Rev. of Valuation of Marinas

Valuation of Marinas

by John Simpson, MAI
Published by the Appraisal Institute, 1998

Review by Stephen Traub, ASA

[Bookcover]

This booklet investigates unique features of a marina and the problems one runs into in completing a marina appraisal. The author emphasizes that boat slip count is parallel to room count in a hotel. It is the most significant item in estimating marina value.

A marina is a boat basin that provides dockage and services. Marinas with deep-water slips can provide yacht moorings or access to commercial fishing boats. Those with shallow water access may be restricted to smaller pleasure craft. Services may include restaurants, bait and tackle shops, restrooms, boat repair, and boat cleaning. Although boating is ranked third among senior participants followed by golf and bowling, the median age of a boater is 40.

Unique Upland

A marina is unique real estate. The value of the land and bulkhead outweighs the value of the rest of the improvements. A bulkhead is a retaining wall erected to protect against tidal erosion of land. Slips are the water spaces between two piers. The length of the slips, as well as the minimum draft (the depth of the water at low tide) will determine the size of the boats that can be moored. Expenses may include some form of annual riparian rights payment. Alternatively, the owner will purchase the land underneath the water with certain restrictions. In addition, marinas may require periodic dredging (requiring governmental approval). Rapid siltation buildup will lessen appeal because of the dredging costs.

Marinas are either boatyards, yacht clubs, or recreational marinas. A yacht club typically will have one or more large buildings for members and may provide recreational events. A boatyard will offer repairs and services for larger boats, usually yachts and commercial fishing vessels.

The number, length, rental and vacancy rates of slips will affect value. Rental rates are influenced by the location of the waterways and the services. Marina value is often dependent upon the amount of upland and water covered area (called the basin). The number of legally allowable slips will be dependent upon the basin size. Other factors, such as visibility and utilities may affect vacancy rates. Particularly in cases in which waterfront land is limited and land costs are high, rack storage may be a storage alternative. Regardless of the physical setup, competent management is crucial because operations are so labor-intensive.

Consider the amount and quality of water frontage and water depth. Look for protection from wakes and waves. Bulkheads, piers, slips, docks, retaining walls, convenience to waterways, visibility from commercial roadways, upland, and the proximity to large fishing areas also play a role in the value.

Depth is Desirable

At an oceanfront marina, depth at dockside should be six to seven feet. Most pleasure boats need one to two feet of water below their propellers during low tide (shallow water draft). Six to seven feet at mean low water is advisable to accommodate large yachts or sailboats. Deepwater slips that can accommodate 40-foot or longer boats are most valuable.

Since buildings are frequently located in flood zones, buildings are usually low-quality. Docks are either fixed or floating. Marinas with significant differences between low and high tides will have floating docks with staircase access.

The Author Presents a 36 Page Appraisal

Older studies showed parking ratios from 1.5 to 2.5 cars per slip. The new rule, however, is one space for every two slips.

To determine if a facility is adequate, ask yourself, does the facility cater to recreational boaters who like to fish or to pleasure boaters who like to sail? Is the facility merely a warehousing operation for boats? Are there adequate utilities?

Bulkhead in Best Use

To determine the highest and best use, check the bulkhead and look for compatible uses that could be accommodated. Appraisers vary in the treatment of the subject as vacant. Some assume the bulkhead and docks exist, others do not. Since many governmental agencies do not permit bulkheads because of disruptions to the ecosystem, the highest and best use as vacant should include bulkheads and piles (suggests the author). Also, consider legally permissible issues concerning riparian rights. Will governmental agencies allow dredging? What uses will the zoning allow? What is the supply and demand for slips? Is it financially feasible to construct dry rack storage?

For sources of data and slip rental information, the appraiser can contact marina owners or trade associations such as the International Marina Institute (IMI) of RI.

To perform a reliable Cost Approach, compile an inventory of the improvements and derive a land value. Land value is important because a high percentage of the total value -- sometimes as much as 80% -- represents land. The disadvantage is that it is difficult to determine. It may have to be estimated by extraction (of improved sales).

Since most net income comes from slips, the unit-of-measure in the comparable sales approach is price per slip. Slip and storage values may alternatively be determined on a lineal foot basis.

Income Approach Preferred

Still, most often the Income Approach is preferred. Income sources include slip rentals, winter wet and dry storage, temporary dockage, rack storage, boat washing and repairs, launching fees, gasoline sales, bait and tackle sales, and boat sales. In the northeast, the prime season runs from April 15 to October 15, then off-season rates kick in.

Atypical expenses include insurance, which can be more expensive than for other real estate; another is advertising: the cost is higher on less established facilities and lower on excellent located facilities. The management and labor expenses can be difficult to gauge, because many are mom-and-pop businesses with family members performing labor. Moreover, most do not account for an annual reserve for replacement. Therefore, repair and maintenance figures may swing wildly from year-to-year. It is better to remove extraordinary maintenance expenses and include an annual reserve to compensate for replacement of major items.

The booklet also contains examples of financial ratios. Total pre-income-tax, expense ratios (including cost of goods sold and real estate taxes, but without debt expense) were 80% to 90% of total revenue. The most market-oriented technique of capitalizing income is the direct capitalization method. Make sure, however, to reflect the risk for the intensity of management.

Non-Realty Items

Information on separating business value from the real property value was weak. Nonetheless, the author suggests that the business elements may include gasoline sales, restaurant receipts, and boat sales and repairs. Repair operations can increase the demand for slips, because of the convenience of having a repair facility on site. If business value is present, the appraiser should clearly state this in the report. Equipment may include travel cranes, forklifts, saddle lift trucks, stationary lifts, and stacking cranes. The report should state whether the equipment was included in the appraisal.

Following the preliminaries, the author presents a 36-page appraisal. The property is a 110 slip Maryland marina appraised at $750,000. Comparable sale value was based on an adjusted price per slip. The cost approach was performed using an extraction method for the land value. The income approach was based on a rental value per slip and secondarily on a rent per lineal foot of slip. Net pre-tax income was capitalized using a 11.25% rate.

Two complaints: 1) the section on estimating the quality and condition of buildings was abbreviated; and 2) the end of each short chapter also included a redundant summary. Still, you will get a bibliography of source materials (most from IMI). In addition, you are given good insights into the major items you should consider when buying, selling, or appraising a marina. Moreover, you'll get a thorough outline on how to proceed with the appraisal. The information, therefore, should have you sailing along on your next marina appraisal.

The book above, Valuation of Marinas, is available on-line at Amazon Books.

Stephen Traub, ASA, the reviewer, is chief commercial appraiser for Property Valuation Advisors, 63 Hill St., Newburyport, MA 01950. He is a certified general appraiser in NH, ME, and MA.

To contact the author of this review, e-mail to: straub@shore.net or contact him at the address above, or call 978-462-4347.