Private equity giant Blackstone is buying into a new real estate asset class with a $5.65 billion deal to acquire Safe Harbor Marinas, owner of 138 boat docking facilities in U.S. coastal cities.
The deal comes at a time when the marina industry is struggling in part from a rise in weather-related natural disasters and reduced home sales in battered areas, such as where hurricanes Helene and Milton passed.
Blackstone, the investment firm that bills itself as the world’s largest commercial property owner, is making its purchase through its infrastructure fund that leads nearly $70 billion of investments in data centers, including those under construction. The seller, Sun Communities, recently reported increasing weather-related expenses that have hurt its financial performance.
New York-based Blackstone, no stranger to jumping into new industries for the first time, sees advantages to buying owners such as Safe Harbor, a firm in which its largest continental U.S. property, Safe Harbor Aqualand in Flowery Beach, Georgia, has 1,570 boat slips.
“Marinas benefit from key long-term thematic tailwinds including the growth of travel and leisure as well as population inflows into coastal cities,” Heidi Boyd, senior managing director for Blackstone’s infrastructure business, said in a statement. The firm declined to provide additional comment to CoStar News.
Blackstone was an early investor in single-family rental housing, forming Invitation Homes in 2012. It became the largest owner of single-family rentals in the United States before selling its remaining shares in the company in 2019. The firm has since returned to single-family rentals, reaching a deal last year to take Toronto-based Tricon Residential private.
Boat sales decline
Marina sales stabilized last year following a pandemic-induced boating boom in 2020 and 2021, marina brokerage Simply Marinas said in January.
Motorboat sales have been declining since reaching peaks in those years, according to the National Marine Manufacturers Association. The 12 months of sales through November declined 9.4% from the same time a year earlier to 240,000 boats sold. The monthly total for November was the lowest since 2015.
The trade group attributed the decline to high interest rates, inflation and weakening consumer confidence.
“The heyday of dealers unable to keep boats in stock, manufacturers struggling to keep up with demand, and marinas 100%-occupied across all regions has somewhat subsided,” Simply Marinas said in its report. “The selling and buying of marinas has also slowed, but marinas are in the unique position of having little competition for what had been a fast-increasing number of boats needing storage.”
The space for developing new marinas also is limited and often highly protected, according to the brokerage. Those wanting to get into the marina business generally must buy an existing property.
Simply Marinas estimates that there are more than 10,000 marina properties in the U.S.
Returns level off
Sun Communities plans to focus on manufactured housing and recreational vehicle sites. The deal with Blackstone caught Truist analyst Anthony Hau by surprise, but after closer analysis, he said the move makes sense.
Sun Communities suggested it “had already captured most of the low-hanging fruit from this asset and expected normalized growth going forward. Additionally, there is a renewed focus on cost savings,” Hau said in a note to clients.
On its third-quarter earnings call, Sun Communities CEO Gary Shiffman said the firm was disappointed with Safe Harbor’s results.
“Alongside this was some occupancy headwinds in the marinas due to the adverse weather effects and the adverse weather effects on home sales in Florida,” Shiffman said. “We moved from ahead of internal guidance early in the quarter to well behind in September. The most disappointing for us was the lack of ability to achieve expense objectives in the third quarter and into the fourth quarter.”
Up until recently, Sun Communities had seen a substantial return on its marina investment but was expecting those returns to level off.
The Southfield, Michigan-based real estate investment trust acquired Safe Harbor in 2020 for $2.02 billion and had since made $1.79 billion in smaller marina acquisitions for a total of $3.8 billion, according to analyst reports. Thus, the sale is expected to net the firm a nearly $1.3 billion profit.
“Despite strong performance from the time of [Sun Communities’] acquisition, investors never became comfortable with the fundamentals of the marina business,” Brad Heffern, an analyst with RBC Capital Markets, wrote in a commentary on the deal. “As a result, we like the sale of the business, at a fair valuation in our view, which allows [Sun Communities] to focus on its core businesses.”
The transaction is expected to close in the second quarter. Sun Communities intends to use proceeds from the sale to pay down debt and for additional investments in its core asset classes.