Charter - Sign of the Times?

Hi,

The market will support what the market will support.
What surprises me the most is the quote attributed to Burgess.

Yacht brokers say say there are roughly 750 mega-yachts (boats over 100-feet long) docked on the shores of the Med this summer waiting for customers - twice the number of previous years.

This means either the yards have pumped out way more boats than anyone knows or the number of yachts that have flipped from Private to Commercial registration has reached exponential levels and won't last once Owners realise what the difference really is.

The used boat market will no doubt feel the effects shortly.

Reality trumps perception...

As usual K1W1 makes an astute observation.

Distilling media reports, including, but not limited to; Boat International, Super Yacht Times and Boat Wizard (soldboats), we witness a market ((>)30m) that enjoys neither efficiency nor equilibrium.

In the 30 months ending today - last 10 quarters:
New vessels ((>)30m), reported launched and presented = 485
All vessels ((>)30m) reported sold = 386

The industry steadfastly has produced more units than the market can consume.

The shocking reality is that these figures do not equate the 2500 +/- used vessels ((>)30m) that populate the ready-for-sale global inventory.

The yacht trade continues to angle against basic economic theory, of supply and demand, compounded by grossly inflated value perception.

Does this indicate that the yachting market might see a collapse as bad or worse than the housing market? K1W1 made that point and if so, is the industry looking at a 50% or more drop in prices as well as yachts undergoing the equivalent of foreclosures? It's been my perception that the yachting industry has undergone some challenging times over the past several years, but I'm not sure how it compares to the housing crash.

Hi,

Carelm - The point I was trying to make was that if there are a large number of large yachts where the Owners are finding them too much if a financial drain to run and they have made them commercial to try and get some income and offset some if the cost and this doesn't work they will no doubt end up for sale.

Not sure about the foreclosure market for these type of boats as I have no idea how many are financed by mortgages in the traditional sense.

I don't either. I've seen quotes by a number of finance companies for 20 year loans with 20% down or so. I'm wondering how many owners may decide to do a strategic walk away and leave the finance companies the keys to the boat.

Generally speaking, the finance industry views yachts in a somewhat different manner to housing (the word 'toys' springs to mind) .. this means that often the purchase appears to be 'outright' but in reality the cash is secured against another vital asset, as indeed is the cashflow to meet the operating expenses.

Strategic walk-away is not really a strategy at all.
Curiously enough, if the financial lending criteria that has been applied to yachts had been applied to housing, vehicles and derivatives, the world would be in a completely different place today.

Relative to size, housing has fared better than recreational marine. It’s a better managed market, serving a basic utility with eventual upside potential. The auto industry has also navigated to a survival strategy.

In 2009 Banks in the USA were foreclosing and recovering up to 700 to 1000 units per month. By the end of 2010, several institutions learned that it was cost effective simply to allow the defaulted debtor to retain the collateral, as long as insurance cover was maintained.

European Banks have not been so keen adapt.

In a drive to stimulate new boat sales, the French and Italian governments permitted yacht buyers a significant tax concession through leasing schemes. From 2004 through 2008 the European yacht market grew exponentially; not based on value, but driven by aggressive and poorly founded financial underwriting. A bubble was created as Lenders and Buyers who cared little about price and more about portfolio expansion and a swift path to the water.

The sins of those heady years now return with a vengeance. Today, European Banks directly own the largest fleets of motor and sailing yachts ever assembled in history; a couple institutions holding and supporting over 100 units each. These include default recoveries, as well as lease-termed vessels that the lessee has decided to walk away from, rather than exercise his option to buy.

Smoke & Mirrors, Shifting Sands, and Lack of Infrastructure…

Even with the massive numbers, the housing market trudges along. Investors see acceptable risk in future potential and the current opportunity in the rental market. Real Estate finds not only single unit buyers but wholesale investors trading entire multi-unit portfolios. The population grows – space does not: even a blighted inner city dwelling has potential for redevelopment and appreciation.

The auto industry has long enjoyed a well managed distribution network - from branded dealers to wholesalers to recyclers/crushers. In each stage, from cradle to grave, there is an equity holder serving a different consumer.

We all need shelter and transportation. The value of this necessity has built opportunity and process to cycle and churn these markets. A boat is a discretionary item, a luxury item with fleeting value exacerbated by significant ownership cost. This truth is not because of a lack of cradle to grave infrastructure. Lack of infrastructure is because of this truth.

A striking advantage that housing and autos command over yachts is the transparency of value. Real Estate and Auto sales are well documented and published. There is no illusion in market condition, Buyers, Sellers and Observers of these markets are keenly aware – and that lack of confusion aids and abets the progression of the market.

TBH The headline is vastly misleading because even the cheapest charter prices is still more than what most get paid in a year . Only a small percentage is fortunate enough to afford to splash out on a charter Yacht and off course those Brokers aren't actually going to admit that most of the Yachts they have on there books lie empty and i suspect empty ones still sail about to create the false impression . With the number of Yacht's already underway .. and have been built majority of those who own them simply make them for charter to help cover the cost's. And if they aren't making money who's fault is that the company given the job to advertise the product or the harsh reality the Charter market is well above saturation point .
Charter market is only aimed a select clientel . you simply can't walk into a travel agent in your home city and enquire making a booking about a 2 week holiday on a yacht with affordable prices that effectively compete with same staying onshore for the same price .

Is it the general consensus among the professionals, then, that there will soon be a correction of some type in the yachting market? Whom do you believe will survive? This is of some concern to me because I want to begin planning my eventual acquisition and I don't want to get my heart set, as it were, on something (or someone), only to have to change my plans later. Honestly, I'm thinking of Lurssen, Heesen or perhaps Abeking & Rasmussen; however, although they seem to be big, stable companies, if they're contributing to this glut, will they also feel the correction most keenly?

If you can provide the funds, you will have a boat. The rest is paperwork...

Hi,

This is why the top end of the market is pretty exclusive.

You will find many places where you could stay ashore that would cost the same as a cheap sail boat holiday.

Staying ashore and afloat are two completely different things, the world isn't flat and life often isn't seen as being fair.

Fortunately for many of the folks who post here there are people with the funds to buy, build, operate and charter these vessels, lets hope it continues that way for the foreseeable future.

....that seems to increase exponentially every time someone else figures they need to see some.

I'm not sure if that comforts me, or worries me. Rather Faustian bargain, if you think about it.

If you decide on a new build at Abeking, I have a friend at the yard. One of the most competent build engineers in the industry. You certainly can't go wrong with Lurssen either, but your design options will be limited with Heesen.

Pardon me if this is a naive question, but limited how? Feel free to PM me if that would make you more comfortable. I would be truly grateful for any information; I'm afraid that my perceptions may be somewhat unrealistic and I'd rather have whatever delusions taken from me now rather than later.

Heesen builds their boats with a certain design signature. For some it's progressive and readily identifiable. For others, it looks like a go fast boat on steroids. Not surprising, that was Heesen's original roots.

Ah. That would make it difficult to get what I want, if the company is wedding its reputation to a specific style that is not congruous with my own.

Thank you for mentioning that.

It is of course to protect your interests, ask your yacht broker or lawyer on how it´s done if you can´t figure it out...

The builders you write of are not contributing to current market challenges. These particular shipbuilders accommodate a clientele who aggressively push the envelope and enjoy the command of development, in fusing leading-edge technology into a work of art.
The issue in today's market isn't bigger boats. The problem lies in the range of vessels that can be afforded by those individuals who are vulnerable to global economic trends.

Today's yacht market is adversely affected by many circumstances, not the least of which are: a yacht's lack of utility in alternative use, compounded by the lack of a managed infrastructure towards an end-of-life cycle. And, of course the market's lack of transparency. There's a great deal of currency in play here, and the sustenance of fog places this money at higher risk. When a purchase is at discretion rather than necessity, most buyers today withdraw from the opaque and choose to do nothing rather than take the risk. Then of course, there's the economy.

If you are seriously considering the unquestionable benefits of yachting, with Lurssen and A&R as your short list, you've already pointed yourself in the right direction. Additionally, you've landed in a great place to benefit from seasoned unbiased commentary from experience. This is not to say that YF members are not strongly and adversely opinionated. But the advice you receive here will be a pure interpretation of each members own experience... without an equity agenda. I have found that YF is the exception to the adage: "advice is worth what you pay for it".

Since you are considering this new adventure, you may want insight into the intrigue and usually silenced interworking of a mega-yacht transaction. The link below is that of a publically-recorded document that reads like a movie script. Read it carefully and thoroughly, and then be wise when choosing your advisers.

13646 Tail Shafted

To AMG: Thank you for your directness and clarity.

To Affrayedknot: I appreciate you elaborating and so eloquently providing an articulation of what I've been feeling.

To both gentlemen: Thank you for the advice and encouragement. In all honesty, this is the only place I've dared to articulate this dream of mine and it seems I could not have picked better company among whom to share this. I hope in the ensuing years as I pursue this, I don't exhaust everyone's patience with my questions and concerns.