The first week of November ushered in the election of a new President and another interest rate cut by the Federal Reserve. Both actions spurred economists to start looking into the future and making predictions of where the U.S. economy may be heading. Aside from what presidential actions will be taken or when, what are economists saying about the impact of lower interest rates and how will that affect the marina market?
The Federal Open Market Committee (FOMC) lowered its benchmark by 25 basis points at the November meeting—following its first rate cut of 50 basis points in September—bringing the target federal funds range to 4.50%–4.75% (J.P. Morgan).
For those pondering a sale or purchase of a marina, the state of the economy can mean postponing or jumping into the marketplace so it’s worth taking a look at what information is being floated.
The boom of boating post-pandemic has eased, with manufacturers slowing production and dealers finding it harder to sell off inventory. However, marinas remain well-positioned due to the following factors: The storage space supply is limited considering the boaters who purchased boats during the Pandemic who continue to need space; the number of marinas remains restricted due to barriers to entry; a steady increase in Wall Street and private equity funding of marina acquisitions; and interest in marinas as investments due to a higher cap rates compared to several asset types, limited supply, and accelerated depreciation.
Optimistic Outlook for Marinas
A summary of the Marinas Global Market Report by The Business Research Company (Marinas Global Market Size, Competitors, Trends & Forecast) forecast the marina market size to grow to $24.22 billion by 2028 at a compound annual growth rate (CAGR) of 5.1%. The report indicates growth is due to the popularity of boating along with coastal and marine tourism. Additionally, marinas are embracing eco-friendly practices, ensuring compliance with regulatory and environmental standards, and increasing focus on safety and security measures. In short, marinas have been upgrading, and growing into destination locations that have positioned them as sound waterfront investments.
During the past few years, there has been a surge in marina sales as investors found marinas to be well worth their funds. Corporate buying spurred more marina owners to sell recognizing they could get a price for their facility that may have previously been out of reach. Last year, most deals were through corporations that had investment funds. Running a close second behind corporations were cash buyers. What have been less frequent are buyers looking to finance because interest rates shut them out. They needed a significant downpayment beyond the traditional 20%, and SBA loans were just not an option.
With this in mind, a cut in interest rates could bring in more private sales boosting the number of buyers in the market for a marina. For sellers who have remained leery of turning over their family’s marina to a corporate chain, this will be good news. The feel-good stories of local buyers and families, end users, lifestyle buyers may become more likely.
A CNBC article cited Alan Todd, head of commercial mortgage-backed security strategy at Bank of America, as saying a bigger impact of interest rates is psychological. He commented that the Federal Reserve will continue to cut rates making the market feel more comfortable incentivizing borrowers to start buying.
More buyers are good news for those looking to sell, however, with more people in the market, the price of marinas may begin to rise. While corporate buyers may not feel that impact, private buyers could still find themselves shut out.
Outside of direct sales, the cut in the interest rates means it will be easier for marinas to secure financing for new projects or to refinance existing debt. Where deferred maintenance projects, upgrades and expansions were put on hold the past few years, lower interest rates may open up the door for improvements that can increase the value of a property and make it more appealing for potential buyers.
Other Factors to Consider
While the dropping interest rate is good news, there are other important factors to consider. The other big news in November was the election of President-elect Trump who has mentioned increasing tariffs and cutting taxes for corporations, among other things. Economists have given varied responses as to how they see these ideas impacting the post-pandemic economic recovery that the country is still in. While knowing that changes by government will happen, there is still a lot unknown.
In general, marina investors have better opportunities with lower rates for refinancing or marina acquisitions and portfolio expansion. However, relief maybe coming too late for some owners who purchased when the rates were low and need to refinance at this time.
However, at Simply Marinas, we’ve seen the ebb and flow of the marina marketplace as marina brokers with decades in the business, with a high velocity of marina listings, and record volume in marinas sold. What we predict is the market stabilization we’ve seen since the boom subsided will continue in the boating industry overall, but marina sales will continue at an above average rate as more buyers are enticed by lower rates and more marinas become desirable destinations for not just boaters, but for those that just want to be around boats.
To prepare for your marina sale, whether short or long term, we recommend reviewing our “Marina Seller’s Guide.” We always suggest that you prepare early to position your marina for the highest value. Marina owners can request a copy by following this link:
The Marina Seller’s Guide – Recent Publication by the Simply Marinas Team
We’re always happy to talk marinas and ensure you have accurate information. If you’ve been considering a marina sale or purchase, or just have questions about the current market, contact us.