Let’s talk about coming up with the reproduction cost new and depreciation for marina docks and buildings.  Most appraisers don’t know that there is a dirty little secret that only marina industry people are only too aware of (yours truly exempted, of course).  So dirty that it puts all the cost approaches into the realm of misleading.

Reproduction Cost New

Marina engineering, design and construction firms scoff at cost services like Marshall & Swift.  I know several that have just laughed when I’ve mentioned reproduction cost new and cost services in the same sentence (after all, I’m not that funny).  The problem is that cost services don’t get anywhere near enough cost estimates to come up with a reliable sample.  Not only that, there is a huge difference between union and non-union labor.

The cost of new docks will also vary significantly based on what type of material is being used.  Even what you would imagine as just “wooden docks” can have a cost that ranges tremendously based on the type of wood used.  Want a really waterproof wood?  You’ll pay extra to have it imported.  There are other examples I could rattle off but the point is made.

Let’s vary it even more.  Docks can have a wide range of utility pedestals.  There’s electrical wiring to consider that varies based on the materials used, electrician labor costs and the length of the cabling.  Sewer pumpout varies.  Even piling costs can vary.  As for soft costs, there’s engineering, approvals and others.  Shake your head up and down if you think there’s a big difference in soft costs for getting a lake marina approved compared to a blue water marina.  A final example is that piling must be driven down into the bedrock and generally specialized firms do that, so their costs vary as well.

Think of it like this.  How reliable is a single estimate when multiple individual estimates are involved?  A cost per dock or per lineal foot of board length just doesn’t work.  Don’t believe me?  Just ask a marina engineering, design and construction firm.  Considering how anemic business is, I’m sure they’d appreciate a good laugh.

Depreciation

In the same situation as reproduction cost new, depreciation suffers when estimated from cost services.  Considering how small the sample size is and how potentially variable, when you see in the back of a cost manual that the estimated life is, say, 40 years, do you trust it?  I’m afraid appraisers do.  Knowing what I know, I don’t.  All it takes is one or two good storms to accelerate the depreciation schedule.  Remember… these are weathering assets subject to wind, rain and sun.

For many marinas the time to replace a dock is well before it’s reached the end of its economic life.  Sometimes it’s worries about dock injury liability.  Other times it makes sense when the electrical system needs to be upgraded to the market (no matter how nice the docks are, if the electrical system doesn’t meet the needs of boaters, they won’t rent slips there or when they do, it’s for a materially smaller boat than what the slip can physically accommodate).  It’s the opposite of a home.  A cost manual may say it has an economic life of 55 years but how many do you know that are 80 years old or more?  Most of Baltimore would fit into that category.  I’d say most major cities have large areas that also qualify.

Cost manuals are useful for calculating the reproduction cost new of buildings.  Applying them to marina docks just doesn’t work.  It’s down-right misleading.

In Part 4 I will address the “going concern” part of a marina that the cost approach is not designed to handle.