The Misleading Marina Cost Approach – Part 2 of 4

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Land value is such a large percentage of a marina’s market value that it’s got to be done right.  Unfortunately, there are a litany of problems with estimating a reliable land value for a marina.  I posted a detailed six part series on the problems and issues associated with valuing marina land.  From what I have seen in other marina appraisals, the biggest problems are as follows:

  • Using waterfront land with the wrong zoning, especially when there are multiple maritime zoning categories already.
  • How to handle the bulkhead and dock problem, whether real or approved; this relates back to highest and best use and is a sticky wicket at best.
  • Correctly determining the amount of wetlands on the subject and comparable sites
  • Correctly determining the potential to build on a site, especially when it comes to soil load bearing capacities and flooding.  This spills over into the marina sale comparables as well.
  • Just finding comparable sales to begin with.  It’s often a matter of how far you can stretch the word “comparable”.

No Cost ApproachThere are other problems but these are the big five.  So let’s say you’ve overcome those problems.  Consider it your lucky day if you find a range of land sales that have any degree of uniformity in the price per acre or price per square foot values.  Heck, buy a lottery ticket!  Your sample size will be small so the expected range in per acre prices will leave you scratching your head wondering how to reconcile among them.  When it’s all said and done, you may have used a magic wand to adjust them to a uniform range but what confidence level do you have in your final land value conclusion when you start with such a wide range?

Now for the hard part.  You’ve got land value but how do you handle the docks?  Cost them out?  As I’ll discuss in Part 3, you’ll get the reproduction cost new wrong if you don’t use a marina engineering company.  Still, that’s not my point here.  There is an approval aspect to being able to build docks and it is generally a very long one.  You’ll need multiple agency approval.  In today’s environmentally conscious world, how will you handle the fact that it may take three to five years to get approvals?  If you just cost out the docks, you’re misleading because you’re saying they can be built with no undue delay on the date of value when in reality it will be years before they can be built.  You compound the mistake by using multiple marina unapproved sites and not considering the time lapse to obtain approvals in the first place.  Not only that, but it’s hypothetical.  So hypothetical it’s wishful thinking.

One way not to consider this time aspect is to use land sales with marina approvals but it would be one-in-a-million if you even found one.  No one spends all that money and time just to flip the property as an unimproved land sale.

The only other way is to apply extraction to your improved marina sales.  By taking off the contributory value of the improvements (i.e. their depreciated value or reproduction cost new less depreciation), you’re left with a land sale with docks and approvals.  This solves all the problems above and there are enough marina sales if you search far enough that you can come up with data in the first place.

Of course that still leaves the problem of reproduction cost.  Yes, it’s a whopper of a problem!  You’ll have to wait for Part 3 to see what I mean.

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