Part 2: A growing institutional asset class.

Part one of this series began with a broad overview of the marina sector from a property perspective. It touched on the some of the main characteristics which are critical to marina valuation: quality of the core physical asset, contiguous commercial property operations, berth holder and tenant needs, opportunities to generate additional income, the importance of the leisure experience and most importantly, the active institutionalisation of the sector which recently began in the USA.

My overarching thesis across these two brief pieces is the fact that marina owners throughout the UK and Europe have an opportunity to benefit from this institutionalising trend. Those marinas that tend to be smaller, independently owned, operational businesses have an opportunity to become part of a well-managed, institutional real estate asset class, run by professional investors and property people.

For many, this means change, and while I recognise that change is not always welcome to some old school sailors, I would argue that the shift taking place is both welcome and necessary to modernisation of the sector. Yachting no longer operates in such a regional format, as it may have done in the past, but has become more of a global activity for many. Sailors who will fly to Europe or the Caribbean for yacht racing or charters will have seen what is available in terms of ‘destination marinas’. These sailors expect modern facilities, with a range of services and alternative activities for the non-sailors in the group.  Whether you own a carbon fibre racing yacht, a fibreglass production boat or a steel hulled superyacht, a modern, convenient and high-end customer experience is necessary. I see this as an opportunity for marina owners to re-invest in their assets for the next generation and give customers what they want.

From a financial perspective, the rules surrounding valuation of marinas are also changing. This should also encourage more investment into the sector. Instead of attracting valuations based upon an EBITDA multiple, owners, investors and their bankers would be advised to look to the larger operators, and consider how yields and cap rates can positively influence their current valuations and investment models. While a granular look at any property portfolio will reveal strengths and opportunities, unless this is measured in property terms and tracked in management accounts using the same KPIs as the bigger operators, the real opportunities are likely to remain hidden.

The institutionalisation of the sector will also have an impact upon corporate structuring for some. As is likely to be well known to readers of this publication, real estate groups are inclined to hold assets in certain, specific structures in order to reduce risk, limit liability and/or avoid cross-guarantees. While this may not be relevant to an operator of a single marina, asset structuring does have an impact upon clusters or groups – or those looking to form such groups. Put simply, a complex organisational structure can drag a valuation down or slow a transaction to a halt. Moreover, significant losses can be incurred if risky operations such as boatyards for example, are too closely linked to less risky operations such as marina berthing. On the flip side of this, assets with a lesser valuation can benefit from being part of a wider group, but I would argue that this can be achieved through branding rather than corporate structure.

Finally, and as mundane as it may sound, governance matters. Marina businesses need to be as speedy and efficient as their competitors to achieve competitive returns. If marinas are becoming real estate-led businesses, they need to have the right people, with the right skills, asking and answering the right questions. In an ideal world, the property people would be running the real estate portfolio and allowing the marina operators to get on with doing what they do best: operating the marina and delivering the highest possible quality of customer service experience to boat owners. A marina business is likely to be less successful and consequently less valuable if it works the other way around, with the real estate team reporting to marina management. In order to achieve best value, the two facets of the business need to operate according to best practice and focus on doing what they do best.

Keeping the tenant happy and coming back lies at the core of the modern property business. Virtually everyone in the professionalised build-to-rent sector has recognised this and have been using events and experiences as a way of fostering a long-lasting community. Some commercial landlords have also worked hard to deliver ‘space as a service’ and shift attitudes away from rent-collection and towards a high-quality, service-oriented business. What does this translate into for the marina sector? Again, it offers an opportunity for modernisation and creation of local, ‘destination marinas’. By re-investing in land-side assets and creating a more leisure focused experience, marina owners have an opportunity to give customers what they want. Not only does this apply to a direct customer base of berth holders, but also to an indirect customer base of potential visitors to the waterfront destination. As Ratty said to Mole, marina owners need to say to their customers, “Believe me, my friend, there is nothing – absolutely nothing – half so much worth doing as messing about in boats”.

Ultimately, what everyone wants to achieve is the best possible valuation for their assets, whether it be a car, a house, a business or a real estate investment. In order for marina owners to attract the highest possible valuations for their businesses, they need to play by the current rules of the game and watch where the sector is going. If corporate, operational or managerial structures need to change in order to make marina portfolios more legible within the real estate sector, this should suggest a minor amount of effort required to achieve an optimum valuation.