By Bethany McLean

(FORTUNE Magazine) – TWO TRUTHS ARE UNIVERSALLY acknowledged about yachts nowadays: There are more and more of them, and they are getting bigger and bigger. A few decades ago a 50-foot boat was considered large. Today, Limited CEO Les Wexner's 315-foot Limitless looks, well, limited next to Paul Allen's 413-foot Octopus. Currently more than 7,000 vessels worldwide are considered megayachts (over 80 feet long), and another 700 or so are under construction or in contract.

The proliferation of oh-so-large yachts has created a not-so-small problem. Worldwide, there is a shortage of berths, or yacht parking spots. Look no farther than St. Thomas, where in peak season you'll see big boats anchored at sea right next to the highway that runs along the island's edge--because there's nowhere else to go. It's a spot lacking in both aesthetics and amenities--which points to another issue. Megayachts and their billionaire owners are demanding creatures, and many marinas aren't equipped to deliver the highly specialized services--ranging from reverse osmosis (for making drinkable water) to high-speed Internet access--that boat and owner require for proper upkeep.

Andrew Farkas plans to solve this problem. In 2002, Farkas, who spent the 1990s building Insignia Financial Group into one of the largest commercial real estate companies in the U.S., launched a venture called Island Capital (his partners now include Andrew Cuomo, the former HUD secretary). The company will build modern marinas--"RV parks for billionaires," Farkas calls them--in hot spots around the world, from South America to Maine, from Dubai to Cap d'Antibes. To Farkas, who sold off Insignia in pieces starting in 1998 and pocketed some tens of millions, marinas in 2005 look much like real estate did in the late 1980s: highly fragmented, capital constrained mom-and-pop operations looking for a big buyer.

Island Capital's first marina project is to reinvent a legendary 1970s dock space and party spot called Yacht Haven on St. Thomas. Yacht Haven fell into disrepair after it was demolished by not one but two hurricanes; locals now call it Rat Haven. Farkas's team began construction (using 90% local labor) in 2004, and he expects to invest $200 million building a marina plus an "upland" development that will include a boutique hotel, a swimming pool, 125,000 square feet of retail space--Louis Vuitton has signed on--six restaurants, and 12 condominiums with expected selling prices of $2 million. Yachts will be able to use the marina this winter, and the whole development is slated to have a grand opening on Thanksgiving Day 2006.

When Yacht Haven is completed, there will be 16,000 linear feet of dockage, enough to fit some 150 yachts as big as and bigger than Allen's Octopus. In addition, giant cruise ships bringing some two million people a year to the island already dock right next to the marina. The plebes should spend freely at Yacht Haven's shops, too, where part of the pleasure--for both sides--will be the goggling. "If you don't want to be gawked at, you don't buy a $40 million boat," says Farkas.

Island Capital has just struck its second, and very different, marina deal. The company will be the exclusive manager of all the marinas developed in Dubai (the government there owns a 20% stake in this business). The company will cater to the 1.5 million people expected to move to massive island developments being built off Dubai's coast. Of course, their primary means of transportation will be boats.

Farkas has other outside investors, including Lehman Brothers and Banco Popular. But eventually, he says, he plans to take the marina business public. First he'll have to prove that all the dollars spent on yachts really go somewhere other than the bottom of the ocean.