The Future of the Boat Slip MarketOver the past 10 years, many investors (especially those who are also boat owners) have undoubtedly read many articles and heard the buzz terms “Dockominiums” and “Rackominiums”. Although the terms are often used incorrectly, they are always used to describe an individually owned “in-water boat slip (wet slip)” or “rack boat storage (rack or dry slip)”, respectively. They have been regarded as both, the “real estate phenomenon” of the 21^st century by proponents – and a nothing more than a passing fad by their critics. Whether they are highly regarded or not, I am here to tell you that they have been around since the early 1970's and they definitely are here to stay — despite the current economic malaise.Traditionally, boat slips that make up a marina or a dry rack storage building are owned by a single entity and the ability to own an individual boat slip under a condominium, fee simple, equity club or fractional form of ownership has been a relatively rare and usually attractive opportunity. As with most assets that appreciate, there are typically much more compelling reasons and advantages to own, than there are to continue renting or leasing for personal use. From an investment perspective, boat slips have had an impressive track record since their inception.In an internal study completed by Atlantic Marine Management in January of 2007, approximately 80 dockominium and equity club marinas with saltwater access were researched along the Atlantic Seaboard. The marinas sampled had been “converted” to individually owned slips during the following time periods.  TIME PERIOD WHEN MARINAS WERE CONVERTED TO OR DEVELOPED AS DOCKOMINIUM OR SIMILAR INDIVIDUAL SLIP OWNERSHIP

1978 to 1986	1987 – 1992	1993 – 1997	1998 – 2002
21 to 30 years	15 to 20 years	10 to 14 years	5 to 9 years
46%	7%	31%	16%
Recession 81-82	Recession 87-88, 90-92	No Contraction	Recession 00-02

The bottom line of the chart also indicates years in which recessions occurred. As you can see, in periods of heavy economic contraction much fewer marinas were converted. Since the study was seeking facilities with the greatest amount of historical information, conversions less than 5 years old were eliminated. Had the study, however, shown these numbers, you would see an increase that surpasses the activity of all previous years. But as the study indicates, when the economy contracts, so do such development and conversion efforts.The primary purposes for the study were to evaluate both physical and operating characteristics that contribute most to the business model's success and to collect historic appreciation data so that developers, slip owners, investors and appraisers can extrapolate reasonable expectations for performance of “dockominium” as an investment vehicle.APPRECIATION: The results of the study were very interesting and in terms of appreciation over the long haul – coastal boat slips appreciated at averages between 8% and 12% annually over a 30 year term. When the oldest facilities between 20 and 30 years old were dropped from the calculation– the averages increased to averages between 8% and 14%. Of course, there are always exceptions to the rule, and in this study there were exceptions which performed at both ends of the range.

For Example: The chart above shows that looking at facilities over a 30 year period, 18% of the facilities studied, had an average annual appreciation rate of 9% and 8% of facilities had an average annual appreciation of 12%. Pretty darn good considering that there were 4 recessions in that timeframe as well.
What the study also showed was that such facilities had not only performed superbly from an appreciation perspective, but they had all survived the test of time. They proved that the business model was not only capable of longevity, but that these particular marinas were also more successful at weathering difficult economic conditions than their conventional counterparts. The study surmised that the resources and abilities of an organized group of individual slip owners with a common goal are far more capable of overcoming adversity than those available to the average individual marina owner. INVESTING IN BOAT SLIPS: History shows us that boat slip investments have produced returns on appreciation alone that have consistently outperformed nearly all other real estate products over the long term. When combined with their ability to generate consistent, ongoing passive rental income, they can be even more attractive. Boat slips require very little in terms of upkeep and maintenance and on-site rental management can normally be enlisted for a nominal fee if one desires.Investors should however, understand that the dockominium business model is not a good candidate for all marinas or locations and during the last growth cycle, there have been developers who have created such facilities in less than ideal locations and conditions.If you are willing to take your time and perform proper due diligence, the current market offers many opportunities at what will be the beginning levels of the next growth cycle. Unlike home values, the value of boat slips have remained stable (with the exception of maybe a dozen “rackominium” projects which had been drastically overpriced). This is because well placed dockominiums are in areas of high boating demand and when the market is down, there is no incentive to sell a boat slip. When credit is tight it is tougher to sell them, so owners and investors sit tight until the market recovers and demand returns. The slip value remains flat during downturns and resumes appreciation when markets correct.Even though there are developers who were caught off guard and in some instances have reduced the prices of unsold inventory to raise cash, the strategy is usually short lived because it does little good until consumers begin spending again. It also has little effect on the slips that have already been sold. It is a finite commodity that can not be replaced. There is no sufficient market reason to reduces prices (unless they are over inflated to start with).With that said, the price of waterfront property and recreational marina properties have begun to return to normal “cap rate” levels. This is especially true, now that residential developers are no longer driving up waterfront prices. This means that new facilities can be purchased and developed at lower cost than facilities which have been developed at the height of the last boom.The best opportunities for 2009-2010 are in projects that began sales campaigns in previous years, have survived the fallout and have unsold inventory. In all likelihood, they have renogiated loans or had already paid down debt prior to the downturn. Developers looking to move on to new projects may be willing to accept below market offers.  New projects purchased in 2009 and developed in 2010 will have lower cost of entry, so if you get in early you will have the opportunity to negotiate a lower market price or at least benefit from the greatest amount of appreciation over the next growth cycle.

While there have been those who have made large profits flipping products every 12 months, the safest strategy for boat slip investment is either for the very long haul of 10 years or more… or to purchase early in the growth cycle and sell during peak. The average growth cycle of the US economy over the past 40 years is 67 months peak to peak.
Good Investing!