Houston, We Have a Problem.

Slips at Oriental Harbor Marina lost $5,292 over the last five years while the other area marinas actually gained value!

To put it another way, over the last five years, your investment at Oriental Harbor Marina has lost 26% of its value while those who owned slips at other marinas in the Oriental area gained in value. If you're like me, you want to know “why”.

Why are we losing value while our counterparts are gaining value? Why is our marina depreciating while the others are appreciating? Why are the same economic and market conditions frowning on one marina while smiling on the others? Why, why, why?

Yes, we want to understand the why, but we also want to know the “how”. How can we be certain that our answers are correct? How did we get here? How can we fix it? How, how, how? We want facts, not feelings. We want analytical certainty and not just "gut feelings" or emotional answers. How can we actually get to the hard truth?

As a businessman and real estate investor for over forty years, when I need answers I turn to numbers. When investments clearly aren’t performing as they should, I look at the numbers. Then and only then do things begin to “add up” (pun intended). I know we’ve all heard the famous Mark Twain quote: “Numbers don’t lie, but liars use numbers.” And it’s true. When we “cherry pick” data to fit a preconceived narrative, numbers can paint a distorted picture of reality. That’s why it’s important to see the big picture. To have all the numbers.

I experienced it first hand as I began buying slips. One agent would give me one set of data to make his case, then another would give me different numbers to make his. So rather than base my conclusions on incomplete and inaccurate data, I went to the source of that data – the Pamlico County property tax records – and I painstakingly recorded the data for every single sale for all seven major marinas as far back as computerized records are kept, which is 2010. Recording every single slip sale for twelve years took a long time. But when I finally had the exhaustive sales data, I began to get much clearer picture.

Having all the local data was a good start but next I had to go outside Pamlico County and get some accurate industry-wide numbers. The "marina industry" includes companies (marinas) engaged in operating docking and storage facilities for pleasure craft owners, with or without one or more related activities (like retailing fuel and marine supplies, and repairing, maintaining, or renting pleasure boats).

So I spent several hundred dollars and purchased the “Kently Insights Market Research Report: Marinas”. Kently Insights is the leader in data-driven industry market research reports. They surveyed an industry of 3,882 marinas and compiled, historical trends, industry dynamics, econometrics, and macroeconomic trends. Their report provides extensive data sets on the marina industry and key benchmarks that allows me to do in-depth diagnostics of any company in the industry.

Next I contacted a personal friend and business broker with First Choice Business Brokers in Raleigh (a leading authority on business sales), and he provided me with their marina industry information. Finally, I contacted the Association of Marine Industries (AMI) and filled in any remaining gaps with their data. All in all, I believe my data to be quite exhaustive and though it might be possible for someone to have a better data set, I have yet to meet that person.

So now that I had the numbers – the hard data, if you will – I began to analyze our marina as I would any other company. Sure, our marina is a cool place to hang out and it’s a nice place to park our boats, but at the end of the day, it is a company. It has income and expenses. It has employees. It has shareholders (slip owners), and it has a board of directors. It’s a company, so I set out to analyze it like I would any other company.

The first number I looked at was market cap. Let me explain what I mean by market cap. Investors determine the value of a company by multiplying the total number of outstanding shares by its share price. That’s called its market capitalization or “market cap” for short. Because a marina is a "company" we can use this same methodology to value marinas. Simply take the total number of slips (or shares) and multiply it by the average sale price. That resulting "market cap" gives us an accurate picture of the value of our marina over time. So if the market cap went down, you lost money. Maybe you didn’t sell your slip, so you didn’t actually realize the loss but if values went down you still lost money. You just haven’t “cashed in” your loss.

But didn’t our management recently tell us that every marina in the area lost value? Yes, they told us that. They also told us, "The state of our marina is strong!" But that's not how the data would characterize it. The fact is the other six marinas gained an average of $131 per slip in value while ours lost $5,292 per slip! Or to put it another way, they made money while our slips lost money. That doesn't sound "strong" to me. Let me show you a graph that makes it even clearer. The red represents the value lost at Oriental Harbor Marina over the last five years and the blue shows the gains for the other major marinas in the area (Whittaker Creek, Pecan Grove, Whittaker Pointe, Sea Harbour, Pointe, and Grace Harbor Marinas) over the same period.

If you were holding a stock that was dropping like this while the overall market was going up, you’d probably sell, right? Well, that’s exactly what many of your fellow slip owners have been doing! This year our turnover rate (the percentage of slips that sold) is 14.41% while the other six major marinas are half that at 7.22%! Five percent is a “normal” turnover rate and yet we’re nearly three times the norm! Let me show you another chart: Again, the red bars are Oriental Harbor and the blue bars are all the other area marinas.

But I'm afraid our problems aren't limited to just our market value and our turnover rate. Let’s talk about operating expenses. We have one single expense item that’s over 54% of revenues (more than ten times the industry average), but instead of solving our expense problems our solution was to raise owner fees to cover the shortfall. And speaking of fees, how do our owner fees compare to the other area marinas anyway?

Well, in actual dollars, we are second only to Grace Harbor at River Dunes, but their fees also include a yacht club membership. When you compare apples to apples by looking at fees as a percentage of equity, our fees are 13.1% of equity, or nearly twice that of the other six marinas that average 6.6%. Meanwhile management told us at our last two annual meetings how the state of our marina is “strong”.

Now I don’t know how you define "strong", but from the vantage point of any business-minded person, the state of our marina is not strong… It's weak. In fact, we are at an all-time low in terms of shareholder value. Our expenses are out of control. Our fees are excessive. And year after year we are getting worse, not better. Sadly, management doesn’t appear interested in changing course. I know you’re probably thinking, “Why should I listen to this guy?” Fair enough. Let me give you four reasons:

1. First, because I’m a shareholder. Slip owners (or shareholders) elect the Board of Directors to run the marina and to represent our interests. My company owns seven slips at Oriental Harbor Marina but even if I only owned one, that alone should be reason enough for management to hear me out.
   

2. Second, because I have some expertise that we badly need right now. From 1987 until 2002 I did company turnarounds for a living, and over that period I purchased, turned around, and sold twelve separate failed franchises. I’ve learned how to identify problems and fix broken companies.
   

3. Third, I have twenty years of experience as a real estate broker, starting as a solo real estate agent and growing my practice into a large brokerage with over 150 agents. I’ve written eight books on real estate, spoken at national conferences across the country, written dozens of articles for real estate trade publications, and appeared numerous times on CNN as an industry expert, so it's fair to say that I understand real estate and real estate values.
   

4. And last, but not least, I’ve devoted the last year researching area marina operations and marina real estate values and during that time I’ve compiled an enormous amount of data. The dataset I used for this presentation is exhaustive and comprises every slip sale, whether individual or bulk, whether brokered or non-brokered, whether public or private, for each of the seven major marinas in Pamlico County over the last ten years.

So, after a year of analysis, I’ve identified five specific problems that are keeping our marina from being the most valuable marina in the area. But they are all problems that I believe we can fix. And they’re problems that we have to fix if we’re ever going to see a reasonable return on our investments at Oriental Harbor Marina.

Over the next five parts of my presentation, I’m going to show you the five problems and then I’m going to show you exactly how I think we can fix them. And if we do -- if we fix these problems -- I believe that we can get our values back to where they once were and beyond. I believe that we can return this marina to its former glory -- a place we can be proud to own!

Go to Problem 1 >>>