This article, by Dennis Kissman, was published in Marina Dock Age – July 2007.
In our consulting business, we have had many opportunities to review a client’s financial modeling for the development of a new marina, and it never ceases to amaze me at how many of those financial projections are made based on permitting constraints without regard for the local market demand for dry stack. When a decision to build is based on such financial models, the finished facility actually turns out to be far different from what was originally projected. The reason? The primary focus of the permitting agencies is the number of boats being stored or berthed at the marina. What they often overlook is the size of those boats. Although this phenomenon applies to wet slip and dry stack marina development, this article will focus only on the dry stack aspect.
Permitting agencies permit dry stack marina projects based on the total number of boats to be stored. There are some thresholds for the number of new boat storage units that can trigger additional permitting requirements, specifically a Development of Regional Impact (DRI). A DRI is a government-based method to refer to large-scale developments, such as complicated marina developments, that are likely to require input from several agencies besides the local government jurisdiction in which they are located.
In some instances, there are restrictions based on the carrying capacity of the lake, which would limit the maximum number of boat storage racks that can be built. Regardless of the reason, marina owners and managers must be aware of this factor and consider it in any development plan.
When approaching a rack manufacturer to design a dry stack storage structure for one’s development, the manufacturer will look at the physical size that can be developed, based on the marina’s site plan, and come up with the maximum number of racks that will fit into the structure. The rack manufacturer is very familiar with the typical rack sizes that are required for today’s boat market and, using that knowledge, will come up with a rack size mix that will fit the site. Keep in mind, however, that the rack manufacturer is basing his/her work on boat sizes that exist in general market conditions, and this may have little or no bearing on what the local boating market demands in dry stack.
It is at this point, for example, when trying to determine the economic return on the development that confusion and conflict set in. Consider some hypothetical situations that show how the same structure can have different economic results.
For example, let us assume the physical limitations for an enclosed building are 300-feet long and 145-feet wide with an eve height of 55 feet. With a building of this size, the rack manufacturer will most likely show a plan for a building that will accommodate approximately 300 boats, 150 on each side of the center isle.
For ease in estimating cost, the rack manufacturer is going to quote a price based on a per rack cost. For the purposes of this example, let’s say the manufacturer quotes a price of $10,000 per rack. For budgeting purposes, that means that the cost to construct this building would be $3 million. However, after going through the permitting process, it turns out the marina is restricted to only 250 racks, or 50 fewer than projected.
After conducting a site-specific market study, it’s determined that the size of the boats that should be stored in the projected building is larger than originally thought (while the size of the building remains unchanged). The question now becomes, “Is the cost per rack still $10,000 per rack or is it now $12,000 per rack since the building size remains the same?” This change represents a potential $500,000 difference in construction costs, so it should be abundantly clear that the hard numbers should be clarified with the rack manufacturer before moving forward with the development.
Once a marina has its development costs nailed down, it becomes crucial to understand how a change like the one in the previously cited example affects the income potential from the property. Most income projections that marinas come up with are based on the length of the boat being stored. If the average boat length was estimated to be about 23-feet when the marina could store 300 boats at a cost of $12 per foot, per month, the maximum total projected annual income would be $993,600.
Here is where the confusion arrives when estimating the income potential of the plan that was revised due to permitting and market data. If the only change was the number of racks one could build, the total projected annual income would be $828,000. But wait! The site-specific market study said the marina should plan for larger boats. So, if the average boat length went to 27 and one-half feet from 23 feet, and that was the only change, the income would be the same as originally projected. Likewise, if the rate went to $14.40 per foot per month from $12, the income would also remain the same as originally projected. It is a fact that larger boats also equate to a higher monthly per foot rate. If we assume the site-specific market study came back with an average boat length of 27 and one-half feet and the monthly per foot rate is $14 (both numbers are conservative figures, based on studies we have recently conducted in several markets) the potential income from the development increased 20% to $1,188,000 — while storing fewer boats.
In a nutshell
Other factors will affect the investment and return on that investment that need to be considered are: the size and type of equipment to handle the larger boats, reduced operating costs because of handling fewer boats, and the methods on which you charge for boats stored such as square foot of opening or cubic foot of rack space. All of these factors require more analysis than can be addressed in this article.
The point is that one’s development objective should be to build the largest building possible, place the maximum number of racks in the building for permitting purposes yet stay under any threshold that will create permitting problems. Conduct a thorough market study to configure the inside of the building to meet boater demands while maximizing the income potential. Most of all, understand the true costs for a building that will meet the demand in your market.
Dennis P. Kissman, president of Marina Management Services Inc. in Boca Raton, FL can be reached by phone at 561-338-5800 or via e-mail: email@example.com.