S/Y – Trend
The superyacht market, unlike that of other sectors, is in continuous expansion.
Numbers tell us that there is a marked trend towards medium sized yachts, that is to say, yacht long from 35 to 55 metres and this because the owners want a boat whose dimensions allow the mooring in trendy locations, even if someone, of course, aspires to even larger and more innovative projects.
The latest trend is explorer yachts, realised to operate in the polar regions to the search of new and uncontaminated places, often with a twofold aim: on one hand the scientific experimentation and the other, hoping of being able to get a polar bear as a trophy to show to friends
The will of exploring the Arctic has created a request for solid units and careful planning, with the specific objective of adapting to the harsh climate, triggering another trend in pleasure boating: these destinations, in fact, require specialised, qualified and prepared crews (often even ex-military).
Driven by the rise of young and highly active guests, yachts must now accommodate submarines, bicycles, toys and equipment for leisure activities in addition to what is necessary to transfer the toys on the mainland.
The rise of young billionaires is a constantly growing and positive trend. Many of those who begin with smaller size S/Y, after a while choose S/Y over 50 meters.
S/Y – Buy or sell?
Differently from other luxury goods, such as a private jet bought for frequent and quick movements, increasingly the purchase of a S/Y is driven by emotions that influence in a bad way the decisions taken by the customer who, on the contrary, should buy S/Y in a much thoughtful way.
The new owners, want to design their yachts, and the more active ones want their lifestyle reflected in the design of the yacht and board facilities, so that shipowner now requires to have a one-off unit, with the specific intention to stand out from everyone else, when is on the French Riviera at anchor as much as when is moored in Port Hercule, Monte Carlo.
After “emotional” phase in purchasing a S/Y, already in the design phase there are several practical considerations to do, such as the evaluation on what flag to adopt. This choice should already be taken and contemplated in the design process of the yacht since it influences the technical requisites required by the naval register that vary from state to state and that may be fundamental in the design phase and, therefore, during the construction.
The current topic is now Brexit and its consequences in the luxury yachting sector.
These uncertainties of Brexit require us to pay due attention to where and how the yacht will be used, in order to optimise the financial impact of the whole operation: customs duties and VAT on imports deserve careful considerations. A hasty and inadequate decision-making process, especially in the initial phase, can negatively affect the success of the investment and the entire operation itself.
Financing for a yacht purchase requires a solid knowledge of the industry and of its players. The backers will be conditioned by the quality and reputation of the building site, by consultants and the customer history. A recent survey shows a growth in the demand for loans in Western Europe, even though today almost 50% of the transactions come from Russia.
Money for a S/Y are becoming increasingly difficult to obtain and there are few banks willing to take the risk of the operation. If once you borrowed the 80-90% of the cost of realisation of a S/Y, now the figure you can get is 50% and even less.
The due diligence for the loan of the yacht is complex and articulated and many legal and financial regulations made the verification of taxes and creditworthiness stricter. It is not unusual to have the customer resident in North America, with the bank that finances the operation located in Sweden, and the construction site in Italy. It is obvious that compete and overlap of different legal, fiscal and financial regulations!
Finally yet importantly keep in mind that international authorities consider yachts as a potential vehicle for money laundering and for this reason the fiscal history of a customer can be an obstacle to the operation.
In conclusion, the financial market takes into account all the players involved in the game.
Family Office – yes or no?
A family office is typically a unit composed of a pool of professionals that manages the property of wealthy families, normally composed of both personal goods and the families companies ones, guaranteeing discretion and confidentiality in addition to the needed competence and professionalism.
The number of family offices is growing all over the world and S/Y are becoming a significant part of their assets.
Increasingly, the family office operates as a protagonist in many stages: such as the stage of the purchase, sale, maintenance and, sometimes, even in the operational management of the boat.
The operational management is the central pivot of the investment, the possible loan of the yacht and the annual running cost of the yacht amounted to relevant figures, even millions.
No broker should underestimate expenses and if a buyer is worried about running costs, he should simply advise him not to buy a S/Y!
Some family offices prefer to maintain private the operational management of the entire operation, for control and privacy reasons. However, it is certain that “looking for adventure” in this filed increase the risks. Obviously, the management of a yacht includes also the eventual phase of the management of the crises, such as facing the resulting implications of natural disasters.
It is clear that for such situations, as for others, ultra-specialised professional resources are required, and they should have a medium-long term view of this particular field that is very different from the general schemes of other well-known sectors. Resources, expertise, and vision that normally go beyond what a family office can offer, as normally focused on traditional management asset.
For example, when Hurricane Katrina was approaching, a lack and/or delayed notice to skippers and shipowners that sailed in Caribbean waters, resulted in losses and in important damage and, yet, simple, failed software updates on board have dangerously stopped the operating system, causing the stop of the whole yacht!
These two examples allow us to understand the complexity of managing a S/Y in facing risks, so much so that we can reasonably argue that the work carried out with professionalism, timing and experience from who manage a S/Y, is the best insurance policy that an owner can choose for his yacht.
The operational management of a S/Y is completely different from most family offices do: yachts operate in situations that normally do not occur managing more common assets.
As mentioned before, I believe that normally in the DNA of a family office there is no space for the operational management of the S/Y taking into account the peculiarities of such an asset, which, in fact, has a life of its own. Let’s just think about a generic route of a S/Y which spends the season from December to February in the warm Caribbean waters, then it spends the following months until September in the Mediterranean, after a 5000 miles travel and then spend the next two months in a yard or in water for refit and/or for the service and then repeat the following year the same route.
It is also certain that among the more important criticism in the operating management of the S/Y from a family office is communicate in a timely, organic and efficient way with all involved parts.
The family office, should work with the yacht manager, with the charter company for the hire, with the technical director, with his lawyer, with the CPA, with local shipping agents, with crew management company, with the food/service provider, with the yard, with the marine and with the captain and crew to maintain the high level of motivation and performance.
It is obvious that the division of labour among these different units is often difficult to delimit, with the result that the work can be duplicated or, in the worst case, even not performed, with the consequence that the owner will be unsatisfied and he will regret buying a yacht and ends up paying more than what is needed.
Last but not least, the family office is situated in areas which often have little or nothing to do with the sea and nautical activities in general, lacking in governance and expertise in this field.
As always, the market will give the correct answers, but there is no doubt that the family offices, in this area, to be competitive and to ensure top service have only two options:
- adopt an in-house specialised section, adequately prepared and focused only on yachting, but with results that need verification,
- or rely on external structures focused exclusively on the segment of S/Y, in which all the necessary resources work in a team.