I am inundated with foreclosure calls, from both sides of the fence. Owners are calling asking us for advice when the notice of default comes and lenders are calling just as they send these notices out. After years of very easy lending practices, many marinas are in trouble. This is especially true for marinas that depend on boat sales for their income stream.
Many marinas are doing fine. Some would be doing well if they had not over leveraged themselves over the last few years. What should both sides do? Below are some questions each side needs to ask.
For the Lender:
- Do you really want to manage a marina? The local Realtor won’t be able to do it for you. They don’t have the expertise. Managing a marina is not like managing an office building. It takes specialized knowledge.
- Have you considered a renegotiation of terms? Your loss may be less than a foreclosure if the site is merely over-leveraged. Outside of the mortgage payment, is it being well managed?
- If you foreclose upon the project, can you place a value on it as of today?
- Would the secondary market buy the note with a non-performing marina loan?
- How long would it take to sell the property? Marina marketing times are long, so if you want it off the books in less than a year, you’ll have to discount the price. How much depends on the local market.
- Watch that the repair and maintenance expenses don’t decline to the point where the marina is not being maintained to the same level. Boaters quickly notice these changes. Occupancy and rent can be negatively impacted if this situation is prolonged.
For the Owner/Buyer:
- Communicate, Communicate, Communicate with the lender!
- Get an appraisal to negotiate with. Knowing the value is the only way to know what your position is.
- Is there equipment that you don’t need? Can you sell it?
- What type of expense-cutting plan can you put together? Are there business units that are cutting into your cash flow?
- What is the bare bones amount of staff that you need?
- If you feel the value is materially lower than the assessment, file a tax appeal and lower those taxes. In most jurisdictions, you can file for more than one year (some specify a maximum of three years, others five). Not only will your taxes be lower and your net operating income better, but you might get a nice government refund check!
In most cases, it is better to try to work together. There is a point of no return for both sides. I’ve been called on the same marina for both the borrower and lender and obviously we cannot represent both. In all the years we’ve been appraising marinas, this has never happened.
Marinas are suffering from the same credit and cash crisis as other forms of real estate, but it is such a specialized use that extra care must be exercised on both sides of the table for the best outcome.
***10/21/2008 Update*** We have investors with cash looking to acquire marinas. Contact Eileen Simpson at eileen.simpson@valustar.net or 1-877-877-1616 x 1
Eileen Simpson
7 responses so far ↓
1 Richard Graves // Sep 10, 2008 at 11:48 am
I am a consultant serving the marina business.
In my opinion, the main marina foreclosures will be in relation to dockominium projects, equity yacht clubs and the like. Investors and lenders who were involved in purchasing these marinas at unrealistic prices based on the return of selling the docks are already taking a big hit. Boat sales are way down and dockominium sales are virtually dead in the water. Looks like a re-run of the late 1980’s when the dockominium market also crashed.
Flipping these marinas back to public facilities will not solve the problem. The debt service or price paid for these conversion projects will not allow them, as pubic marinas, to be profitable, or even come close to cracking the nut.
In fact, where there was a shortage of docks I can now forsee a glut. These failed dockominium projects will hurt the exsisting public marina business. In a desperate push to drive revenue to offset operating costs these projects will become very price competitive in the public marina market.
Sounds like the hotel business in the 70’s and 80’s, overbuilding frenzy based on current, not long term demand. How many of these hotels went belly-up.
There is a verly close parallell between hotels and marinas.
Richard (Dick) Graves
.
2 Eileen Simpson // Sep 10, 2008 at 11:56 am
I agree Dick, workouts are the best solutions for the marina industry. Will it happen? I don’t know. We are advising our lending clients to try to work out cases.
Unlike hotels, there is no “big fish” waiting to take over these failed projects like there was at the end of the hotel business downturns. Marinas are very much a hospitality type business with similar types of expenses.
Thanks for commenting.
3 Tom Delotto, CMM // Oct 22, 2008 at 5:37 pm
As far as “Big Fish” I must disagree - Island Global Yachting based in NYC is in the business of building, purchasing and managing marinas and we have investors working with us who are moving forward with opportunity in this market. I am heading up a recently formed division organized by IGY solely to seek out, manage and potentially purchase defaulted marinas and marine related real estate for lenders and third parties. In the short time we have been operating in this market, we are seeing a cascade of property coming to us for management with numerous opportunities for acquiring distressed projects. I encourage owners seeking assitance to contact us and we can stablize and improve value for them. Workouts are the best solution but experienced managers are whats needed to operate during work out periods. Part of the big issue is finding qualified professionals who understand this niche business.
Thank you for your time,
Tom DeLotto,CMM
Director, Marina & Upland Management Services
Island Global Yachting
360 Thames Street Suite 1B
Newport RI 02840
Tel - 646-465-2150
4 Eileen Simpson // Oct 22, 2008 at 5:59 pm
Dear Tom:
No one can deny that IGY is a the top of the market. Your group at ATM are top notch too and I’ve been communicating with them on several projects.
Qualified professionals are the KEY and most likely should have been emphasized in the blog more. I’m a bit confused by the “Big Fish” comment so I’d love to hear from you on that.
You’re smart stepping up to the plate. Good management can solve many problems. We see the same issues you do. Are you sticking to Yacht marinas or have you expanded your areas? I have mentioned your group to several lenders we are working with as a good group to call into turn around a project.
We’re on the same page. Things can get better faster with the proper people in place. Thanks for commenting! Anyone that needs a good manager, give Tom a call. IGY is very professional. Anyone that needs valuation needs or workout issues, call us!
5 Eileen Simpson // Oct 22, 2008 at 6:17 pm
Hmm, saw my “Big Fish” comment. At that time there was not one. Now there is! Several in fact. As you can see, I updated this blog very recently that there is a group. Now we have IGY.
6 Stan Underwood // Nov 9, 2008 at 5:42 pm
While we all aspire to become “Big Fish”, the reality is that there are many more “Medium Fish” and “Smaller Fish” marinas. IGY is certainly a professional company, and has some top-quality executive people on board. No one in their right mind would challenge them.
However, my company, Sanctuary Marinas International is a smaller company, younger, more aggressive, and eager to take on the day-to-day on-site management of marinas too small for IGY.
Land developers, lenders, and REITs, who find themselves ‘holding the bag’ as owners of public marinas, are coming to us seeking management help. Flat sales are impacting waterfront land development projects as much as other types of real estate. Especially those in Central America, where you see so many marinas having an average of only 300 to 600 wet slips that cater to transients and cruisers.
I think we’re more interested in taking on management contracts with an option to buy. Especially interesting are the REO departments of banks, who don’t have a clue how to run a successful marina - and aren’t inclined to learn.
If you come across those folks who have marinas that are too small for the “Big Fish” companies like IGY, feel free to refer them to me, at: SanctuaryMarinas@gmail.com
Stan Underwood
Managing Director - Marketing & Operations
Sanctuary Marinas International
7 Captain Clean Boat // Dec 6, 2008 at 7:42 pm
Nice and usefull post, thanks, this is one for my bookmarks!
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