The Outsider

Jeff Rhodes may have a hand in changing the boating industry’s future.

But in a sea of faces at a marine industry conference, the managing partner of Flagship Marinas would likely go unrecognized.

Rhodes is a celebrity of sorts in the real estate business, associated with the development of some of the most well known mixed-use projects in the country, including Copley Place in Boston, Pacific Place in Seattle, and Watertower Place in Chicago, as well as the redevelopment of properties like Pebble Beach Resort, the Beverly Hills Hotel and the Aspen Skiing Company in Colorado.

It’s this experience that he believes will bring a competitive advantage to the marinas he and his investment group now own and those they plan to acquire.

“Uplands are very important to where the marinas are going,” he says. “You won’t find marina operators that have the background to develop uplands. We have the background.”

Over the course of Rhodes’ 30-plus years in real estate, he has spent the past seven dabbling in the marina business through his group’s ownership of Columbia Crossings, a four-marina property with more than 1,700 slips near Portland, Ore. It’s only during the last year that he has really made a splash, however — buying up Flagship Marinas, a large marina management and ownership firm controlling about 8,000 slips, through an investment group.

That is, unless you count his three-year-tenure at Sea Pines Company on Hilton Head Island. In the 70s, at the beginning of his career, Rhodes worked in the resort’s treasury and finance departments, not in marina operations, and the experience has shaped his vision for Flagship.

Sea Pines is the ultimate waterfront mixed-use project, combining two marinas with retail experiences, restaurants, a hotel, housing and multiple forms of recreation. Though the company has had its financial ups and downs over the years, Rhodes ultimately hopes to duplicate the experience it creates for its customers.

Boaters docked at Sea Pines can spend an afternoon playing golf or tennis, horseback riding, shopping, fishing, scuba diving, biking or dolphin watching, among other activities. There are dozens of restaurants and eateries available, and those who want to extend their stay have several lodging choices, including the Inn at Harbour Town and house rentals.

“Enhance the boating experience — that’s what we’re trying to do,” Rhodes says. “Sea Pines is a good example. And the development around the marinas is very attractive to those who want to buy houses and be near water, even if they don’t boat.”

Rhodes isn’t alone. Other real estate investors have been buying up marinas of late, each with their own vision based on their experience in other industries, setting off a new wave of consolidation that will likely have long-term consequences for the entire boating business.

Salvation?
Though each has a slightly different perspective, all of the investors entering the industry seem to believe it needs help — help they have the tools to provide.

Peter Anzo and his partners, who own Vinings Marine Group, come from the multi-family apartment business, but have recently been selling off the apartment complexes they own in favor of marinas.

“I think the marina industry is really in some regards similar to where the multi-family industry was 20 years ago — a lot of fragmented operations and the level of sophistication and professionalism isn’t where it needs to be,” he says. “Today’s boater is demanding more in the way of service and facilities. And unfortunately a lot of marina owners have owned the properties for years, run them as family businesses and haven’t allocated enough capital to the continuing improvement of the properties.”

Many current owners have been unable or unwilling to update their docks, not to mention the services or employee training they offer.

“I had my boat down in South Florida over the holidays,” says Anzo, “and I’ve never had poorer service in my life. No one greeted me at the dock. I didn’t have access to adequate power. It was a well-known marina in desperate need of repair and management. I just couldn’t believe it. I was shocked.”

One reason for the lack of improvements to these aging businesses is a difficulty obtaining financing. Few banks understand the marina business, and unlike other industries, no financial model exists to evaluate one by, industry insiders suggest. That often means that those marina owners who can find a bank to loan them money pay high interest rates on it. The outside investors have an advantage in that they often bring banking relationships with them, allowing them to obtain inexpensive loans.

Many also bring more sophisticated accounting systems. Rhodes, for example, says it’s important for Flagship to adopt a system that would allow for daily reports, like the hotel and restaurant business. A complete revamping of the company’s accounting and reporting systems is already underway.

Then, there are more basic improvements, like cleaning up restrooms and shower facilities, offering high-speed Internet service and asking marina staff to wear name tags.

“Today’s boats cost a lot more than they did yesterday,” Anzo explains. “Consequently, there is a little more affluent of a clientele. They want the facilities they keep their boat in to reflect that. They want to not just enjoy the boat, but enjoy the facility their boat is at.”

Marina companies like Vinings are counting on customers being willing to pay more if they’re given more. That isn’t necessarily the case with the developers who are focused on uplands development, however.

The attraction of uplands, from townhomes to restaurants, is that it is typically more profitable than the marina business. That may mean less pressure to raise rates to generate returns.

“It’s a combination,” Rhodes explains. “It’s an operating business where you can count on reasonable returns on your investment in the marina, you rent some of it, like retail, [which generates] cash flow year after year. Then, the for-sale properties generate one-time [returns].”

Filling in the blanks
You can own the best marina locations with the cleanest, most desirable range of amenities, but success so often comes down to the people — the customers, the employees who interact with them and the managers that guide those employees.

Most of these investors know that’s where their weaknesses lie.

While they have strong ideas about creating change in the industry, they typically lack insight into the day-to-day operation of a marina and contacts with those who do. To make up for it, they’re hiring the best and the brightest in marina management to help run their businesses.

Vinings Marine Group, for example, hired former Association of Marina Industries Executive Director Jim Frye as its new president in June. Flagship, which already had experienced marina executive Gregg Kenney at the helm, hired former Westrec Marinas Vice President Alex Laidlaw in May.

It says a lot about Westrec that when these investors go looking for an industry insider with the knowledge and experience to run their marina operations, they most often choose former Westrec executives. Not only did Laidlaw have a long career at Westrec, Kenney also spent several years there. In addition, Frye worked at Westrec for quite a while before becoming executive director for the nation’s marina association.

There’s no doubt that these executives learned something from their Westrec experience that will carry on to their new companies. Laidlaw, for example, has already been charged with heading up a new customer service training program through which Flagship’s entire staff will become certified. The Westrec Way was the first such program in the industry, according to Kenney.

These executives were part of an earlier wave of marina consolidation in the early 90s, during which Westrec acquired the majority of the marinas it owns today. Other marina companies that were on the acquisition path during that time were Brewer and Marinas International.

Of late, Westrec has been quiet, though. The last time it added to its management business was in 2003 and the last marina it acquired was well before that.

Like Vinings and Flagship, Westrec’s ownership is in the hands of investors with experience outside the industry — in this case, a single owner, Michael Sachs. He funded Westrec’s growth through acquisition in a wave of industry consolidation during the 90s. But Bill Anderson, president of Westrec, says that because of the influx of investors of late, most marinas for sale are overpriced.

“I think you’re going to see an escalation of price in the marketplace for what an individual believes their marina is worth,” he explains. “A lot of players competing for marinas will drive that price up. Everybody in the industry knows about new players coming into the industry, having significant capital to buy assets. They’re going to set their selling price accordingly.”

To a certain extent, that has already happened — especially in areas in which water access is limited. Seven Kings Holdings — which has its roots in the apartment and hotel businesses — entered the marina industry in 1995, introducing the Loggerhead brand name. At the time, the marina business was one of the few industries in Florida where there weren’t a lot of Wall Street-type of companies, says Ray Graziotto, a principal of the company.

“Had we known what was going to happen to the marina industry, we would have bought anything and everything,” he says.

Like Flagship, Seven Kings believes upland development has its place, especially when it can help support a marina business.

“One of the reasons we’ve been successful in getting marinas is we’re not a threat to other developers trying to find deals,” Graziotto explains. “We can help [condo developers] explore the marina opportunity. We add a lot of value to those guys. They’re actually seeking us out.”

When investors overpay for a marina, they may feel they have to focus on the upland to justify the price, suggests Anderson. And while some boaters may enjoy the additional amenities, others would rather focus on the boating experience itself.

“Typically, today’s boater is looking to get away from whatever urbanized work environment [they experience],” he says. “There’s something to be said for visiting a marina that’s very serene and quiet. And lots of the boats today have many amenities on them, which makes staying right on the boat very relaxing.”

Graziotto believes the price escalation in Florida may have reached its pinnacle. Following last year’s hurricane season, insurance coverage has become incredibly expensive — if you can find it — which is slowing demand from potential buyers.

Anderson also suggests that many investors underestimate the complexity of operating a marina business.

After over 10 years in the marina business, Seven Kings, which began in the hotel business, has found running a marina is actually a lot more challenging, says Graziotto. Not only do most marinas have multiple profit centers — from fuel and boat repair to boat sales and boat rental — no two marinas are alike, unlike most hotels and apartment buildings. Each body of water brings with it its own challenges and customer base.

“It’s a much more complicated business, if you’re doing it right, than a lot of other businesses,” he comments.

Rhodes, however, asserts that “there’s nothing complicated about running a marina,” suggesting it is a much simpler operation than a hotel, where one has to consider food, events and cleaning in addition to room rentals.

Another big unknown the influx of investors creates is what happens when they decide to cash out.

Rhodes is reassuring, saying his group likes “things you own and operate and have long-term.” In fact, he expects the company’s planned improvements will have a positive impact on the industry.

“A more sophisticated business would give investors and lenders a very positive look at the industry. The more comfortable the investors are, the quicker we can make transactions happen.”

No matter how passionate they are about their work and the positive impact they hope it will have, transactions and the returns they generate are what drive most investors.

“We’re in the business of making money at the end of the day,” admits Graziotto. “We’re a fairly young company. We haven’t sat down to discuss an exit strategy. It’s not on the radar screen. But certainly, to buy something that goes up in value is pretty smart.”

Whether these investors will ultimately bring the wave of improvement to the industry that they predict is based largely on their ability to build on the existing base of industry knowledge by carefully adding those tools and systems that can be adapted to fit this industry.

“Every new person in the marketplace wants to … be the great savior,” says Anderson. “But if you look around, a lot of marinas around the country are run by individual owners that do a terrific job. Their access to capital and great systems [may be limited], but there are a lot of happy people and full marinas. Somebody is doing something right.”

In the end, Rhodes — and other investors like him — won’t go unrecognized for long. Whether their stay is short or long, whether they’re successful or not, the imprint they leave on the marina industry, and the entire boating business, will be hard to miss. Their most significant contribution comes back to their ability to preserve water access — at least for the moment – by buying up marinas and keeping them open to the public.

“If the marinas are more profitable, the owners are more likely to want to keep them marinas,” says Anzo. “If someone owns a marina and it isn’t profitable, they’re going to want to tear it down and build condos.”

SIDEBARS:

Acquisition Avenue

If the industry’s new investors have their way, each of their companies will soon own more than a dozen marinas.

With 15,000 slips under its control, Westrec says it’s the industry’s largest marina manager and operator.

It employs 600 to 800 people and manages 25 marinas, about half of which it owns. Bill Anderson, its president, says Westrec continues to look for the right acquisition opportunities, but he admits the company has focused its growth internally in recent years.

While rumors persist that Westrec has run out of money for acquisitions, Anderson says it’s actually the inflation of marinas’ asking prices that have slowed the pace of Westrec’s external growth.

“Our strategy really has been two-fold,” he explains. “Over the last four or five years, we’ve invested significant capital in our existing facilities [rather than] buy those not adequately priced. In addition, we’ve formed a strategic alliance with Kampgrounds of America.”

There are strong similarities between boat and RV owners, Anderson says, and many of Westrec’s facilities include acreage suitable for RV park development. As of June, one KOA campground had already been opened at Westrec’s Tower Park Resort complex and two others were in the works.

Meanwhile, Westrec is considering “a number of acquisitions” that would involve building marinas from scratch, he adds. Whether that will allow Westrec to hang onto its title remains to be seen. Certainly, companies like Flagship, Vinings and Seven Kings Holdings have aggressive growth plans in place.

Vinings principal Peter Anzo says he wants to see his company become the largest marina manager and owner in the industry, growing from 8 locations to encompass a total of 25 to 30 marinas nationwide.

Jeff Rhodes, the leader of the investment group that bought Flagship last year, says he believes his group could double the size of the company within a year. Some of this growth may come from bringing Rhodes’ group’s Oregon properties, including four marinas, within Flagship.

Like some of his peers, Rhodes imagines creating a brand like that of hotel chain Marriott where customers can expect a certain level of service.

“The marina business appears to me to be somewhat unsophisticated,” says Rhodes. “There really isn’t a company that operates marinas around the country like hotels.”

The industry will get its first glimpse of how Rhodes’ vision transforms into reality with the development of Flagship’s Marina Bay site in Boston.

“What we will do in Marina Bay is create a yacht club for all of our boaters and our neighbors,” he says. “We’re there for the neighborhood. Our goal is to pull the community together.”

Flagship also plans to add 3,000 linear feet of dock space and expand the retail, restaurants and residential development already in place.

Flagship’s lakefront properties will be developed a little differently than its coastal properties. Those that don’t already feature amenities like rental cabins, lodges, swimming pools and restaurants will get them. These locations have already begun to benefit from the new infusion of capital from Rhodes’ group.

Seven Kings, which owns nine facilities employing about 150 employees in Florida, aims to grow to 20 marinas along the East Coast over the next four to five years. The company plans to help its customers travel from one facility to the next, hosting events to draw them beyond their home port.

Certified smart

The influx of investors has given the Certified Marina Manager program a needed boost.

In their quest to raise the bar of professionalism within the marina industry, several outside investors are turning to … the marina industry to train their employees.

The Association of Marina Industries’ Certified Marina Manager program was launched almost 14 years ago. Since then, it has turned out a total of 187 CMMs, only about half of which are based in the United States. That’s out of about 1,000 top level marina managers in the country, says Mark Amaral, who administers the program for AMI.

The pace at which AMI is turning out CMMs has started to pick up, however – due largely to interest from the industry’s consolidators, according to Amaral. Over the past 18 months, AMI has seen a 15-percent increase in applicants. And the association hopes to see further growth.

“There’s a move toward companies bringing together marina properties,” Amaral says. “Some of those companies are trying to put excellent management systems on top of all that, and that’s a positive trend.”

Certainly, Westrec Marinas, which has set the industry bar for investment in its employees, has always encouraged its managers to participate in the program.

And Peter Anzo, an owner in Vinings Marine Group, also sees the value in the program. In fact, he hopes to become certified himself, once he has enough experience in the industry.

Many of Flagship’s managers have their CMM designation, and those that don’t are in training to receive it.

“We want every one of our managers to be CMMs,” says Gregg Kenney, Flagship president.

Unlike some of its competitors, Seven Kings Holdings does not encourage its marina managers to obtain CMM certificates. Instead, it has invested in training through Dale Carnegie.

Ray Graziotto explains that while not all of the company’s marinas look the same, like a McDonalds, Seven Kings sets itself apart by offering a consistent service experience throughout its locations.

He believes that the marina industry has fallen behind other industries in its customer service because of rising demand and shrinking supply.

“An emphasis on what the modern customer wants is somewhat lacking,” Graziotto comments.

Certainly, most industry insiders would agree that there is room for growth in the level of professionalism within the marina sector. AMI hopes to lead that movement by doubling participation in the classes it offers today and expanding its certification levels to target a wider range of employees at different types of facilities.

Amaral says AMI is currently working with the American Boat Builders and Repairers Association to create a marina service manager certification and hopes to add dockmaster and marina operator certifications in the future, for example.

Meanwhile, the association is also working with the marina aggregators and the state trade associations to raise awareness of its training programs.

The group’s timing couldn’t be better. As the industry attempts to expand its consumer base through the Grow Boating program, the professionalism of those people who interact with boaters will have a big impact on the industry’s ability to retain them. At the same time, the boating industry is competing with other industries to hold onto its best employees.

“Because the service industries across the country are growing so rapidly, the need to hire, train and grow your employee base continues to be the biggest challenge in an industry that can be pretty cyclical,” comments Bill Anderson, Westrec president.

Public vs. private

Steeven Knight is tired of being cast as a villain.

But whether or not it’s a good fit, it’s easy to understand why he’s been labeled that way. Knight, CEO of Yacht Clubs of the Americas (YCOA), is a former condo developer who has entered the marina industry, buying up marinas, transforming them into dockominiums and rackominiums, and selling them to boaters for prices that continue to escalate.

The controversy over dockominiums comes back to water access — an issue some have called the industry’s No. 1 concern. Marinas are one of the main ways boaters access the water, but as waterfront property values rise, many marina owners looking for an exit strategy are selling to the highest bidder — which is often a real estate developer, not another marina operator.

“The mom and pop marina is a thing of the past,” Knight comments.

YCOA, in fact, has been busy buying up marinas. It had six locations as of July and was in negotiation for three more in Charleston, S.C.; Destin, Fla.; and Stuart, Fla.

Dockominiums tend to be most popular in areas where access is most limited. Boaters are more likely to buy a slip if renting one is difficult. Once the marina’s wet or dry slips are purchased by individual boaters, it falls under their collective ownership through the formation of a non-profit association. That means access to that piece of waterfront is not only no longer open to the public but limited to the somewhat exclusive group of boaters who can afford to buy a slip.

Some feel this business model is unhealthy for the industry, taking the “public” out of water access. Knight, however, says it may be the best option for the future.

“We’re clearly not the cause of the problem in the state of Florida,” he states. “It’s called economics. And the truth of the matter is the only way you’re going to save a [piece of property] from going from a marina to a condo site is to … make it economically viable to keep it as a marina.”

Privatizing a marina through the dockominium/rackominium model is the only long-term solution, says Knight, adding that his business model secures the future of the property by placing it in the hands of boaters.

Those investors buying up public marinas and running them as such will likely continuously raise rates as Florida’s population continues to grow — probably even faster if they are investing capital to fix them up, he says. As a result, most waterfront slips will become less and less affordable for small boat owners, whether they rent or own.

He also points out that there is nothing keeping the marina investors from selling the marinas to real estate developers down the road when they’re ready to cash out and the property’s value has risen even further.

In fact, he suggests the industry may want to rethink the way they view dockominium and rackominium developers. Knight says his company — and others like it — should be called, “marina preservation developers.

“I want this place 20, 40, 50 years from now to be exactly what it is — a marina facility.”