Over the past month, we’ve gotten a huge number of bid requests for marina appraisals all over the country.  I inspected a marina yesterday that typifies the problem.

Marinas are facing top-down and bottom-up pressure that’s squeezing profitability.  From the top-down perspective, the reduction in slip demand is causing higher vacancies in many marinas.  Many marina owners are faced with lowering their yearly slip rate increases just to maintain the occupancy near the same level as last year.  This affects motorboat marinas more than sailboat marinas because the cost of fuel has reduced the number of boater trips and this negatively impacts boat store sales, motel, hotel and bed and breakfast occupancies when present at the marina, and other on-site businesses.  Of course, we all know boat sales volumes have declined and with fewer boat trips, repair businesses may also suffer.

From the bottom-up view, fixed costs are just that.  There’s little a marina can do to lower its insurance rates for example.  Variable costs such as personnel can be reduced to a point, but this is partially offset by increases in contractor expenses to do the same job.  Repairs are being put off as much as possible and in some cases dredging is being postponed (it is frequently a multiple year process for getting all the permits for dredging and to get a place to store the spoils, so if the process is started, it’s typically not halted).  Upgrades to utilities are not being done much either.  An extreme example is that some owners we know have optioned to refurbish the guts of boat slip utility posts rather than replacing them with all new posts that have modern electrical loads and solid electrical distribution (i.e. no load drop-offs).  These are only just some of the changes from the bottom-up perspective.

The one factor no one seems to be addressing is the balloon payment.  If a note is coming due within the next two years or so, it’s going to be difficult to refinance given lower revenue increases and higher expenses, squeezing profitability.  Cap rates are also not as aggressive, on a whole.  A marina may not be worth today or next year what it was at the height of the market when lending criteria was much more flexible.  Since marina owners rarely reserve and frequently refinance major repairs, the balloon note payment plus repairs can be materially higher than current market value under today’s weaker market conditions.  This is a recipe for insolvency. Lenders and Marina Owners need to start talking NOW.