Someone pointed out to me the other day that I haven’t blogged about lake marinas. Never one for leaving a thought on the table, I am compelled to rectify the situation.
Why are Lake Marinas Different?
Here’s the punch list:
- Different types of due diligence
- Much smaller and more localized demographics and dynamics
- Greater interdependence on other recreational uses
- Water ownership and usage challenges
- Much greater financial dependence on personal property
- Fewer, more entrenched competitors
More Diligence is Due Diligence
Compared to blue water marinas, you must be more diligent about your due diligence when valuing lake marinas. You have a much higher incidence of government leased land with lake marinas. The land can be land leased from local government, the U.S. Forestry Service or the State. I even had one case where the U.S. Government leased the land under the lake to a municipality who then leased it to the marina owner. Holy partial interest, Batman! Those leases need to be obtained along with their amendments and they need to be read.
Sometimes the marina site is situated on an Indian burial ground. You can imagine how complex that can be if there’s any sort of litigation involved. Even without it, determining the effect on market value, if any, is challenging.
I could add to the list, but you get the point.
Smaller and More Localized Demographics and Dynamics
Although it is common to get boaters from adjoining states to visit a lake (and sometimes beyond if the lake is large enough), you don’t have boats traveling along an Inter-Coastal Waterway. You don’t have boats arriving from the Bahamas or Bermuda. Because the size of the boats are smaller and the amount of discretionary spending lower for a lake marina boater, services that require buildings tend to be fewer and/or smaller in scale. Also, the trade radius of the marina is much smaller, often limited to drawing from a single city.
The size of the marina also tends to follow the size of the lake it is on. So even though there’s a lake five miles away that’s a whole lot larger, you may find that the marinas on it are of a materially different type or mix than smaller lake marinas. That leads to more sub-markets and market striation.
Greater Interdependence on Other Recreational Uses
Lake marinas tend to be more interdependent with other recreational uses. For example, you’ll find marinas with campgrounds, mobile home parks, cabins and other recreational-based amenities. As you might expect, marinas will tend to have more land than their blue water counterparts and the types of businesses can be quite different. Some of the rules for blue water marinas won’t apply as well to lake marinas.
Water Ownership and Usage Challenges
Sea level will vary for blue water marinas but that’s not much of a challenge. Try the dry bed marina for some mental gymnastics. Some of today’s lakes are dry or so low on water that the marina is essentially out of business. Lake Lanier in Georgia is a good example of the problems that some lakes are faced with. Drought reduces water level. Regular draining of the pool for city water usage or other purposes also hurts. Put them together and you’ve got the potential for a long-term problem. Did i forget to use the “stigma” word?
That’s not to say that all or even most lake marinas face low water issues. You can have one lake that’s at full pool and another a few miles away that’s nearly empty. It depends on what arrangements have been made to divert water to cities or other nearby urban areas. It’s definitely something you have to research when appraising a lake marina. Remember who owns the water – it’s not the marina owner.
Much Greater Financial Dependence on Personal Property
Let me repaint the picture. Since boaters use lake marinas for recreation and you don’t have to worry about waves; it’s the perfect place for offering recreational services to the boater. So what you find is a much larger percentage of income vested in fleets of houseboats, jet skis and other personal watercraft. Many of the income streams are different from blue water marinas because the boat fleets can be rented hourly, daily or weekly and there are fewer seasonal or annual slip rentals.
As you might expect, the boat repair portion of the marina caters more toward maintaining and repairing boat fleets. Since boats on lakes are smaller than most of their blue water counterparts, parts inventory is different and repair revenue per boat is much lower than blue water marinas. It’s common to bill out tens of thousands of dollars in repair and warranty work per boat in a blue water marin, but not so common in lake marinas.
Fewer, More Entrenched Competitors
Lake marinas typically only have a handful of other marinas on the lake. There is also much more homogeneity of recreational amenities and services offered. Not so much with the large, dominant marina on the lake but among all the others. That makes the probability of finding very similar marina sales greater than among blue water marinas.
For the larger multifaceted lake marinas, they tend to stand out much more. The marina with a small hotel is rare in lake marinas but not so uncommon in blue water marinas. You can have lots of blue water marinas in the same multiple business higher end tier but typically you’d only find one or two competitors on a lake marina with a similar mix.
Valuation Differences
So now that we’re all experts in what’s different between lake and blue water marinas, let’s become experts in their valuation. The process does not differ much from any other marina, with a few exceptions. Your income and expense projections will be including, whether implicitly or explicitly, personal property elements. You’ll find more homogeneity in rates among marinas. Profit and loss generally won’t vary as much as blue water marinas since the scale of operation will be smaller and there won’t be nearly as much variation in business elements. In this respect, they’re easier.
Where it’s harder is in the due diligence and the effect of missing a unique aspect that will have an impact on value. Didn’t look into varying lake waters due to water take downs? Forgot to research Indian burial grounds? Know as much about a houseboat as you know about the house cat? Not comfortable with valuing recreational businesses? That’s due diligence for you.
Another aspect of valuation is that a higher percentage of lake marinas are run as family concerns and they have a smaller number of outside marina managers for the individual businesses. It’s harder to find a marina management company too. That means you will have to be diving more deeply into recasting financial statements.
Conclusions
Lake marinas have their share of unique challenges, although on a whole I find them to be easier to appraise than blue water marinas. I’ve probably led you down a path to make you believe they take less time, but the reality is they take more time than blue water marinas. That’s because more time must be invested in due diligence and most lake marinas are located in counties or municipalities that do not have such freely available information as we have in the blue water East and West Coasts. Many lake marinas are located in “non-disclosure” states, meaning sale prices are not put on the deed and they are either not public information or you have to go through the find-it-in-the-affidavit hunt and peck process. It’s ironic that the market values are so much less and therefore expectation for appraisal fee also proportionately lower given the extra time requirement to do a credible job that meets USPAP.
