DALLAS — From its landlocked spot in the middle of the country, Dallas is becoming the nation’s hub for companies buying up places to store boats.
Dallas is home to the two largest players in the marina industry, Safe Harbor Marinas and Suntex Marina Investors. They’re acquiring marinas around the country, advancing a trend of consolidation that took off within the last decade as institutional investors woke up to the steady revenue opportunities marinas presented.
Nearby Frisco is the home of TopSide, a company launched in 2020 by two former Suntex executives that now owns three marinas in Texas and Oklahoma. TopSide and its founders and investors see plenty of room for expansion in an industry where many businesses are still family owned.
“You’re in very early innings on the consolidation, and it seems like it’s a right place for a lot of people to kind of put capital to work and consolidate and make improvements,” said Josh Dennerlein, a Bank of America analyst who follows the industry.
A sizable chunk of the marinas in the U.S. are still in the hands of families or other sole proprietors. Among marinas and boatyards that responded to Marina Dock Age’s 2021 industry survey, almost three in four were owned by families, condominiums, yacht clubs and similar entities.
But many owners are reaching retirement age, said Adam Welch, who researched marinas for the Cornell Real Estate Review while earning a 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 ready to buy, thanks to backing from institutional investors who have become increasingly drawn to the industry in recent years.
“The asset class has long been misunderstood,” Safe Harbor CEO Baxter Underwood wrote in an email. “From a seller perspective, it was difficult for owners to exit marina positions without incurring large tax exposure. From a buyer perspective, most institutional investors didn’t understand the value drivers.”
Marinas are relatively complex assets, Dennerlein said, so it wasn’t until investors started to exhaust opportunities in other assets that they started to look more appealing.
“I think it took a while for people to recognize, like, ‘Hey, boats aren’t a good investment, but the marinas that store the boats, work on the boats, those are the good investments’,” Dennerlein said.
Safe Harbor and Suntex have similar origin stories. Both were born out of existing marina businesses run by local entrepreneurs. Both assumed their current forms in 2015, when they landed private equity funding to begin their buying sprees.
After a recapitalization last year, Suntex’s largest investor is New York-based Centerbridge Partners. Real estate investment trust Sun Communities bought Safe Harbor in February.
Marinas were 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.
“You have very similar demand dynamics (and) almost no supply,” Dennerlein said.
Today, Safe Harbor owns 131 marinas. Suntex owns 52 marinas and operates 16 more through its subsidiary Westrec.
The path to the top has included the combination of separate chains. Suntex’s purchase of Westrec in February involved a $400 million investment from Centerbridge and valued the combined company at $2.5 billion.
But the leaders of both companies say they typically buy marinas from families. That means having conversations that go beyond financials.
“They’re looking to sell to somebody, first and foremost, who’s going to take care of their legacy, take care of their team,” Suntex CEO Bryan Redmond said.
What’s next?
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 plenty of white space, whether it be for the larger platforms or TopSide to grow,” TRT investment director Michael Frantz said.
TopSide’s current locally oriented geographic concentration is a coincidence, said CEO and co-founder Stephen Lehn said. The company is branching out nationally, with acquisitions in the works that will almost triple the number of marinas it owns.
The past few years have only made the industry more desirable to investors like TRT, the company founded by Dallas billionaire Robert Rowling that also owns Omni Hotels & Resorts.
For one thing, the IRS has made marinas more attractive for real estate investment trusts. REITs have favorable tax status but need to get a certain percentage of their income from real estate business, and the agency ruled that income from boat slips and boat storage falls into that category.
Suntex gained 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 activities in 2020, recreational boat sales reached their highest level since they took a hit during the Great Recession, according to the National Marine Manufacturers Association.
The increased presence of chain players is changing the landscape new boaters encounter.
Suntex has a boat club that lets people take out boats without owning one, while Safe Harbor’s membership program lets people who store boats with the company 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 might also mean higher prices for slips. Redmond and Lehn both said their companies have opportunities to raise prices at marinas they purchase. But both emphasized that they’re also investing in properties to give boaters more in return.
At a newly purchased marina in the Florida Keys, for example, Suntex plans to invest in more dry storage, a new dock office, a ship’s store and a boat rental service.
“If you’re providing them a great experience overall, they tend not to worry too much about their rate increases,” Redmond said.
Underwood emphasized the “best-in-class amenities” Safe Harbor offers, including pools and fitness facilities. However, he wrote that the company sets prices at its marinas based on local demand, not amenities.
Beyond companies’ investment in their properties, even significant consolidation may not change the dynamics that set slip prices. Many marinas were local monopolies already, Welch pointed out.
Marinas’ real competitors are other entertainment options, Redmond said, such as golf, sporting events and movies.
“Everybody has their home. Everybody has their place of work,” he said. “And when they have that extra time, we want it to be that place that they want to hang out, and they want to bring their friends and they want to bring their family.”
Why Dallas?
It might be a coincidence that landlocked Dallas became a hub for the marina industry. But it helps that Dallas is a hub for both private equity and real estate. It’s full of companies that have put 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 a leader in this type of innovation,” Underwood wrote. “It’s true that the metroplex lacks access to coastal boating, but it has a storied tradition of institutionalizing real estate asset classes.”
Being home to the industry’s two biggest players also made the area a fertile ground for other competitors to spring up. 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 it’s in a business-friendly state, Lehn pointed out.
Whatever the reason, the region has secured its unlikely place as the marina capital of the United States. Its marina companies are likely to continue to grow, even as the pandemic boom subsides.
“It’s just a very resilient industry,” Frantz said. “Whether it’s COVID or a recession, this industry has continued to perform throughout.”
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