The second-largest owner of marinas in the United States is acquiring the third-largest owner, creating new power in this niche real estate business as boat sales surge during the pandemic.
Centerbridge Partners LP said it was paying about $400 million for Westrec Marinas, which the investment firm will absorb into its own Suntex Marinas. This will create a combined company with more than 50 marinas worth $2.5 billion, making it the second most valuable US marina owner after Safe Harbor Marinas.
Investor interest in waterfront properties began to grow in 2019 when marinas gained more favorable tax treatment. Marinas have received a boost with increased boat sales, which have soared during the pandemic as more businesses move to coastal states with warmer climates. Boating has also become more popular as a relatively safe way to socialize outdoors, along with camping and hiking.
“People who were [boating] some are doing it more often and some are doing it for the first time,” said Billy Rahm, senior managing director of Centerbridge.
Annual sales of boats, marine products and services in the United States totaled $49.3 billion in 2020, up 14% from 2019, according to the National Marine Manufacturers Association. Motorboat sales in 2021 are expected to exceed 300,000 for a second straight year after hitting a record high in 2020, the association said.
Analysts say the marina business resembled the manufactured home and recreational vehicle industries before institutional investors discovered them and pushed prices much higher.
Many institutional investors see marinas as a terrible industry “because they own boats and have realized how much money they’ve put into them,” said Josh Dennerlein, a Bank of America analyst who tracks the industry.
Yet, he added, they should have thought of the flip side and “that someone was making a lot of money to store their boats and maintain them”.
Some big investors became more intrigued by the prospect of owning marinas after the Internal Revenue Service ruled that fees paid for boat slips and boat storage counted as real estate rent. This gave REITs that owned marinas the same tax advantages given to REITs that owned other commercial properties.
The aging baby boomer generation was fueling demand for marinas even before the pandemic. More and more retirees are devoting their free time and savings to boating.
Construction of new marinas, meanwhile, has been virtually non-existent and barriers to new entrants are steep. There are few development sites left in sheltered ports. New marinas would also have to overcome strict environmental regulations and possible community opposition.
“You don’t necessarily want a marina next to your beautiful $10 million waterfront home,” Dennerlein said.
However, the activity of the marina has its risks. Continued inflation would increase the cost of paying dockworkers, boat maintenance crews and other workers. An economic downturn would likely convince many potential customers to avoid storage fees by keeping their boats in their driveways.
Importantly, analysts say, climate change increases the possibility of more hurricanes and rising sea levels that could disrupt boating activity. Mr Rahm said Centerbridge has taken steps to mitigate climate change risks, such as investing in boat storage locations at higher elevations.
New York-based Centerbridge estimates there are about 11,000 marinas in the United States, but most are sole proprietorships. The industry is ripe for consolidation, Rahm suggested, because smaller marinas can’t match the investments big companies like Suntex are making in technology and marketing.
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M&A activity in this specialist sector accelerated during the Covid-19 era and after the tax change. Sun Communities real estate investor Inc.
acquired the largest operator, Safe Harbor Marinas, in 2020. Centerbridge became Suntex’s largest shareholder last year.
Mr Rahm said his company is considering further acquisitions as it builds a marina business which it plans to go public later this year.
Suntex has also invested in ways to increase marina revenue beyond mooring, storage, maintenance and catering services. Many of the company’s marinas offer yacht clubs and rentals that generate handsome profits while giving non-owners a taste of sea spray, fishing and water sports.
“If they really like it, they end up buying a boat,” Mr Rahm said. “When they do, they will most likely keep their boat in a Suntex marina.”
Write to Peter Grant at [email protected]
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