‘Star’ on the rise marina chain in growth mode

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Morningstar’s father-son team wants to own, upgrade and manage as many as 25 properties by 2012

It’s been about four years since Stephen Benson and his son, Dave, ventured into the marina business with their purchase of the 950-member Peninsula Yacht Club on Lake Norman, N.C. And their portfolio of Morningstar marinas keeps getting bigger and bigger.

The father-and-son team, who say they are in the business for the long haul, now own eight properties.

Another is under contract and is scheduled to come under the Bensons’ Morningstar umbrella in the third quarter of this year. The Bensons want to own, operate and manage 25 properties by 2012.

“The sooner we get to 50 (marinas), the better,” quipped company chairman Stephen Benson.

Founded in the early 1980s, North Carolina-based Morningstar focused on the self-storage industry, ultimately becoming the 10th-largest storage operator in the country with 5.5-million square feet of space and 70 properties.

Stephen Benson also had experience in the fast-food business, opening the fifth Wendy’s franchise.

In 2002, however, Morningstar entered into a partnership with publicly traded Sure Guard Self Storage and sold them a majority interest in the storage business.

At that time, the Bensons were looking for other businesses that would fit their areas of expertise and marinas seemed to be a good match.

“We liked marinas for a lot of reasons,” said Dave Benson, president of Morningstar. “On a very basic level we liked the real estate aspect and the storage component of it, particularly looking at dry stack. It was pretty easy to understand the storage and the rent dynamics of what was going on at marinas.”

“Now what scared us to death was all the other stuff about marinas, which was running the day-to-day (operations) and pumping gas and having forklifts and having wet slips and all that transient business,” he added. “That made us a bit nervous.”

Another appealing factor was fractured ownership; whereby, most properties are individually owned, said Stephen Benson. But today some smaller owners are either priced out of the industry or want to sell their properties. The start-up costs may be preventing new people from investing.

“We think those are factors that will lead to consolidation, so we wanted to be there early,” Stephen Benson said.

The Bensons spent about two years researching the marina industry before submitting their bid to buy the Peninsula Yacht Club. Dave Benson learned of the sale at the last minute, and he submitted his bid a day or two before the closing period.

“The good news is we didn’t have too much time to think about it, because if we really thought our way through it, we probably would have passed,” Dave Benson said.

Dave Benson said Morningstar worked with some longstanding private partners on its marina purchases. Also, two of its marinas were bought in partnership with Harrison Street Real Estate Capital, LLC, a Chicago-based real estate private equity firm.

Dave Benson noted the individual styles of each marina operator. For example, at one property he was told marina workers had to pump the gas because it’s an insurance liability issue, while at another marina just the opposite was happening. Workers never pumped gas for the very same reason.

“That speaks to a lot of these single-unit operators…(they) have come up with their own plans and practices on how to run the day-to-day business that are very well thought out, but there’s not a single way to do it,” Dave Benson said.

He also said he was surprised at the complexity of running a marina, calling every day a “moving target.” Self-storage, he said, is more predictable.

“We’re still cutting our teeth every day,” Dave Benson said. “We’re learning how we like to do things; we’re learning how the industry likes to do things. I still sort of put us up there as novices.”

The marinas
Morningstar’s eight marinas are based in the South, stretching along the coast from southern Georgia up to Gwynn’s Island in Virginia. It also has four inland marinas, with three on Lake Norman and one of Lake Gaston on the North Carolina-Virginia boarder.

Its marinas enjoy an 88 percent occupancy rate for its 3,322 units. Its marinas consist of approximately 1,975 dry rack units and 1,045 wet slips.

Morningstar says it controls more than 31 percent of the commercial marina units on Lake Norman, which is the largest inland lake in North Carolina with 520 miles of shoreline.

The Bensons say they prefer to purchase existing marinas and improve them, rather than start from scratch.

“We like the beat-up old marina, and we’ve bought several, and turned that pig’s ear into a silk purse,” Stephen Benson said. “We’re not interested in running a nice little marina. We like it so that it’s a ‘wow’ deal, significantly head and shoulders above the way it used to be.”

Of the eight marinas, six were renamed Morningstar Marinas, while two — Peninsula Yacht Club and South Carolina’s Reserve Harbor Yacht Club — kept their names. Dave Benson said those two are private clubs, while the others are public-access marinas.

“That’s really our goal,” Dave Benson said. “What we want to do is run full public-access, commercial marinas.”

They have no plans to sell dockominiums.

While father and son acknowledge concern about the stressed economy and lagging boat sales, they say business is doing well and are confident they can weather the storm.

Stephen Benson said it may even present opportunities for more purchases as some people look to leave the business.

“We’re sure that the high fuel prices are going to have a negative effect, but if you can finance it and have funds available, there will be opportunities,” he said. “There will be things for sale that might not otherwise be for sale.”

The company’s inland strategy is to focus on large bodies of water near a population base of greater than 500,000. On the coast, it plans to focus on nine markets between Jacksonville, Fla. and the Chesapeake in Virginia.

Dave Benson said so far the company has not been successful in purchasing any marinas in Florida, which he attributes largely to the competition with developers looking to develop dockominiums.

“Now that has seemed to slow down with the change in the economy,” he said. “I think we will have a little bit more opportunity to look in Florida, so we’ve been poking around a little bit down there.”

Stephen Benson also cited the importance of branding the company’s marinas, so when people stop at one Morningstar Marina, they know they will find similar services at the company’s other properties.

Morningstar, he added, is still in the self-storage business, maintaining about 27 properties in North Carolina and Texas. They are looking at purchasing additional properties in Nevada and North Carolina, Stephen Benson noted.

“We’re doing both businesses independently,” he said.

Dave Benson called the marina business “a lot sexier” than self storage, joking that more people want to talk to him at cocktail parties.

“It’s really a fun business,” he said. “Your customers are typically showing up happy.

“I think it’s a good business with a lot of promise,” Dave Benson added. “It’s certainly got plenty of complexity, which keeps it interesting on a day-to-day basis, but I think the fundamentals are great.”

This article originally appeared in the August 2008 issue.

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