Doing the Math

How to value a marina or boatyard for maximum earnings in a sale
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If you owned this small marina, would you know how much it’s really worth on the market?

If you owned this small marina, would you know how much it’s really worth on the market?

The continuing economic boom is driving unprecedented levels of marina and boatyard acquisitions in the United States. Businesses that survived the economic crash have recovered — for now. Profitability is stronger than ever, and buyers are abundant and looking for a deal. For owner-operators, there’s a desire to cash out while the gettin’ is good.

Times are good for buyers and sellers right now because higher selling prices are supported and justified by higher profitability. Capitalization rates are hovering around 8 percent in most deals under $10 million but reaching 10 percent for megadeals in the $20 million range and beyond. Most mom-and-pop buyers are not in a position to afford those kind of numbers, so the institutional hawks are using their cash and horsepower to fill the gap. They also have higher levels of sophistication in arguing for value, because many smaller operators and some inexperienced brokers don’t understand where to push back for their clients.

Valuations today start with profitability, then progress to other attributes. Capitalization rates tend to dominate the conversation. A capitalization rate can be understood as the percentage of profits in relation to the selling price. For a marina priced at $1 million with adjusted annual earnings of $100,000, the capitalization rate is 10 percent. Buyers seek a 9- to 10-cap deal, but sellers generally ask in the 8 percent range or lower. Sellers want to sell at a lower cap rate because that means a lesser profit is needed to reach the million-dollar price.

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Conversely, buyers will want to purchase at a higher cap rate because he or she wants to purchase more profitability for the same million-dollar price. Clear as mud? The cap rate works counterintuitively, but if you have some good coaching, it will make sense.

After a preferred capitalization rate is determined, steps are taken to determine the facility’s ability to produce reliable profits into the future. Deferred maintenance is one of many factors that can weigh heavily in determining a final market price. If, for example, the marina basin is experiencing a seawall malfunction (it is falling into the drink), then a buyer will likely want a credit or a price reduction, or will ask the seller to make repairs.

It is always wise to deal with a broker or consultant who understands these types of details, and to hire a member of the Appraisal Institute who has performed marina valuations. The latter will disclose additional information such as comparative sales and the costs to buy the land and build what currently exists there.

Marina owners should avoid pressure to list their property before they have positioned their facility to achieve maximum value. The desire for a quick sale can lower the price received. A buyer will lose faith if the numbers are not clearly presented in a standard format so the operation can be weighed apples to apples against familiar ratios, calculations and competitive alternatives. The entire package must be clear, organized and well vetted before any information is released to the marketplace.

This article originally appeared in the October 2018 issue.

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