Club Slippage

Club Slippage

The "dockominium" boom appears to be suffering just as much as the

condominium market. Yacht Clubs of the Americas is counting on new President Jon Finstrom to keep the business going through the sales slump.

companies by Jean Gruss | Editor/Lee-Collier

Every smart investor knows past performance is never an indication of future returns.

Jon Finstrom knows that perhaps better than most people because he used to manage $250 million at Merrill Lynch in Bonita Springs. That's why he pulled the plug on an ad that Yacht Clubs of the Americas was running in the Wall Street Journal touting its boat slips' 35% annual appreciation during the boom.

Finstrom is now president of Fort Myers-based YCOA, recently hired by founder Steeven Knight to smooth things over with lenders and develop a strategy to sell "dockominiums," or condos for boats. Sales of these slips have fallen just like condos for people.

Fueled by the Wall Street boom, Knight borrowed $230 million a couple years ago from New York-based real estate investment trust iStar Financial to buy struggling family owned marinas, fix them up, add fancy amenities such as restaurants and sell deeded slips to individual buyers like condos.

"This company had embarked on a very aggressive growth course," Finstrom says. What began as one marina near the causeway leading to Sanibel island in Fort Myers became a network of marinas from Tampa and Naples, Key West, Grand Bahama and New Smyrna.

But boat sales have fallen dramatically in the recent economic downturn and fewer people have the cash to buy a slip that cost $100,000 or more. Sales at YCOA marinas have slowed by half. "There is still a demand for boat slips, but it's not as robust as it was," Finstrom acknowledges. He declines to cite revenues.

In addition to changing the advertising campaign, Finstrom restructured the $230-million iStar loan and started a social membership that allows people to enjoy marina amenities such as the restaurant, bar and pool. He also brought order to the company by instituting corporate procedures and cutting unnecessary expenses.

Finstrom says the dockominium business is not as vulnerable as its housing cousins because there wasn't as much overbuilding. The still-tight supply combined with more efficient operational management means any pickup in demand will benefit YCOA.

Plans for future marinas in places such as the Carolinas, Maryland, the Caribbean and Central America are on hold. "I want to get the facilities up and working, make sure sales and marketing are working, then we'll go out again to look for expansion opportunities," Finstrom says.

Money to marinas

Finstrom, 58, retired three years ago from a 22-year career at Merrill Lynch. He had started the brokerage firm's Bonita Springs office from scratch and built it to a 10-person brokerage managing $1 billion by 2002. In the last five years at Merrill, he personally managed $250 million for wealthy individuals, focusing on the stocks of large, dividend-paying companies.

He's relieved not to have to worry about money management in the current market. "I can't tell you how happy I am to not be a part of that," he says.

After he retired, Finstrom was looking for a place to park his 34-foot Fountain "Tournament Edition" center-console boat powered by three engines. At the time, it was parked at a marina on Fort Myers Beach where raccoons often left their mark on his shiny vessel. Hours of scrubbing his boat left little time for enjoyment on the water.

So Finstrom purchased a space at YCOA's Sanibel marina for $130,000 where attendants cleaned his boat before and after a cruise and stored it away in a huge hangar while he enjoyed a cold beer. Finstrom was so pleased with his purchase that he began to hang out at the marina regularly and soon struck up a friendship with Knight.

Knight had been a successful subcontractor in the building industry on the Gulf Coast and by the time he sold his company in 2004 it had reached $23 million in sales. He then bought the Sanibel Harbour marina for $6.5 million and with financing from Wachovia Bank built his first YCOA marina with 387 dry slips, a martini bar, a pool and a gourmet deli and coffee shop. (Dry slips are buildings on dry ground that house boats in racks; whereas slips are in the water.) Slips sold quickly and Knight easily lined up Wall Street financing to replicate that success with a network of marinas.

When sales began to stall and iStar Financial became concerned about the business, Knight hired Finstrom to be president. The first thing Finstrom did was to bring a Merrill-like corporate structure to the entrepreneurial company and cut expenses.

For one thing, the company had more employees than it needed, so Finstrom cut 20 positions in administration and marina design. He also eliminated unnecessary expenses, such as the $100,000 in premiums the company was paying for terrorism insurance.

Finstrom brought corporate structure to YCOA by doing things such as standardizing compensation. "That was a huge problem," Finstrom says. Some employees were making $5 an hour more than others who were doing the same job, creating morale problems.

As the real estate business was faltering, Finstrom redesigned the company's ad campaign that once promised outsized and unrealistic investment returns to one that was designed to bring prospects in. He did that by holding grand-opening celebrations with celebrities such as Tampa Bay Buccaneer football star Mike Alstott and instituting a $1,500-a-year social membership, which allowed people to enjoy the marina's amenities without having to buy a slip.

YCOA's ad campaign now emphasizes the amenities at its marinas. "Our buyer is not strictly looking for boat storage," Finstrom explains. "They're looking for lifestyle."

Much like a condo-owners' association, YCOA has a slip-owner association and the company manages the marinas for 10 years. The amenities are designed to be a way to attract buyers, so the management of the marina is not designed to be a moneymaker.

Instead, YCOA provides gas, cleaning, meals and drinks at cost and forbids tipping. Employees make $14 to $16 an hour and receive full benefits. "It's a very different business operationally," Finstrom acknowledges, but he says there are no plans to change that unique business model.

Biggest challenge: Tampa

For now, Finstrom is focused on selling slips at three newly opened marinas, including Tampa, Naples and Key West. That's not easy considering the fact that the real estate downturn has hurt would-be boat owners. High energy prices and the presidential election in November add to the uncertainty.

YCOA is dependent on new-boat sales because new owners are the company's best prospects. But sales have slowed dramatically. For example, sales at MarineMax' stores open longer than one year fell 28% in the most recent quarter compared with the same period last year. Clearwater-based MarineMax is the nation's largest boat dealer.

Despite this, Finstrom says that sales of premium-boat brands have performed better than lower-priced ones. That's important because owners of pricier boats are most likely the ones to need the kind of storage that YCOA provides. They're also less likely to be affected by an economic downturn and have the financial wherewithal to weather the storm.

Still, each market on the Gulf Coast is different, a fact that surprised Finstrom. The company's biggest challenge now is selling slips at its Tampa marina, which is tucked away in the South Westshore area of the city. Because of its location, the market is limited to South Tampa boat owners. Boaters from Pinellas County and north Hillsborough County are unlikely to drive across Tampa Bay or down Interstate 275 and fight traffic to reach that area.

The company's best prospect is Key West, where the supply of new slips is most constrained and visitors come from all over the world to fish. What's more, Cuba will eventually be within easy reach of the U.S.' southernmost point.

"The flood of people who want to hop to Cuba will be enormous," Finstrom says. "Cuba will open up relatively soon."

So far, YCOA hasn't discounted its slips. Finstrom watched as competitors slashed prices by 50% with little success in sales. Neither does it rent unsold slips. "If you rent it, you won't buy it," he says.

Every smart investor knows past performance is never an indication of future returns.

Jon Finstrom knows that perhaps better than most people because he used to manage $250 million at Merrill Lynch in Bonita Springs. That's why he pulled the plug on an ad that Yacht Clubs of the Americas was running in the Wall Street Journal touting its boat slips' 35% annual appreciation during the boom.

Finstrom is now president of Fort Myers-based YCOA, recently hired by founder Steeven Knight to smooth things over with lenders and develop a strategy to sell "dockominiums," or condos for boats. Sales of these slips have fallen just like condos for people.

Fueled by the Wall Street boom, Knight borrowed $230 million a couple years ago from New York-based real estate investment trust iStar Financial to buy struggling family owned marinas, fix them up, add fancy amenities such as restaurants and sell deeded slips to individual buyers like condos.

"This company had embarked on a very aggressive growth course," Finstrom says. What began as one marina near the causeway leading to Sanibel island in Fort Myers became a network of marinas from Tampa and Naples, Key West, Grand Bahama and New Smyrna.

But boat sales have fallen dramatically in the recent economic downturn and fewer people have the cash to buy a slip that cost $100,000 or more. Sales at YCOA marinas have slowed by half. "There is still a demand for boat slips, but it's not as robust as it was," Finstrom acknowledges. He declines to cite revenues.

In addition to changing the advertising campaign, Finstrom restructured the $230-million iStar loan and started a social membership that allows people to enjoy marina amenities such as the restaurant, bar and pool. He also brought order to the company by instituting corporate procedures and cutting unnecessary expenses.

Finstrom says the dockominium business is not as vulnerable as its housing cousins because there wasn't as much overbuilding. The still-tight supply combined with more efficient operational management means any pickup in demand will benefit YCOA.

Plans for future marinas in places such as the Carolinas, Maryland, the Caribbean and Central America are on hold. "I want to get the facilities up and working, make sure sales and marketing are working, then we'll go out again to look for expansion opportunities," Finstrom says.

Money to marinas

Finstrom, 58, retired three years ago from a 22-year career at Merrill Lynch. He had started the brokerage firm's Bonita Springs office from scratch and built it to a 10-person brokerage managing $1 billion by 2002. In the last five years at Merrill, he personally managed $250 million for wealthy individuals, focusing on the stocks of large, dividend-paying companies.

He's relieved not to have to worry about money management in the current market. "I can't tell you how happy I am to not be a part of that," he says.

After he retired, Finstrom was looking for a place to park his 34-foot Fountain "Tournament Edition" center-console boat powered by three engines. At the time, it was parked at a marina on Fort Myers Beach where raccoons often left their mark on his shiny vessel. Hours of scrubbing his boat left little time for enjoyment on the water.

So Finstrom purchased a space at YCOA's Sanibel marina for $130,000 where attendants cleaned his boat before and after a cruise and stored it away in a huge hangar while he enjoyed a cold beer. Finstrom was so pleased with his purchase that he began to hang out at the marina regularly and soon struck up a friendship with Knight.

Knight had been a successful subcontractor in the building industry on the Gulf Coast and by the time he sold his company in 2004 it had reached $23 million in sales. He then bought the Sanibel Harbour marina for $6.5 million and with financing from Wachovia Bank built his first YCOA marina with 387 dry slips, a martini bar, a pool and a gourmet deli and coffee shop. (Dry slips are buildings on dry ground that house boats in racks; whereas slips are in the water.) Slips sold quickly and Knight easily lined up Wall Street financing to replicate that success with a network of marinas.

When sales began to stall and iStar Financial became concerned about the business, Knight hired Finstrom to be president. The first thing Finstrom did was to bring a Merrill-like corporate structure to the entrepreneurial company and cut expenses.

For one thing, the company had more employees than it needed, so Finstrom cut 20 positions in administration and marina design. He also eliminated unnecessary expenses, such as the $100,000 in premiums the company was paying for terrorism insurance.

Finstrom brought corporate structure to YCOA by doing things such as standardizing compensation. "That was a huge problem," Finstrom says. Some employees were making $5 an hour more than others who were doing the same job, creating morale problems.

As the real estate business was faltering, Finstrom redesigned the company's ad campaign that once promised outsized and unrealistic investment returns to one that was designed to bring prospects in. He did that by holding grand-opening celebrations with celebrities such as Tampa Bay Buccaneer football star Mike Alstott and instituting a $1,500-a-year social membership, which allowed people to enjoy the marina's amenities without having to buy a slip.

YCOA's ad campaign now emphasizes the amenities at its marinas. "Our buyer is not strictly looking for boat storage," Finstrom explains. "They're looking for lifestyle."

Much like a condo-owners' association, YCOA has a slip-owner association and the company manages the marinas for 10 years. The amenities are designed to be a way to attract buyers, so the management of the marina is not designed to be a moneymaker.

Instead, YCOA provides gas, cleaning, meals and drinks at cost and forbids tipping. Employees make $14 to $16 an hour and receive full benefits. "It's a very different business operationally," Finstrom acknowledges, but he says there are no plans to change that unique business model.

Biggest challenge: Tampa

For now, Finstrom is focused on selling slips at three newly opened marinas, including Tampa, Naples and Key West. That's not easy considering the fact that the real estate downturn has hurt would-be boat owners. High energy prices and the presidential election in November add to the uncertainty.

YCOA is dependent on new-boat sales because new owners are the company's best prospects. But sales have slowed dramatically. For example, sales at MarineMax' stores open longer than one year fell 28% in the most recent quarter compared with the same period last year. Clearwater-based MarineMax is the nation's largest boat dealer.

Despite this, Finstrom says that sales of premium-boat brands have performed better than lower-priced ones. That's important because owners of pricier boats are most likely the ones to need the kind of storage that YCOA provides. They're also less likely to be affected by an economic downturn and have the financial wherewithal to weather the storm.

Still, each market on the Gulf Coast is different, a fact that surprised Finstrom. The company's biggest challenge now is selling slips at its Tampa marina, which is tucked away in the South Westshore area of the city. Because of its location, the market is limited to South Tampa boat owners. Boaters from Pinellas County and north Hillsborough County are unlikely to drive across Tampa Bay or down Interstate 275 and fight traffic to reach that area.

The company's best prospect is Key West, where the supply of new slips is most constrained and visitors come from all over the world to fish. What's more, Cuba will eventually be within easy reach of the U.S.' southernmost point.

"The flood of people who want to hop to Cuba will be enormous," Finstrom says. "Cuba will open up relatively soon."

So far, YCOA hasn't discounted its slips. Finstrom watched as competitors slashed prices by 50% with little success in sales. Neither does it rent unsold slips. "If you rent it, you won't buy it," he says.

Every smart investor knows past performance is never an indication of future returns.

Jon Finstrom knows that perhaps better than most people because he used to manage $250 million at Merrill Lynch in Bonita Springs. That's why he pulled the plug on an ad that Yacht Clubs of the Americas was running in the Wall Street Journal touting its boat slips' 35% annual appreciation during the boom.

Finstrom is now president of Fort Myers-based YCOA, recently hired by founder Steeven Knight to smooth things over with lenders and develop a strategy to sell "dockominiums," or condos for boats. Sales of these slips have fallen just like condos for people.

Fueled by the Wall Street boom, Knight borrowed $230 million a couple years ago from New York-based real estate investment trust iStar Financial to buy struggling family owned marinas, fix them up, add fancy amenities such as restaurants and sell deeded slips to individual buyers like condos.

"This company had embarked on a very aggressive growth course," Finstrom says. What began as one marina near the causeway leading to Sanibel island in Fort Myers became a network of marinas from Tampa and Naples, Key West, Grand Bahama and New Smyrna.

But boat sales have fallen dramatically in the recent economic downturn and fewer people have the cash to buy a slip that cost $100,000 or more. Sales at YCOA marinas have slowed by half. "There is still a demand for boat slips, but it's not as robust as it was," Finstrom acknowledges. He declines to cite revenues.

In addition to changing the advertising campaign, Finstrom restructured the $230-million iStar loan and started a social membership that allows people to enjoy marina amenities such as the restaurant, bar and pool. He also brought order to the company by instituting corporate procedures and cutting unnecessary expenses.

Finstrom says the dockominium business is not as vulnerable as its housing cousins because there wasn't as much overbuilding. The still-tight supply combined with more efficient operational management means any pickup in demand will benefit YCOA.

Plans for future marinas in places such as the Carolinas, Maryland, the Caribbean and Central America are on hold. "I want to get the facilities up and working, make sure sales and marketing are working, then we'll go out again to look for expansion opportunities," Finstrom says.

Money to marinas

Finstrom, 58, retired three years ago from a 22-year career at Merrill Lynch. He had started the brokerage firm's Bonita Springs office from scratch and built it to a 10-person brokerage managing $1 billion by 2002. In the last five years at Merrill, he personally managed $250 million for wealthy individuals, focusing on the stocks of large, dividend-paying companies.

He's relieved not to have to worry about money management in the current market. "I can't tell you how happy I am to not be a part of that," he says.

After he retired, Finstrom was looking for a place to park his 34-foot Fountain "Tournament Edition" center-console boat powered by three engines. At the time, it was parked at a marina on Fort Myers Beach where raccoons often left their mark on his shiny vessel. Hours of scrubbing his boat left little time for enjoyment on the water.

So Finstrom purchased a space at YCOA's Sanibel marina for $130,000 where attendants cleaned his boat before and after a cruise and stored it away in a huge hangar while he enjoyed a cold beer. Finstrom was so pleased with his purchase that he began to hang out at the marina regularly and soon struck up a friendship with Knight.

Knight had been a successful subcontractor in the building industry on the Gulf Coast and by the time he sold his company in 2004 it had reached $23 million in sales. He then bought the Sanibel Harbour marina for $6.5 million and with financing from Wachovia Bank built his first YCOA marina with 387 dry slips, a martini bar, a pool and a gourmet deli and coffee shop. (Dry slips are buildings on dry ground that house boats in racks; whereas slips are in the water.) Slips sold quickly and Knight easily lined up Wall Street financing to replicate that success with a network of marinas.

When sales began to stall and iStar Financial became concerned about the business, Knight hired Finstrom to be president. The first thing Finstrom did was to bring a Merrill-like corporate structure to the entrepreneurial company and cut expenses.

For one thing, the company had more employees than it needed, so Finstrom cut 20 positions in administration and marina design. He also eliminated unnecessary expenses, such as the $100,000 in premiums the company was paying for terrorism insurance.

Finstrom brought corporate structure to YCOA by doing things such as standardizing compensation. "That was a huge problem," Finstrom says. Some employees were making $5 an hour more than others who were doing the same job, creating morale problems.

As the real estate business was faltering, Finstrom redesigned the company's ad campaign that once promised outsized and unrealistic investment returns to one that was designed to bring prospects in. He did that by holding grand-opening celebrations with celebrities such as Tampa Bay Buccaneer football star Mike Alstott and instituting a $1,500-a-year social membership, which allowed people to enjoy the marina's amenities without having to buy a slip.

YCOA's ad campaign now emphasizes the amenities at its marinas. "Our buyer is not strictly looking for boat storage," Finstrom explains. "They're looking for lifestyle."

Much like a condo-owners' association, YCOA has a slip-owner association and the company manages the marinas for 10 years. The amenities are designed to be a way to attract buyers, so the management of the marina is not designed to be a moneymaker.

Instead, YCOA provides gas, cleaning, meals and drinks at cost and forbids tipping. Employees make $14 to $16 an hour and receive full benefits. "It's a very different business operationally," Finstrom acknowledges, but he says there are no plans to change that unique business model.

Biggest challenge: Tampa

For now, Finstrom is focused on selling slips at three newly opened marinas, including Tampa, Naples and Key West. That's not easy considering the fact that the real estate downturn has hurt would-be boat owners. High energy prices and the presidential election in November add to the uncertainty.

YCOA is dependent on new-boat sales because new owners are the company's best prospects. But sales have slowed dramatically. For example, sales at MarineMax' stores open longer than one year fell 28% in the most recent quarter compared with the same period last year. Clearwater-based MarineMax is the nation's largest boat dealer.

Despite this, Finstrom says that sales of premium-boat brands have performed better than lower-priced ones. That's important because owners of pricier boats are most likely the ones to need the kind of storage that YCOA provides. They're also less likely to be affected by an economic downturn and have the financial wherewithal to weather the storm.

Still, each market on the Gulf Coast is different, a fact that surprised Finstrom. The company's biggest challenge now is selling slips at its Tampa marina, which is tucked away in the South Westshore area of the city. Because of its location, the market is limited to South Tampa boat owners. Boaters from Pinellas County and north Hillsborough County are unlikely to drive across Tampa Bay or down Interstate 275 and fight traffic to reach that area.

The company's best prospect is Key West, where the supply of new slips is most constrained and visitors come from all over the world to fish. What's more, Cuba will eventually be within easy reach of the U.S.' southernmost point.

"The flood of people who want to hop to Cuba will be enormous," Finstrom says. "Cuba will open up relatively soon."

So far, YCOA hasn't discounted its slips. Finstrom watched as competitors slashed prices by 50% wiCompany. Yacht Clubs of the Americas

Industry. Marinas

Key. Bringing in a new leader with a different perspective can help companies survive declining sales.th little success in sales. Neither does it rent unsold slips. "If you rent it, you won't buy it," he says.