In my first post of the Marina Valuation series, I mentioned that marina values typically range from seven to eleven times the marina’s net operating cash flow. To expand on that topic, I think I’ll provide case studies occasionally, to illustrate what characteristics seem to generate more value for one property as compared to the characteristics of another property.
As a common starting point, we’ll use a comparison between marinas with similar annual net operating cash flow. The two I’ve chosen are within thirty miles of each other, are about the same size in upland real estate, but have different services and use limitations. Just as in the Dragnet TV show I watched when I was a youngster, the names have been changed to protect the innocent!
Marina A – This is an established marina in a protected cove with 56 wet slips. The marina does not have haulout facilities and simply caters to long-term and transient slip renters. The marina does offer gasoline and diesel fuel. The marina’s slip rental rates are at the market price for new slip rentals, but the marina is slow to raise slip rates for long-term customers. The marina’s average net operating cash flow for the three prior years was $174,000. The marina has older, but well-kept laundry and shower facilities and a swimming pool. The docks are in good condition, though finger piers are narrow and there are no floating docks. The electrical posts have been recently upgraded. Security is excellent and the marina has a quiet feel. Occupancy averages 80% to 90%. The marina has approximately 2 acres of upland with excellent parking.
Marina B – Another established marina located in an area with high value condominiums and restaurants. Located on 2.8 acres of upland in an area of appreciating commercial real estate, the marina has a small chandlery and an active service business. Equipment includes a 50-ton travel lift and a forklift. The marina has 36 wet slips and an uncovered dry stack which holds another 30 boats up to 30 feet in length. The marina has a designated “do-it-yourself” yard which can hold 3 to 6 boats at a time, depending on size. Management of the marina has been inconsistent and occupancy rates have been around 40% to 50% for the wet slips, but higher for the dry storage. The marinas’s net operating cash flow for the prior three years was $221, 000. The facilities are in good condition, but the marina appears dated in comparison to the surrounding businesses and residences. The marina offices are housed in a long rectangular building with four apartments on the top floor. The lower floor includes the office, a workshop and a spacious but dated common area. The bathroom and shower facilities were updated within the past three years and are a significant improvement over the previous facilities.
The market value results –
Marina A is valued at $1,450,000 which equates to a multiple of 8 times net cash flow. This property is well established and should have a very stable and consistent business well into the future. The marina is limited in the services it provides and can only increase topline activity through slip rate increases. The buyer of the marina was interested it the passive nature of the activity and needed to earn a steady return on investment without significant initial capital improvements.
Marina B is valued at $2,450,000 which turns out to be a multiple of 11 times net cash flow. The buyer sees significant potential to improve cash flows through superior management and to focus on the service and repair capabilities of the facility. There is some premium for the value of the surrounding real estate, but not as much as you would think. The seller was expecting a higher value because of the surrounding neighborhood. The buyer was adamantly focused on the potential of the existing business, regardless of any plans for his own capital improvements. Eventually, the seller recalibrated expectations and agreed to a deal.