October 22, 2010 11:07 pm

A crafty investment

 
A YachtPlus craft

A YachtPlus craft

It is said that the two happiest moments of a yacht owner’s life are the day he buys his boat and the day he sells it. But if undiluted responsibility is the problem, is fractional ownership of vessels the solution?

Informal fractional ownership of craft of all sizes has, of course, existed for decades. Friends and family can easily make arrangements to divide the purchase price and maintenance costs of yacht ownership, in the knowledge that most people do not have the time to get out on to the water every week.

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Professional fractional management programmes began to emerge about a decade ago, starting with well-equipped cruisers in the 40ft category. For a price, the management company will look after all aspects of cleaning and maintenance, and co-ordinate schedules, leaving the shareholder free to enjoy their boat until the time comes (this is specified in the purchase contract) to sell the asset and divide the proceeds.

According to John Hare, chairman of YachtPlus, the typical needs of a fractional buyer are fundamentally different from those of an individual owner: “While single owners might value a big master suite, for example, fractional owners generally want a lot of rooms on their yacht, to maximise the number of people who stay on board.”

YachtPlus is based in the Isle of Man and Switzerland and has three super-yachts, designed by Foster & Partners for the fractional market, already in operation. The company hopes to launch a fourth soon.

Mike Balfour, a YachtPlus shareholder, believes that “fractional programmes for expensive assets that are not used frequently, such as a yacht, make an enormous amount of sense. In fact, if you charter it out for two weeks of your five, you recoup your administration costs for the year.”

YachtPlus is offering a one-eighth share of an Italian-built, 132ft, Foster-designed yacht for €1,875,000. It has four decks, floor-to-ceiling windows and accommodation for up to 12 guests. The vessel’s central lobby has a translucent spiral staircase, and a giant screen hidden in the ceiling of the main saloon gives the option of a home cinema. The yacht’s range is 2,400 nautical miles and the maintenance, insurance, plus wages for the full-time crew of seven add up to €200,000 per year. Owners pay for mooring charges, fuel burn, telecoms and food and drink while using the vessel.

YachtPlus’s fleet spends the summer in the Mediterranean (Cannes, Corfu and Sardinia’s Costa Smeralda are among the home ports) and winters in the Caribbean, cruising typically to Antigua, Barbados and Martinique. For the moment, North American and European clients predominate but Hare thinks that in the medium term the Brazilian market will become important.

Christopher Johnson, a London-based hedge fund manager, bought a one-eighth share of a yacht through YachtPlus in 2007. He uses his annual five-week share for family holidays. In spite of being a keen sailor, time constraints, Johnson says, rule out single ownership in his case. He cites a recent cruise around the Greek islands as the most enjoyable: “It was spectacular. We managed to get to coves that would have been difficult to reach had we not been on a yacht. The children loved it.”

On an earlier trip around the south of France, Johnson had more friends coming on board than he expected: “It’s an eye-catching boat and many people we know were quite impatient to see it.” Although he’s an enthusiast for shared ownership, he makes the point that potential buyers need to be flexible about the dates of their bookings: “There is a very fair rotation system built into the contract but it does mean that you will have to wait for your turn to get peak times like Christmas and the New Year in the Caribbean, or the first half of August in the Mediterranean. School holidays and professional commitments mean that fewer owners are able to use the asset at the end of September.”

Inevitably, the global meltdown is another constraint. The industry’s middle market has been particularly hit: Beneteau USA, the US arm of the French boat builder, has offered fractional ownership of yachts in California, Florida, Texas and Puerto Rico, mainly in the 40ft and 50ft categories but is now making changes to its fractional programme.

Meanwhile, SeaNet, a company based in Newport Beach, California, has been offering fractional ownership of 50ft to 80ft yachts for eight years, with nine boats currently on their books. “Our yachts move from California to Mexico, Florida and Europe, which gives owners the chance to vacation in varied locations. This would be difficult for a single owner to organise,” says SeaNet sales manager Scott Bruce.

SeaNet is offering a one-quarter share of a 62ft Sunseeker Manhattan built in 2007, with accommodation for six, teak floors and air conditioning, for US$397,000. “In practice this means 70 days of use a year,” says Bruce. Unused days can be sold off to offset operating costs.

Lower-priced products are beginning to enter the market in more exotic destinations. Kjetil Haugan, a Norwegian businessman, operates two eight-cabin catamarans that ply approved routes in the Galapagos Islands. He is planning to sell 0.25 per cent shares of a new catamaran priced at an average of US$35,000, with operating costs, including the services of a full-time naturalist on board, extra. A share gives the right to use one cabin in the boat for a week, and a pro rata split of the proceeds of the vessel’s sale.

“The Galapagos is a unique place and there is certainly a market for a dynamic fractional ownership scheme there, since there are strict limits on the number of boats permitted to cruise the islands. As a result, unused weeks could be resold without any difficulty,” says Haugan.

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The basics

Fractional ownership products share the same characteristic on dry land and at sea: security of ownership. Investors own a portion of a property, while in timeshare deals the buyer bulk-purchases holidays over a given period, with no property ownership.

Because maintaining a yacht is more costly than a house, operating costs tend to be higher.

Large yachts do not stay in prime condition for ever. Expect your contract to specify a sale on the open market (with proceeds split pro rata among the owners) after eight years or so in the case of super-yachts, and after around half that period for a 40ft cruiser. Boats don’t appreciate in price, so it is unlikely that you will have to give up a percentage of any profit to the operating company.

Pros

Except for the inter-continental repositioning of super-yachts, you don’t pay for your boat when not on it.

FO offers access to a high-end lifestyle with a comparatively small financial outlay.

You will get your share of what the yacht is worth when it is sold.

Cons

Schedule restrictions: a one-eighth share will mean you won’t be able to use the boat at peak times most years.

No personal touches: you won’t find your own furnishings when you arrive.

The operating company may demand a percentage of your share if you sell up early.

www.yachtplus.co.uk

www.seanetco.com

www.beneteaufractional.com

www.haugancruises.com

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