In advance of the 2014 Monaco Yacht Show, Simon Cardiff of Carey Group Marine Services explains for our clients some of the fundamentals of superyacht ownership that apply to potential new superyacht owners as well as existing owners.
Simon advises on superyacht ownership, asset management and governance.
Deciding on superyacht ownership opportunities
New and existing owners can reflect on different aspects of ownership at this time.
Potential new owners can consider the full range of options, including:
- commissioning designers, naval architects and superyacht yards to build semi-custom or custom yachts
- buying yachts on the brokerage market
- chartering different kinds of yachts for a few seasons to determine for themselves how they might want to approach ownership before acquisition
Existing owners can reflect on the quality of the superyacht ownership experience so far and start thinking about:
- buying, building, refitting and/or selling yachts
- evaluating the performance of management companies, captains, senior crew and other service providers
- taking yachts off, or putting them on, the charter market and changing to private registration or vice versa
Ownership motivations
These are usually driven by emotional and intangible objectives, such as prestige, luxury, status, rivalry, aesthetics and design, personal style and so on.
Look through the sales and marketing messages and the overriding objectives of many owners generally revolve around:
- getting the most enjoyment out of being a superyacht owner for the long-term
- ensuring that the yacht is always available for use when it is needed, either for private use by family and friends or to raise revenue through charters to third-parties
Long-term costs and risks
The range of superyacht ownership opportunities accessible to most owners will be informed by a realistic assessment of their long-term financial resources and risk appetite, particularly given that superyachts are in most cases loss-making, depreciating assets.
The following long-term costs and risks should be factored in:
The "superyacht ownership lifecycle" is one way to describe the long-term financial requirements for owning superyachts. It starts with first considerations of acquiring or updating a superyacht portfolio and continues through to eventual disposal of the yacht when owners look to upgrade or to give up superyacht ownership altogether. The lifecycle typically ranges from 5 to 15 years, depending on owners‟ specific circumstances.
Owners' resources have to be sufficient to meet all of the costs of ownership for the full 5 to 15 year superyacht ownership lifecycle. The total cost of ownership includes:
- brokerage purchase price or new build project cost
- depreciation
- loan / leasing / finance costs
- periodic refits, modifications and other one-off capital investments to ensure the vessel remains seaworthy
- transaction costs
- professional advisory and corporate administration fees and expenses
- non-routine liabilities such as salvage, damage repairs, crew disputes, environmental damage, privacy breaches etc.
- agency costs (i.e. the costs of misappropriation, fraud, inadequate yacht operation/management, evaluating the performance of staff and third-party providers as well as incentive and bonus arrangements for crew/ staff)
- the yacht‟s annual running costs (i.e. fuel, port fees, crew wages and benefits, routine repairs and maintenance, food and drinks, yacht management fees, etc.)
There are also opportunity costs and time and materials incurred personally by the owner, personal staff, single family office executives and family members for controlling and overseeing the entire superyacht portfolio.
It is not a villa or private jet
The cost and risk profile of operational superyachts is more complex than for villas or private jets, so several points to keep in mind include:
- Yachts must be manned 24/7/365 by highly qualified crew and shore support teams, even when not being used by guests.
- Superyachts must comply with burdensome maritime regulatory and fiscal regimes that are different across the many countries that yachts are going to visit. Failure to comply can lead to local government authorities detaining the yacht at any time, even when owners and guests are onboard. So, thorough preparation during the design, build, brokerage purchase and in-service operational phases is critical.
- Operating commercially chartered superyachts and the larger privately registered ones is like running a 24/7 operating business in many cases.
Evolving nature of ownership
The nature of superyacht ownership is evolving.
Before 2008, the buoyant superyacht market allowed many owners to see ownership as an extravagant hobby but with profit-making potential.
Now, post-crisis, superyachting is still largely seen as an enjoyable and extravagant hobby, but the superyacht is, in most cases, going to be a loss-making, depreciating asset.
Long-term costs and risks are now more visible. This affects the emotional attachment owners have to their superyachts and it is, unfortunately, forcing some owners out of ownership.
Document the "superyacht ownership strategy"
Ownership strategies can be specially designed to help minimise wasted costs (particularly predictable and preventable ones) and maximise residual value at disposal where possible. They document a big-picture view of the full 5 to 15 year superyacht ownership lifecycle, which helps avoid giving disproportionate emphasis on purchase price as the decisive factor in owners‟ decision-making.
Such strategies are tailored to each owners‟ personal circumstances and objectives, which have, preferably, been determined in a disciplined, transparent and business-like manner by owners and their closest advisers rather than third-parties.
Each superyacht ownership strategy describes:
- the owner‟s overall approach and objectives
- a governance and risk management framework for the superyacht portfolio
- the luxury on-board service strategy
- the superyacht asset management strategy
- total costs estimates and risk analysis
Execute with the "right‟ team
Anyone can sell the idea of the perfect superyacht ownership experience but it takes a team dedicated to acting in the best interests of the owner to execute the perfect superyacht ownership experience for the owner.
Selecting the right superyacht team ashore and afloat to execute the ownership strategy will be the key to the owner‟s success.
All with the principal aim of ensuring that owners can enjoy superyacht ownership with their families and friends for the long-term, while keeping superyachting within their realistic financial reach.
Enjoy MYS 2014!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
