator alleged that the premises were unsafe, and the marina operator didn’t take all necessary precautions, such as not having an armed guard on the premises to protect the injured party.
Although this case continues to play out in the courts, the good news is the marina operator had the proper certificate of insurance, “the hold harmless,” and was named as an additional insured. The restaurant will pick up the first line of defense for the marina operator.
Contracts
Contracts are critical parts of marina operations, and marinas need to pay close attention to the contracts they sign to reduce liability and ultimately, reduce an overall claim expense in the event of a loss. The relevant contracts in this discussion are those the marina enters into with its tenants (including any retail/office space it may lease), its slipholders, storage customers, or repair/service customers.
The overall premise of each contract is the same, reduce liability through contractual language and transfer the responsibility of any claim to the person leasing space from the marina. Each situation may require more specific language pertaining to the individual circumstances of the lease operation, but overall, the requirements of evidence of liability insurance, adding the marina as an additional insured, and a hold harmless clause are all universal.
Marinas that follow specific procedures and follow-up on all the proper documentation will protect themselves from further liability and claims expense. Take for example a marina offering dockage, storage, and fueling, but which also owns a number of buildings on land that contain space for retail, offices, and restaurants. As part of the lease requirements for this retail space, the marina operator requires that the tenant provide a certificate of liability insurance for a limit of at least $1 million naming the marina operator as an additional insured and includes a hold harmless clause releasing the marina operator for liability for the premises.
Another contract example comes from a marina operator in the Northeast who took all the necessary steps to protect himself. This operator required all of his slipholders to provide a certificate of insurance showing a minimum of $500,000 liability limit and adding the marina as an additional insured. This operator was diligent in his efforts to obtain these certificates from all of his slipholders.
Recently, this marina experienced high winds, and a slipholder’s boat was damaged. Somehow, the slipholder felt that the marina was liable for the wind damages, which is generally considered “an act of God.” In this example, the marina operator had a slipholder lease signed by the boat owner that stated the marina is not negligent for acts of God. Moreover, not only does the marina have the certificate of insurance, it has the actual boat insurance policy detailing the marina as an additional insured.
In these uncertain economic times, there have been more cases than ever before of insurance companies subrogating against marinas for some of the most ridiculous circumstances ranging from damaged boats that the marina could never have been responsible for to damaged cars attempting to drive through an automatic entrance gate without a proper keycard. It’s amazing to think that someone trying to gain access to a property without the proper credentials and damages a car will attempt to file a claim against the property owner for improper operation of an automatic gate, but there have been at least two examples of this so far this year.
The steps taken by these marina operators assisted the insurance company in defending itself against frivolous claims. Not only do these actions keep the marina’s insurance company from paying claims it shouldn’t, but it also keeps rates down. Remember the formula: fewer claims equals lower premiums.
Insurance policies
Time and again, marina operators think they have more coverage than they actually do. This is borne out repeatedly in a review of their insurance policies. Sometimes the policies contain exclusions that really didn’t offer the client the proper protection. In two examples, marina operators who were questioned about these exclusions, said they were under the impression that the coverage was included. Not only was the coverage not included, but the premiums being charged and paid for were the same as if the coverage had been included.
The best advice marinas can heed is to ask questions. Ask the agent to review all the coverage and get it in writing from the insurance company or the agent. Finally, read the policies. In addition to conducting a review of the entire policy forms and language, marinas should pay special attention to the piers, wharves, and dock forms, the marina operator legal liability forms, and the coverage limits.
Typically, the greatest coverage discrepancies occur in the dock coverage form. It’s here that marina operators will find wind coverage, while in some cases ice and freezing coverage and flood coverage aren’t included. If the most important reason to insure one’s docks is to protect against the perils of wind, flood, ice, and collapse, what good are coverage forms that exclude these perils? What is the marina really getting for its money?
Another tip for marinas is to make sure that they purchase business interruption insurance, and that it includes coverage for dockage revenues. Often, a policy provides dock coverage under a special dock form, and business interruption coverage under the business property form. Many agents don’t know that “Business Interruption for Docks” is excluded under the business property form. Therefore, the marina in essence will have no coverage for its loss unless the business interruption coverage for docks is extended to the dock form.
Employee leasing
Many small business owners, including marinas, are using employee leasing companies to offset the expense of providing payroll and benefits to its employees. In addition to the traditional services of payroll, taxes, health, and benefits, many employee-leasing companies provide workmen’s comp for their marina employees. In doing so, marina operators feel they don’t need to purchase workmen’s comp, because they don’t have any employees.
It cannot be overstated; the uninsured worker or the independent contractor/subcontractor hired to perform some sort of service on the marina property in many instances is considered “single person operations” and is required to purchase workmen’s comp insurance for themselves. A marina that has a workmen’s comp policy in effect would have the necessary insurance to protect itself against any claim filed against it by any insured worker hired to work on its behalf. A marina who transfers all its employees to an employee leasing firm, which does not have a workmen’s comp policy in effect, would not have coverage to protect it against any claims filed against it from these uninsured workers.
Another issue is Longshore Coverage. Under the United States Harbor Workers and Longshore Act, the owner of a property located on a navigable water of the United States can be held responsible for any injury that occurs to any worker deemed to be a Longshoreman. This may include workers who are working on the property for someone else, such as a boat owner. The uninsured worker can file for Longshore protection against the property owner for injuries sustained while working on the premises.
If a marina has an employee leasing company for all its employees, and it purchases the workmen’s comp coverage they provide, the marina won’t be a named insured, and therefore, will not have any insurance protection available to it through any workmen’s comp coverage, let alone protection against claims brought under the Longshore Act.
The only way to have this protection is to be a named insured on a workmen’s comp policy that includes both the state marina codes and the Federal Longshore marina codes. If the employee leasing company does not provide this protection, then the marina owner is putting himself at risk. This is a huge factor when weighing all the benefits of employee leasing.
Summary
Marinas should pay special attention to contracts and follow up with all customers on obtaining the required documentation. Marinas should read and understand their insurance policies. Finally, those marinas electing to go the route of employee leasing should review and weigh all the factors before making a decision that could affect them personally.
Mark Yearn is the president of Marine Insurance Agency Inc., in Milford, Mich. He can be reached by phone at: (734) 266-0496, or via e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Marina Dock Age, September/October 2007
Structuring dry stack rates
by Dennis P. Kissman
Over the past 12 years, I have written several articles on establishing rates for dry stack marinas. During this time there have been some dramatic changes in the size of the boats being stored, the types of lifting-equipment that have been used to stack them, and the structures built to store them. With all the changes that have evolved over the years, it is a good time to revisit how dry storage rates should be structured.
Solutions
One of the ways that some of the newer dry stack facilities are approaching this problem is by selling the individual racks to boaters. This approach has been very successful in some markets where land costs are very high or a perceived supply and demand imbalance exists in a high socioeconomic market area. However, it should not be viewed as an industry-wide solution to overcome higher development costs.
Our research has shown that in certain markets the number of potential rack buyers is significantly less than the total available market. When considering the expansion of an existing dry stack facility or developing a new one, always think about it from the standpoint of operating it as a rental operation.
This brings us to how rates should be structured in order to determine if the project is economically viable as a rental operation. First, understand the market you are intending to serve to see what pressures you will have on structuring and setting your rates. Ask yourself what are the storage alternatives? Are the boats in your market of the type that could easily be stored on trailers and transported over the road? Is there open land with little restrictions for storing boats on trailers? Are there off-water buildings where boats can be stored indoors? Are the boats in the market area of such a value that they warrant the services you will offer?
Do not overlook the economic demographics of the local market. For example, a market area in which the average household income is $35,000 will be different than if the average household income is $135,000. Keep in mind that other than the cost of the underlying land value, the construction costs of like structures of similar physical size and equipment to handle the boats in either market will be approximately the same. The point is, don’t get caught up with the current fad that says because boats are getting bigger, all marinas everywhere need to be targeting the big-boat market.
When the dry stack concept of storing boats began, the idea was that boats traditionally kept in wet slips should be kept on racks. Simple enough, right? But there’s more to the story of why marinas do what they do. The traditional way to structure rates in a wet slip marina was to charge by the length of the boat. This pricing system carried over into the dry stack market, and today the majority of dry stack marinas still charge by length of boat. There are some variations, such as charging a minimum length or extra amounts for extra height or width beyond the designated standard rack size in a particular dry stack marina. While this approach is better than simply charging based on boat length, it rarely gets above an 80% or 85% utilization of space available to rent.
Thinking deeper
There are several ways to structure rates to improve on the utilization of space. The one that I believe is the easiest to understand and implement is to view one’s dry stack facility the same as a bank rents its safety deposit boxes. A bank rents a customer a safety deposit box by the size of the opening — irrespective of what’s inside the box. In a dry stack facility, it is likely that some racks are deeper than others. Therefore, to maximize income, it is easiest to stick with square footage of rack opening size.
When calculating the opening size that’s best to charge, include the structural part of the rack. Typically, this would include one-half the vertical column width and to the bottom of the horizontal rail. In the case of the bottom rack, figure the floor level as the bottom of the rack. To check whether you have incorporated all the square footage into your calculations, take an overall height and width measurement of the racks — that should equal the sum of the square feet of the individual racks. This approach to structuring a rack rate will work regardless of the size of boat being stored.
Now that we have come up with how rates should be calculated, the next logical question is how does a marina convert to this method from the more typical way rates are charged? I addressed this in detail in an article that was published in Marina Dock Age in the September/October 1995 entitled “Three Dimensions of Establishing Dry Storage Rates.” Although the rates used at that time have changed, the methodology has not changed. What has changed and needs to be taken into account today, especially on new construction, is the cost of construction and the lifting equipment. To calculate whether one has a fair return for a rental operation on one's investment, convert both the investment and operating cost similar to the rate structure and calculate the rate of return.
If the return is not what was expected, there are two options: first, adjust the rates to get the desired return, if the market will be able to absorb the increase. Second, convert to a rackominium. The second option should be weighed carefully before a final decision is made — it’s a very difficult decision to reverse once it’s started.
Marina Dock Age, July/August 2007
A case study on why marinas and fire departments must be partners
by Gene Spinazola, P.E.
A recent marina fire was the result of a boat owner making repairs on his boat. For this article, it’s not important how the fire started, but rather what went wrong during the fire.
The setting
This fire occurred on a Sunday afternoon in an upland boat winter storage area. The arrangement of boats in the storage area was well-planned by the marina and conformed to The National Fire Protection Association Standard 303, Section 7.2.1.8, Fire Department Access.
There were 21 boats in this section of the yard storage area, ranging in size from 22-feet to 38-feet. The boats were lifted for storage using a straddle hoist, and the spacing between them averaged approximately six feet. At the time of the fire, only a skeleton crew of yard employees was working. Upon seeing smoke, the crew immediately called 911 to report the fire.
The boat owner tried unsuccessfully to extinguish the fire using a small 2 1/2 pound ABC dry chemical fire extinguisher that was in the galley on his boat. He, too, then called 911 and reported that his boat was on fire.
The “First In” fire apparatus was an Engine/Pumper (No. 1), which arrived “On Scene” four minutes and 22 seconds from the time of the alarm. Engine No. 1 stopped about 75 feet from the fire and reported that there were now two boats on fire. The “Second In” apparatus was also an Engine/Pumper (No. 2), which stopped behind Engine No. 1. The responding fire fire department had a full-time crew, which was supported by “On Call” volunteers.
Each Engine/Pumper carried 800 gallons of water in its onboard tanks. The Deputy Fire Chief arrived “On Scene” right after the two engines, and ordered in several tanker trucks to shuttle water from a hydrant one-half mile away. The turn around time for the tankers was about 12 minutes. At this point, there were now four boats on fire.
Remember, these boats were held upright with “Jack Stands.” The gunnels on even the smaller boats were six or more feet off the ground, which made it difficult to direct fire fighting water into the boats and onto the fire. So, Engine No. 2 was moved back and replaced with Ladder Truck No. 7. Most people at the scene thought that once No. 7 had elevated its ladder and aimed its 1,000 gallons per minute Monitor (water cannon) down on the fire, it would be out in no time.
To keep Ladder Truck No. 7 operating, 1,000 gallons of water per minute were needed. This was not possible with just two water tankers each carrying 2,400 gallons, and, on a 12 minute turnaround.
But wait — isn’t this a marina? There must be water around here, somewhere? Didn’t the fire trucks coming to the marina pass by a boat ramp on the way into the storage area? What about that place over there where the straddle lift picked up the boats? Wouldn’t it be possible to get water there and pump it directly to the ladder truck?
The boat ramp was 440 feet from the fire and the straddle hoist well was 311 feet from the fire. Engine No 2, a 1,500 gallon per minute pumper, was moved to the straddle lift well and supplied fire-fighting water to both Ladder No. 7 and Engine No. 1.
Given this scenario, who could have predicted these results. The fire consumed 18 of the 21 boats. The yard staff was able to move three boats that were on trailers to a safe area in the yard. Of the 18 boats that burned, 11 fell off their jack stands and were laying on their sides. One firefighter was slightly injured as a result of a boat rolling over.
Lessons learned
In looking at some real-world lessons that could be learned from this scenario, this is the conclusion:
• The Fire Department did not have a “Response Pre-Plan” for the marina. That’s why it did not make use of two very accessible water drafting locations, i.e., the boat launch ramp or the straddle hoist well, until 28 minutes into the fire.
• Engine/Pumper No. 1 was located too close to the original fire and sustained $11,000 damage to the left side of the truck.
• No attempt was made by either the marina management or the fire department staff to conduct drills for firefighters or for the marina staff. Although the Fire Chief frequently visited the marina and was familiar with the boat ramp and the straddle hoist well as points of access for water supply, he was not on duty at the time of this fire.
NFPA 303, Fire Protection Standards for Marinas and Boatyards, reads as follows:
Section 4.4 Fire Department Liaison:
4.4.1 The local fire department shall visit the facility annually to become acquainted with every part of the facility and to conduct employee training sessions. 4.4.2 Management shall assist the fire department in pre-fire planning.
Now, if the “Pre-Fire Plan” called for access to the straddle hoist well or the boat launch ramp for fire department water supply, then it is the marina’s responsibility to keep that access open 24/7. To pump water, the fire truck must be within 12 to 15 feet of the water. At the end of the day, the marina’s standard operating procedures should dictate where the hoist would be parked for the night. That location might be out on the fingers of the well or in a upland area, away from the water.
As a result of this fire, it seems apparent that good pre-incident planning and staff training by both the marina and the fire department would have gone a long way toward limiting the amount of damage to boats at the marina. In fact, this is the major lesson to be learned from this fire.
If the fire department was familiar with the marina setting, it would know that boats in storage, on the whole, are very difficult to reach and generally require a ladder to gain access. During fire fighting operations, these boats can fill with water and will become unstable. Even after the boat fire has been extinguished, the hull thickness may have been compromised and the jack stands may push right through the hull, resulting in a roll over. The entire fire scene area should be cordoned off until the fire department deems the area safe to enter.
Gene Spinazola is the owner of Gene Spinazola, P. E., & Associates Inc., Castine, Maine. He can be reached by phone: (207) 326-9147. www.marinafires.com
Marina Dock Age, July/August 2007
By the numbers:
What marinas should consider when building dry stack storage
by Dennis P. Kissman
In our consulting business, we have had many opportunities to review a client’s financial modeling for the development of a new marina, and it never ceases to amaze me at how many of those financial projections are made based on permitting constraints without regard for the local market demand for dry stack. When a decision to build is based on such financial models, the finished facility actually turns out to be far different from what was originally projected. The reason? The primary focus of the permitting agencies is the number of boats being stored or berthed at the marina. What they often overlook is the size of those boats. Although this phenomenon applies to both wet slip and dry stack marina development, this article will focus only on the dry stack aspect.
The process
Permitting agencies permit dry stack marina projects based on the total number of boats to be stored. There are some thresholds for the number of new boat storage units that can trigger additional permitting requirements, specifically a Development of Regional Impact (DRI). A DRI is a government-based method to refer to large-scale developments, such as complicated marina developments, that are likely to require input from several agencies besides the local government jurisdiction in which they are located.
In some instances, there are restrictions based on the carrying capacity of the lake, which would limit the maximum number of boat storage racks that can be built. Regardless of the reason, marina owners and managers must be aware of this factor and consider it in any development plan.
Smart planning
When approaching a rack manufacturer to design a dry stack storage structure for one’s development, the manufacturer will look at the physical size that can be developed, based on the marina’s site plan, and come up with the maximum number of racks that will fit into the structure. The rack manufacturer is very familiar with the typical rack sizes that are required for today’s boat market and, using that knowledge, will come up with a rack size mix that will fit the site. Keep in mind, however, that the rack manufacturer is basing his/her work on boat sizes that exist in general market conditions, and this may have little or no bearing on what the local boating market demands in dry stack.
It is at this point, for example, when trying to determine the economic return on the development, that confusion and conflict set in. Consider some hypothetical situations that show how the same structure can have different economic results.
For example, let us assume the physical limitations for an enclosed building are 300-feet long and 145-feet wide with an eve height of 55 feet. With a building of this size, the rack manufacturer will most likely show a plan for a building that will accommodate approximately 300 boats, 150 on each side of the center isle.
For ease in estimating cost, the rack manufacturer is going to quote a price based on a per rack cost. For the purposes of this example, let’s say the manufacturer quotes a price of $10,000 per rack. For budgeting purposes, that means that the cost to construct this building would be $3 million. However, after going through the permitting process, it turns out the marina is restricted to only 250 racks, or 50 fewer than projected.
After conducting a site-specific market study, it’s determined that the size of the boats that should be stored in the projected building is larger than originally thought (while the size of the building remains unchanged). The question now becomes, “Is the cost per rack still $10,000 per rack or is it now $12,000 per rack since the building size remains the same?” This change represents a potential $500,000 difference in construction costs, so it should be abundantly clear that the hard numbers should be clarified with the rack manufacturer before moving forward with the development.
Once a marina has its development costs nailed down, it becomes crucial to understand how a change like the one in the previously cited example affects the income potential from the property. Most income projections that marinas come up with are based on the length of the boat being stored. If the average boat length was estimated to be about 23-feet when the marina could store 300 boats at a cost of $12 per foot, per month, the maximum total projected annual income would be $993,600.
Here is where the confusion arrives when estimating the income potential of the plan that was revised due to permitting and market data. If the only change was the number of racks one could build, the total projected annual income would be $828,000. But wait! The site-specific market study said the marina should plan for larger boats. So, if the average boat length went to 27 and one-half feet from 23 feet, and that was the only change, the income would be the same as originally projected. Likewise, if the rate went to $14.40 per foot per month from $12, the income would also remain the same as originally projected. It is a fact that larger boats also equate to a higher monthly per foot rate. If we assume the site-specific market study came back with an average boat length of 27 and one-half feet and the monthly per foot rate is $14 (both numbers are conservative figures, based on studies we have recently conducted in several markets) the potential income from the development increased 20% to $1,188,000 — while storing fewer boats.
In a nutshell
Other factors will affect the investment and return on that investment that need to be considered are: the size and type of equipment to handle the larger boats, reduced operating costs because of handling fewer boats, and the methods on which you charge for boats stored such as square foot of opening or cubic foot of rack space. All of these factors require more analysis than can be addressed in this article.
The point is that one’s development objective should be to build the largest building possible, place the maximum number of racks in the building for permitting purposes yet stay under any threshold that will create permitting problems. Conduct a thorough market study to configure the inside of the building to meet boater demands while maximizing the income potential. Most of all, understand the true costs for a building that will meet the demand in your market.
Marina Dock Age, May/June 2007
Looking beyond the cost of the dock
by Dennis P. Kissman
As a marina owner, one of the most important decisions you will have to make is to decide what type of dock system is best for your marina when it becomes time to replace and/or expand them.
There are several factors that will weigh in on one’s decision. The one factor that usually comes to mind as the most compelling is cost. However, basing one’s decision solely on cost may lead marinas to ignore other factors that should play a part in the decision-making process, could improve a marina’s position in the marketplace, and may help the business reap a greater financial reward.
The factors that I am referring to are those that your customers expect from the marina. These include a safe, secure, and boat-friendly environment. One of the areas in a marina that contributes to these factors is the docks.
I have previously written several articles on customer service and how superior customer service can overcome many deficiencies in a marina’s facilities. When it comes to replacing docks, the question becomes why should a marina continue to overcome dock deficiencies when the opportunity comes along to correct these problems? If cost becomes the compelling factor in choosing a dock system, then the causes of the problems that exist today will most likely continue or reappear within a few years after the installation of a new dock system.
Expectations
This article is not intended to be an endorsement or criticism of any dock or dock component manufacturer or dock contractor. The marina owner is in the best position to make the decision as to what is built. Keep in mind that the mission of these companies and individuals is to sell their products and services; while the marina owner must choose what’s best for his or her particular situation to satisfy (ultimately) the customer’s expectations.
During my l9 years in this business, I have come across several marina developments that were built for a Rolls Royce market, but existed in a Volkswagen market. As a result, these marinas proved to be financial disasters. They could not be maintained, and so they prematurely deteriorated. Likewise, I have seen marinas “under built” for the market they were serving, costing marina owners an extraordinary amount in maintenance expenses just to keep the property up to the standard their customers demanded. These problems have nothing to do with the dock providers. They rest solely on the shoulders of the marina owners not making the right decisions.
Customer needs
Let’s look at what customers expect from a marina and how the dock system can play an important part in satisfying customers’ needs.
First, when I am referring to a safe dock, I am referring to the safety of those people that use the dock. Tripping hazards are probably the most prevalent problem with docks. Therefore, it is imperative that marinas make sure the surface material is securely fastened to the frame.
On wood-surfaced docks, warping due to age often causes individual boards to come loose. This creates an uneven surface and has the makings of a potential tripping hazard. On concrete docks, loose utility covers often create tripping hazards. On both types of dock surfaces, having power cords and water hoses running across the dock is simply asking for a lawsuit.
A second major problem under safety for floating docks is stability. I have seen people literally crawl on their hands and knees to get to their boats because the dock was so unstable they could not balance themselves. When it comes to dock stability, marinas need to look beyond the docks themselves. A dock may be perfectly stable in one marina and not in another because of wave action in the marina basin.
A third problem when considering the safety of one’s docks is the physical, unobstructed size of the docks and finger piers. For example, if a dock is eight feet wide, but the marina owner allows dock boxes in front of each slip, this may pose a problem. In this example, the dock has slips across from one another — each with a two-foot wide dock box — so as far as boaters are concerned, the eight feet wide is far less because the unobstructed path would be more like four-feet wide.
It seems that the smaller the slip, the smaller the dock. It does not matter whether the boat in the slip is 25 feet in length or 125 feet in length, chances are the size of the person that is going to use the dock is similar. Remember, safety relates to the people using the docks.
The next factor customers should consider is security, specifically as it relates to securing the boat to the dock. The biggest problem here is undersized and poorly fastened cleats.
On wood-surfaced docks, whenever possible, marinas need to bolt through the wood decking and use a backing plate to prevent cleats from coming loose. As part of your maintenance program, always check that the cleats are securely fastened. Cleats that have become slightly loose rapidly lose their holding power.
A second problem arises in securing the boat when cleats are improperly located on the dock. There are numerous books that show the proper way to tie a boat to a dock. That is not saying that every boater knows the proper way to tie up his/her boat, but the marina owner should provide the proper securing points.
A third item that a boater expects from his/her marina is a boat-friendly environment. Two things to keep in mind here when selecting a type of dock. One, recreational boats are not commercial boats, and two, when a movable object hits a fixed object, it is usually the movable object that suffers the most damage. In this case, the boat is the movable object.
The most unfriendly dock system that I have come across is a fixed concrete system and steel dolphin piles. I have seen some marina owners try to make these types of docks more boat-friendly by adding carpeting tacked along the side of the finger pier or wrapping the dolphin pilings with carpet, but the bottom line is you still have a movable object and a fixed object coming together.
Any dock system that marinas use should have a little give to absorb the energy of a boat hitting it. It’s up to the marina to decide whether this means the entire dock system gives a little, the marina installs whalers to absorb the impact of a boat, or the boat owners strategically place fenders.
The last thing I want to mention regarding a boat friendly-environment is that when one’s marina was permitted, say 30 years ago, for 100 slips, the marina probably built slips to accommodate an average boat length of 25 feet. Well, things have changed over the years. The marina that catered to a 25-foot boat market 30 years ago will now cater to a boat market in the 40-foot range. Yet, because the marina was originally permitted for 100 slips and is usually in a basin of a fixed size, trying to reconfigure the marina to fit 100, 40-foot slips in a basin designed for 100, 25-foot slips just will not work.
Overview
This column has highlighted a number of issues and concerns marinas face in replacing their docks. The issues are not intended to be an exhaustive list of items marina owners and operators need to be aware of with regard to their docks, but rather some ways marinas can make their docks more boater-friendly.
Finally, keep in mind that these strategies do not have to cost a ton of money, especially when they are being considered at the time when a marina is planning construction. The fact is, docks can have a significant, positive impact on income over the long run.
Marina Dock Age, April 2007
A fresh approach to valuing a marina
by Dennis P. Kissman
During all the years that I have been involved in the marina industry, there is one question that I have been asked more often than any other: how does one value a marina?
Throughout the years, we get several calls from real estate appraisers asking for financial standards for the industry that they can use to compare their valuation of a marina to the industry norms. Over the past few years, several industry trade publications, the Association of Marina Industries, and the National Marine Manufacturers Association have conducted surveys and gathered information about boaters, marinas, and boatyards. These are just some examples of the documented, published resources on the benchmarks and financial performance of marinas.
No easy comparison
What makes it difficult for those outside of the industry to disseminate this information is the fact that no two marinas are exactly the same. Without an intimate understanding of this industry, it is difficult to produce meaningful standards of financial performance from this information alone. As the years pass, the process for collecting information has improved, and as more and more business owners participate in submitting information, the data will become more refined and more reliable.
The lack of available, reliable information is compounded today by the exploding values in waterfront real estate. Marinas are water-dependent businesses, and the value of those businesses is not keeping pace with the real estate that the marina sits on.
One approach to solving this problem has been the conversion of marinas into dockominiums and rackominiums, i.e., the sale of individual wet slips and dry rack units to boaters. This is one solution that we have seen work in several markets, but it is not necessarily an option for every market. We have reached this conclusion based on a number of market feasibility studies that we have conducted to identify the size and depth of the market for the conversion of marinas to dockominiums or rackominiums. Let me explain.
First, not every boater has the economic means to buy a wet slip or dry rack. Putting the economics aside, there are also segments of the boating market that are unwilling to commit to this concept for a variety of reasons. Boaters may perceive the idea of purchasing a slip or rack as a limiting factor because the person wants to explore new waters and/or they want the freedom to buy a new boat. During some of our market feasibility studies, we have found that there may be a very strong market demand for marina development or expansion, but a conversion project limits the size of the overall market. This may be due to the size and types of boats found in the market, the demographic make-up of the target market, or other external factors.
Another misconception is that if one conversion project works in a particular market, then it will also work for all marinas in that market, i.e., they can or should convert to dockominiums or rackominiums. If the perceived value of boating in a particular market is high enough to justify a conversion project, there may be a very profitable segment of the market that is not willing to commit to the conversion concept. There are different boaters in the same market that will demand different levels of water access.
With that said, I think there is a bright future for commercially operated marinas, but getting back to how those marinas are valued could determine whether they will survive as commercially operated businesses.
A fair valuation
When we think about the valuation of a marina, we usually associate it with the need for financing — whether it be for a marina buyer or refinancing to improve the property. But there is one other important reason to know the fair market value of your marina. That reason is for you — the owner — to know if you are getting a fair return on your investment as a marina and not as a conversion or a non-marina use. This is what I want to focus on.
Traditionally, real estate appraisers have valued marinas based on the income the marina produces, yet there is other value in that marina. We can determine what that added value is by separating the land from the business and improvements. This is especially true if the marina has excess land.
Let’s look at the philosophy of the retail industry and see if we can apply it to the marina industry. Retailers typically prefer to put their resources into the business in the form of display space, advertising, and inventory and not tie up a lot of capital in real estate. If you look at the marina business the same way and value the real estate differently than the business, you will get a higher value for your marina even though you own the land, as well as the business.
Let’s say you do not own the land that the marina is on, such as what occurs in having a concession agreement on an Army Corps of Engineers’ lake, but in this case, this is your land, and you lease it from yourself at price that gives you a fair return for vacant land. The return is typically a point or two above what percentage lenders will lend.
For purposes of this example, let’s assume that rate is 7%. Now let’s say that you have three acres of upland that is worth $500,000 per acre based on comparable commercial waterfront land sales. That means the marina business would pay $105,000 in rent per year to the land-holding entity.
Now, let’s say that the marina is generating $2 million in revenue, and you project to make 30% from the business. This would mean that you should be generating $600,000 in net operating income after you paid the rent on the marina. If we apply a cap rate of 12% to the net operating income, the appraised value of the marina would be $5 million. By splitting the land at fair market value from the business, the value of the marina is not only the value of the business, but also the value of the land. So instead of a $5 million value based on the income approach to an appraisal, you now have a value of $6.5 million by independently valuing the business and the land.
Benefit to you
Why is this important to you? Because as the value of the underlying land increases, the carrying cost of that land increases as well. By understanding what the value of the land is, you need to adjust your business plan to cover the increased cost, which normally means adjusting rates charged for the various services you provide. In short, this means that the income a commercially operated marina will generate can be the highest and best use of that property and provide a greater return to you as the owner.
Marina Dock Age, March 2007
Helping customers enjoy boating
by Dennis P. Kissman
I was reading an article recently about the opening of a new marina in the Caribbean. After building a multi-million dollar breakwater, the marina basin was still an uncomfortable place for boaters due to the swells that continually came through the entrance.
Marina Dock Age readers may recall the column I wrote last month, where I discussed the importance of hiring the right consultant. Well, that’s not what I want to focus on in this Caribbean example. In this case, the story I read quoted one of the sailing customers staying at the marina as saying “that rocking is just part of the boating experience.” Well that may be part of the boating experience, but it is not what the majority of boaters want in a marina.
We often think of boaters as this hearty group of seafaring folks that can cope with all kinds of problems and just chalk it up to another “boating experience.” Well guess what? That is not the case. Today’s recreational boater wants pleasure, and not “another experience.” These people are not making their living from the sea, and they are not venturing offshore to distant lands. No, these boaters want a trouble-free experience for a few hours of enjoyment on a weekend.
Part of a boater’s pleasure comes from using one’s boat — whether sitting on it at one’s marina or enjoying a favorite water activity. Remember, your customer’s boating enjoyment starts and ends at your marina. Whatever you can do to improve that time will be rewarded with increased business. Marina operators have an obligation — yes, an obligation — to see that their customers enjoy their time while at the marina. Too many “bad boating experiences” are going to lead to one of two things. The customer will use the boat less, which will eventually lead to selling the boat, or they will get out of boating all together. Neither option is good for business.
Customer service
So, what steps should marinas take to make sure their customers are enjoying themselves? To answer this question, marina owners and operators must first of all realize that there is no list of bullet points to follow, although there are a few guidelines that can help. Just as we know that no two marinas are alike, the same principle applies to one’s customers. As such, marinas need to be observant without being obtrusive. The more they know about their customers’ habits, likes, and dislikes, the better they will be able to satisfy their needs.
Make sure you know the difference between a customer and a friend. The easiest way to tell the difference is that you socialize with friends, while you ask customers to pay for services rendered.
Your ego should be less important than your customers. The quickest way to drive someone away from a marina is to make them feel inferior, and one of the quickest ways to do that is by destroying their egos. If they want to puff their chests out and tell you how good they are or what they have is better than anyone else’s, listen to them and agree with them — you’re not going home with them. Let them have their moment of glory for tomorrow is a new day.
Take actions
Having learned some things to better understand your customers, what should managers do about that swell that rolls through the marina and results in half the cocktails being poured on the deck? Maybe there isn’t much you can do about that today, but what you want to do is make sure that this is the only problem that customers complain about at your marina. Often times, there is not one problem that is the culprit to customer dissatisfaction, but rather it’s a culmination of problems.
As we noted earlier, boaters are, for the most part, a forgiving group. They recognize that some things are out of the control of management, but if management is not doing the best with the things that they can control, then criticisms will surely follow.
One of the best ways that I have found to minimize criticism of the physical aspects of a marina — no matter how good or how bad it is — is to show customers that things have changed for the better since the last time they were at the marina. What you want to achieve is to have that customer who comes to your marina, whether it was yesterday, a week ago, or last season, say, “Gee, there is something different about this place. I don’t really know what it is, but it feels good and I like it.”
Marinas that adopt this philosophy will be amazed at what a friendly greeting, a few well-placed nails, and a coat of paint will do for a customer’s disposition. It will literally turn that “boating experience” into a pleasurable day on the water.
Marina Dock Age, January/February 2007
When should marinas seek out an outside opinion?
by Dennis P. Kissman
Are you taking a truly objective approach to your marina business? Before you automatically answer “yes” and possibly dismiss my question as a foolish one, consider this second question as well: Have you ever made a mistake in operating your business? The point here is that anyone who has ever had a stake in any business cannot be totally objective. Everyone has opinions, prejudices, or allows himself or herself to be influenced in some manner that could pose a potential hindrance to the growth of one’s business. That is never more evident than when one is entrenched in the day-to-day decisions of operating a business.
There is nothing wrong with having opinions or prejudices about how things should be run at a marina as long as they do not become a barrier to keeping an open mind when someone else suggests that there may be a better solution or approach to achieve a desired result. This is not to suggest that the marina owner or operator doesn’t know the operation better than anyone else — in fact, he or she often does. But usually, the owners/operators are so focused in one direction that they can miss opportunities that someone with another, legitimate perspective of the business might be able to point out.
This same rationale also applies to the marina developer even more so than it applies to the marina operator. Typically the marina developer has very limited knowledge of the inner-workings of a marina and so his/her perspective is influenced either directly or indirectly from a user’s point of view.
In the early stages of the planning process — whether it is a change in your current business strategy or a new project — one of the best things marina owners, operators, and developers can do is engage a knowledgeable consultant. Get an expert opinion from someone that does not have a financial stake in the results beyond the consulting fee you pay. Now the question becomes, “What should one look for in that person or firm?”
Selection criteria
Contrary to popular belief, a consultant is not just someone in-between jobs. A true consultant is a professional with a broad background who has an understanding of a particular industry. The best consultants are good listeners with analytical minds who can draw on past experiences and situations to apply that knowledge to the specific application at hand. Let’s take a closer look at the qualifications that make for a good consultant.
Experience counts
First, let’s identify what to look for in a consultant’s background. The person’s background should include prior experience with similar situations. Knowledge of current developments taking place in related industries, such as boat and dock manufacturing, is very beneficial when planning any major capital expenditures. Remember, marinas react to what boat manufacturers are producing. The more knowledge one has of what these segments of the industry are expected to do in the future will assure that your marina does not become prematurely obsolete.
Next, the consultant you select should have an understanding of your objective(s), as well as your motivation for wanting to achieve it. For example, let’s say that you have seen the productivity of your service department decrease over the last year, and you call in a consultant to advise you on ways to increase productivity. To get the best advice in this situation, you need to share background information as to what happened to get into this situation, and what you have done to possibly turn it around. This gives the consultant an insight into your thinking, which he can then build upon, and draw from his experience to come up with a solution.
Often times, you (the client) can come up with the best solution by just talking about the issues with the consultant. It sometimes takes only a little tweaking and a little positive reinforcement about what the operator/owner is doing to achieve the desired objective.
An open mind
At the beginning of this article, I mentioned that it’s important for the marina owner or operator to keep an open mind. The corollary of this is that it’s just as important for the consultant to keep an open mind as well. Let me explain.
I have come across many people in this industry who call themselves “consultants” who have no idea what role(s) a consultant plays. Worse yet, these individuals are intent on telling you a “one-size-fits-all” solution without giving any serious regard about what the marina wants to achieve. The only way to keep an open mind is to be a good listener. A reputable consultant cannot give you good advice if he/she does not listen to what his/her client has to say.
It is only when the consultant has assimilated all the information about a particular situation and drawn upon his/her knowledge of similar situations that he/she has seen or been involved with in the past that the consultant(s) should form an opinion as to what should be done for the specific application in question.
When it comes to consultants, the old saying “You get what you pay for” holds true. If someone is out there offering free advice, then that advice is probably worth nothing. However, this doesn’t necessarily mean that the reverse is true either! In other words, spending a lot of money on a consultant(s) doesn’t necessarily mean receiving lots of great advice. It’s not the case that the more you pay for advice the better it is.
The sound approach when selecting individuals or companies to assist you with a problem is to review their credentials and decide if they meet your needs, rather than to strictly look at the cost. A reputable consultant will know the value of the services they are providing and charge accordingly. A consultant is not going to provide you with anything you could not do on your own given enough time and money. What a reputable consultant will do is shortcut the process and save you time and money in the long run.
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