As this year’s Surf Park Summit comes to a close, the momentum and passion in this sector is striking.
The passion – and binding cultural identity of all attending - is drawn directly from surfing. This has provided the energy for innovative surf technology companies to make the surf pools possible and has pushed brave early mover developer/operators to establish projects to build and run surf parks all over the world.
It is though a complex and risky business – mostly by virtue of the sector’s early development stage which requires a determined professionalism to deliver these projects and get them open. The critical challenge has been raising the capital investment for these $50m+ projects. The wider investment market needs to be confident these projects are commercially investable, and de-risked as much as possible.
With this in mind, I chaired the first panel discussion on day one on surf park investment. Here are some key points that stand out:
- Break it down into stages – the challenge isn’t to raise all the money straight away. Break it down into manageable chunks starting with seed funding, project development funding and then into construction etc.
- Use valuations along the stages – get the project valued at stages along the journey to show project partners how the value proposition is growing and being secured.
- Build your valuations based on solid business planning – a valuation is only as good as the forecasting it is founded on when a project is in the development stage. Get expert, independent market and financial feasibility advice to give investors’ confidence the projections are robust and reliable. Data in a young sector is hard to come by so the benchmarking and reference points an investor seeks aren’t readily available, which is a challenge for building certainty.
- Identify the key risk areas and mitigate them – investors, rightly, will have many hard questions: Is the land formally secured? Are the development permissions in place? Is the surf experience high quality? Is the surf technology reliable and deliverable? Are the capital cost projections realistic and up to date? Does the team have the experience? Has water and energy sustainability – specific to the location – been appropriately resolved? Are the local community in support? All of these need confident, accurate answers.
- The role of land and real-estate – surf park projects need either freehold land ownership to give security, or long leases / ground rents (40 years minimum, 80-100 years ideally). Projects increasingly are part of larger scale mixed-use schemes – that can help dilute the risk in the surf element and allow for developer/investor partners to work with what they know – hotels, residential, workspace, leisure and retail etc. Control of the land also allows for investment vehicles like sales and leaseback.
- HNWI/private investors, followed by institutional investors – the typical first mover investors have been High Net Worth Individuals, Family investment offices or syndicates, often with personal interest in surfing and the ability for quick, independent decision making The sector has the attention of more institutional investors like venture capital/private equity/funds but the growth potential needs to be proven, as well as the exit point. In this sense, they’re less interested in funding one project at $50m, but are more alert to doing five projects deploying $250m.
Surf Park Summit 2022 has been a great success and is a hugely valuable event by bringing a really focused group of people together, in person. The passion for the sector is obvious and is increasingly being matched by a professionalism that is critical to proving the surf park business is commercially investable.
About the author
Matt Hyslop leads our Destination Consulting team which advises owners, developers, occupiers and investors. His team has advised on more than 25 surf park projects all over the world, building robust business cases for our clients so they have a solid platform to raise money from and deliver their ambitions.
To contact Matt, email Matthew.Hyslop@colliers.com