From its landlocked location in the middle of the country, Dallas is becoming the nationwide center for businesses that buy space for boat storage.
Dallas is home to the marina industry’s two biggest players, Safe Harbor Marinas and Suntex Marina Investors. They are acquiring marinas across the country, driving a trend of consolidation that has begun over the past decade as institutional investors woke up to the steady revenue opportunities that marinas offered.
Nearby Frisco is home to TopSide, a company founded in 2020 by two former Suntex executives and now owning three marinas in Texas and Oklahoma. TopSide and its founders and investors see plenty of room for expansion in an industry where many companies are still family-owned.
“They’re in the very early stages of consolidation and it seems like this is the right place for a lot of people to deploy capital, consolidate and make improvements,” said Josh Dennerlein, a Bank of America analyst who follows the industry.
A significant portion of marinas in the United States are still owned by families or other sole proprietors. Among marinas and shipyards who responded Marina Dock dude‘s 2021 Industry Survey, nearly three out of four were owned by families, condos, yacht clubs and similar establishments.
But many owners are reaching retirement age, said Adam Welch, who researched marinas for the Cornell Real Estate Review during his master’s degree in real estate. If they don’t have children who want to run the family business, they might be interested in selling.
Companies like Safe Harbor and Suntex are poised to buy thanks to the backing of institutional investors who have been increasingly drawn to the industry in recent years.
“The asset class has long been misunderstood,” Baxter Underwood, Safe Harbor’s CEO, wrote in an email. “From a seller’s perspective, it has been difficult for owners to exit marina positions without incurring large tax burdens. From a buyer’s perspective, most institutional investors have not understood the value drivers.”
Marinas are relatively complex assets, Dennerlein said, and it wasn’t until investors started exploring opportunities in other assets that they began to look more attractive.
“I think it took a while for people to realize, ‘Hey, boats aren’t a good investment, but the marinas that store the boats, that work on the boats, those are the good investments,'” Dennerlein said .
Safe Harbor and Suntex have similar origin stories. Both grew out of existing marina operations run by local entrepreneurs. Both took their current form in 2015 when they landed private equity funding to begin their buying spree.
After a recapitalization last year, New York-based Centerbridge Partners is Suntex’s largest investor. The real estate fund Sun Communities bought Safe Harbor in February.
Marinas are a logical next step for investors like Sun Communities, Dennerlein said. Sun invests heavily in manufactured homes and RV parks, which have a lot in common with marinas.
“They have very similar demand dynamics [and] almost no supply,” said Dennerlein.
Today, Safe Harbor has 131 marinas. Suntex owns 52 marinas and operates 16 more through its subsidiary Westrec.
The way to the top involved combining separate chains. Suntex’s purchase of Westrec in February included a $400 million investment from Centerbridge and valued the combined company at $2.5 billion.
But leaders of both companies say they typically buy marinas from families. That means having conversations that go beyond finance.
“They want to sell primarily to someone who cares about their legacy and their team,” said Bryan Redmond, CEO of Suntex.
Although Safe Harbor and Suntex have grown rapidly, they still control a tiny share of the overall market. IBISWorld estimates that there are more than 9,700 marinas in the United States.
That means there’s still room for companies like TopSide, which launched in 2020 with backing from Dallas-based investors Miramar Equity Partners and TRT Holdings.
“There’s a lot of white space, whether it’s for the larger platforms or for TopSide growth,” said TRT Investment Director Michael Frantz.
TopSide’s current locally-focused geographic focus is a fluke, said CEO and co-founder Stephen Lehn. The company is branching out nationally and planning acquisitions that will nearly triple the number of marinas it owns.
Recent years have only made the industry more attractive to investors like TRT, the company founded by Dallas billionaire Robert Rowling, which also owns Omni Hotels & Resorts.
For one thing, the IRS has made marinas more attractive to real estate funds. REITs have favorable tax status but are required to derive a certain percentage of their income from the real estate business, and the agency ruled that income from boat slips and boat storage fall into this category.
Suntex obtained REIT status in 2018. TopSide isn’t a REIT, but could become one in the future, Frantz said.
The coronavirus pandemic was also a rising tide that lifted the industry. As people turned to outdoor pursuits in 2020, recreational boat sales hit their highest level since the Great Recession, according to the National Marine Manufacturers Association.
The increasing presence of chain players is changing the landscape that new boaters encounter.
Suntex has a boat club that allows people to take boats out without owning one, while Safe Harbor’s membership program allows people who store boats with the company to park at any marina where space is available. Lehn said TopSide is interested in creating a similar membership program once it’s big enough.
Consolidation could also mean higher prices for notes. Redmond and Lehn both said their companies have the option to raise prices at the marinas they buy. But both emphasized that they are also investing in real estate to give more back to boaters.
For example, at a newly acquired marina in the Florida Keys, Suntex plans to invest in more dry storage, a new dock office, ship storage facility and boat rentals.
“If you’re giving them a great overall experience, they usually don’t worry too much about their price hikes,” Redmond said.
Underwood highlighted Safe Harbor’s “best amenities,” including pools and fitness facilities. However, he wrote that the company sets prices at its marinas based on local demand, not convenience.
Aside from corporate investments in their properties, even significant consolidation may not change the dynamics that are setting slip prices. Many marinas are already local monopolies, Welch pointed out.
Marinas’ true competitors are other entertainment options, Redmond said, such as golf, sporting events and movies.
“Everyone has their home. Everyone has their jobs,” he said. “And when they have that extra time, we want it to be where they want to hang out and they want to bring their friends and family.”
It may be a coincidence that inland Dallas became a hub for the marina industry. But it helps that Dallas is a hub for private equity and real estate. It’s full of companies that have poured money into marina chains, from TRT Holdings to Koch Real Estate Investments, an early investor in Safe Harbor.
“It seems to me that Dallas has always been at the forefront of this type of innovation,” Underwood wrote. “It’s true that the Metroplex doesn’t have access to shore boats, but it has a long history of institutionalizing real estate asset classes.”
Home to the two biggest players in the industry, the area also made the area fertile ground for other competitors. The seeds of Topside were planted at Suntex, where Lehn recruited future TopSide co-founder Jacob Boan to work with him.
Dallas is also a centrally located city with an attractive cost of living and a business-friendly state, Lehn emphasized.
Whatever the reason, the region has secured its unlikely place as the marina capital of the United States. Marina businesses are likely to continue growing even as the pandemic boom abates.
“It’s just a very resilient industry,” Frantz said. “Whether it’s COVID or recession, this industry has stood the test of time.”