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2016 September October Marina World

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The magazine for the marina industry

S R L Engineering and

S R L Engineering and Cranes Via P. Torelli, 52 - 43123 PARMA (PR) - Italy tel. +39 0521 208713 - fax +39 0521 208713 e-mail: Website: THE WIND OF INNOVATION MOBILE BOAT CRANES AND MOBILE BOAT TRAILERS Diesel Hydraulic or Diesel Electric types. Capacities range from 20 T up to 1000 T

FINANCING, VALUATION & INSURANCE cost approach is the inherent difficulty in accurately measuring the accrued depreciation of the floating or fixed docks, dredging and bulkheads, for example, and the lack of truly comparable land sales. The omission of the cost approach in most instances does not compromise the reliability of the overall valuation process. The sales comparison approach, for the most part, is extremely difficult to utilise due to the unique and varying physical and location characteristics of marina facilities. This approach is applicable when an active market provides sufficient quantities of reliable data that can be verified from authoritative sources. Office buildings, modern industrial, retail and self-storage, as well as residential apartment complexes, for example, vary in size, quality and condition. However, their general physical characteristics, when compared with their respective asset class, are relatively similar. Consequently, in most instances, a meaningful unit of comparison and resulting market value opinion can be derived via the sales comparison approach. However, marina facilities are extremely difficult properties to appraise using the sales comparison approach as their physical and location characteristics vary so much. Some have very limited upland, while others have significant land area and notable buildings on the upland. Price per slip has traditionally been used as a unit of comparison. However, because slip lengths can vary significantly, this can be a very misleading unit of comparison, particularly if average slip sizes are 30ft (9m) at one facility and Slip rates should be based on length of vessel or dock, whichever is greater. 60ft (18m) at another. Whenever possible, price per linear foot of available slip space should be utilised as opposed to price per slip. The only time this approach can be used with any confidence is when one is comparing facilities that have limited upland area and improvements. Trying to compare a marina with just slips, limited upland area and limited services with a full service facility that has extensive upland area and notable repair and maintenance buildings can result in a very misleading conclusion. The income approach converts the anticipated benefits (dollar income of amenities) to be derived from the ownership of property into a value estimate, and capitalisation of the net operating income is the typical method that is utilised in developing the value of a marine facility via the income approach. Capitalisation rates for full service marina/boatyards are typically higher than for marinas that only offer slip rentals. Consequently, when determining an appropriate capitalisation rate, appraisers must select it from facilities that have similar type operations or the reliability of the concluded value will be compromised. Appraisers must also thoroughly understand how the capitalisation rates were derived and what expenses were considered in the development of the net operating income and, in addition to typical operating expense The type and size of equipment varies at marine facilities and directly affects the income producing potential of repair and maintenance operations. items, other items should include offsite management fees and reserves for replacement. Insurance is an expense item that should also be reviewed closely since the physical characteristics vary significantly as well as the perceived risk. Selecting relevant and applicable expense comparables is also a key component in developing reliable capitalisation rates. Historically, there have not been any notable operating expense sources for marina related properties. However, now that the marina industry is quickly transitioning from a ‘mom and pop’ type industry to a notable investment asset class, formidable sources are anticipated. In addition to the physical similarities of marinas, location characteristics and ownership interests must also be considered in selecting applicable capitalisation rates, as coastal marinas differ from inland marinas and some marinas are on leased land. The marina industry is quickly being recognised as a notable asset class and thoroughly understanding the operational characteristics and income and expense ratios will be the key to the meaningful valuation of marine related properties as a ‘going concern’. Gerard H. McDonough, MAI, FRICS is the senior managing director of the Rhode Island and Connecticut offices of Integra Realty Resources, a national real estate appraisal company with 58 offices throughout the USA. He is also president of Marinevest, based in Newport, Rhode Island. He can be contacted on email: - September/October 2016 47

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