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Megayacht market still holding strong

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While the small-boat market rides the cyclical waves of the U.S. economy and struggles with high fuel prices, megayacht sales are booming. The 2008 Global Order Book, a compilation of big-boat projects in progress, shows 916 new vessels of more than 80 feet under construction, a 17.9 percent increase from 2007.

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Experts don’t expect that market to lose steam any time soon. In fact, they say, the number of new megayachts on order is likely underestimated, with many builders, such as the Dutch giant Feadship, reporting only a portion of yachts under construction out of respect and confidentiality for its elite clientele. A growing number of newly wealthy Eastern Europeans and Russians are entering the megayacht market — many as first-time buyers.

Observers of the big-boat market say the über rich are always flush with cash and ready to spend it, especially with brokerage megayachts priced to sell with liquidation pressure.

“There’s always some rich guy who will take advantage of another rich guy bleeding to death in the street during a recession,” says John Weller, veteran megayacht broker with Miami-based Allied Marine Group. “Most wealthy people don’t lose their money. Orders are holding strong, partially due to the Europeans and Russians with big bucks. The Russians are very involved in European yards, but no one building big boats wants their names splattered around.”

While Weller has worked more than 100 boat shows in 35 years, he says the shows represent due diligence and yield mediocre results. Although the Fort Lauderdale International Boat Show is regarded as the megayacht place-to-be, Weller says he has had better luck at Miami, which he says is more brokerage-oriented compared with the Fort Lauderdale show’s new builds.

“Fort Lauderdale is the kickoff to the boating season and is the first excuse for boaters to come to Florida,” he says. “They’re usually not buying; they’re having fun in the Bahamas now.”

Weller says boats “60 feet and under are having problems unloading,” but 80- to 120-foot yachts will move if the price is right. “It’s easy for our business when a seller wants to get out of a boat,” he says. “It is easier to sell brokerage boats in a depressed market.”

As for new construction, Weller says he just sold a 142-foot Richmond, and the Westport 130s are moving well.

Petrodollars at work
“Worldwide, orders are holding strong,” he says. “Christensen [Vancouver, Wash.] is doing well and Trinity [Gulfport, Miss., and New Orleans] is packed solid.”

Trinity’s order book has taken a dramatic shift to international clients because of the weak dollar and emerging wealth in Eastern Europe and the Middle East. While Americans worry at the pump, the oil exporters have more money than ever, with the price of a barrel soaring to more than $140 this year before falling back in late summer.

“Right now we have four boats for Russians and Eastern Europeans and three orders from clients in the Middle East,” says Billy Smith, vice president of Trinity Yachts. Trinity is the nation’s largest    custom builder, with 24 yachts under contract — five of which will be on display at the Fort Lauderdale show. “The oil-producing regions of the world are experiencing rapid growth,” he says.

Trinity just quoted an international client on a 65-meter boat with a 38-month delivery. New 50-meter vessels of less than 500 international gross tons have a 30-month build estimate.

“The trend will continue for bigger boats,” says Smith. “The yacht market has expanded production capacity, but is nowhere near keeping up with the wealth (and potential orders) in the world with the number of new billionaires. Only 1 percent of the people who can own a yacht have one, so our penetration is small. Nine  thousand families were added to the new net worth group exceeding $250 million in 2007 … many from Russia, China, India and the Ukraine. The megayacht industry is not expanding at the same pace as the number of people able to afford a megayacht.”

‘Starter’ boats
Burger Boats of Manitowoc, Wis., is seeing a tremendous amount of interest in the 40- to 55-meter arena. It has five vessels under construction. New orders, depending upon delivery size, are projected for completion in 2010. Burger just delivered its first Russian “twins” last year, Areti I and II — each 127 feet.

“We’re working with two Russian clients to finalize orders,” says Burger president Jim Ruffolo. “That portion of the market is strong, with lots of newfound money. And the exchange rate doesn’t hurt, either. We have interest from the French and Americans. If people don’t buy smaller boats they may not get into big ones, although the Russians start out with megas.”

International Yacht Collection, a subsidiary of Trinity Yachts, reports its first half of 2008 was its best year ever, according to broker David Nichols. IYC will have 14 yachts from 100 to 165 feet at Fort Lauderdale.
“[Boats] 120 feet and above are strongest, especially 150 feet,” says Nichols, contending that those buyers are fairly recession-proof.

With many yards three to four years out (even longer for some European yards), Nichols sees European buyers — especially Russians — turning to American yards with shorter lead times.

“The new Russian money appears to be spending it like it is water,” Nichols says. “This is reflected in charters, too. Hopefully the Persian Gulf, whose oil prices have made them wealthier than they were, will distribute some of that wealth among the poor folks here (in the U.S.).”

On a hunt for deals
Nichols expects a good Fort Lauderdale show, although he acknowledges there will be many “bottom feeders” looking for deals, while others wait for the presidential election, just days later, before      committing to megayachts.

Show Management Inc., the show’s   producer, expects a strong megayacht presence similar to last year, says spokesperson Andrew Doole.

“In this business you’re noticed by your absence, so you can assume all the girls are coming to the prom and will be dressed to kill,” says Mike Joyce, CEO of Hargrave Yachts in Fort Lauderdale.

Hargrave will have nine megayachts on display, including its new, 84-foot raised pilothouse. It’s looking for a good show from its 100 percent American clientele, although Joyce concedes he may have to work hard for those sales.

“It will be tough to sign business at the show unless you have some drop-dead, breathtaking deal lying on the table,” Joyce says. “Buyers don’t need a lot of  excuses to wait. Prospective buyers will be concentrating on their own business and looking for opportunities as competitors stumble or fall. Guys with tons of cash are even harder to sell because they believe, in major economic downturns, they should buy yachts for half-price, just like they see in real estate, financial securities, and other assets that were fueled by speculation and then collapse.”

With full-time programs under way in Dubai and Europe and its European show debut at Cannes, Hargrave is working with the U.S. Commerce Department on opening up Russia.

PJ’s five-year vision
Palmer Johnson of Sturgeon Bay, Wis., is reaping the benefits of it efforts in Europe, a five-year journey thus far for CEO Mike Kelsey, who keeps racking up frequent flier miles across the pond.

“Strategically, five years ago, PJ geared for a world market, not just building for the U.S., and we are seeing the fruits of that labor now,” Kelsey says. “We continue to see the same trends that have evolved over the past 36 months in European and Eastern European clients, along with a few U.S. clients. [The order book] is running 80 percent European over American, and I see that trend continuing for a time, but everything is cyclical and the American market will rebound at some point for us.”

Kelsey says he is “confident about our decision to build sport yachts and build all types of vessels in Norway and England. But we’re still fairly bullish on the market continuing to grow with business at PJ. People will continue to purchase megayachts, with products becoming smarter and more efficient, with engine manufacturers doing the same thing, i.e., engines that use less fuel.”

Peoria, Ill.-based Caterpillar, one of those engine builders, says it is enjoying tremendous growth.
“They (Caterpillar) live off backlogs, not new orders, so for them, business is great,” Joyce says. “At Hargrave, we are 100 percent CAT-powered, and we have to play that loyalty card repeatedly at the very highest levels in Peoria in order to get Caterpillar engines when we need them. CAT doesn’t have to do card tricks to get orders.”

Other megayacht product suppliers, such as Fort Lauderdale-based Palladium Technologies, are looking forward to a good Fort Lauderdale show. Palladium designs yacht monitoring systems, alarm security software and entertainment systems.

“The megayacht industry is Teflon-proof,” says Palladium vice president Karen Blake. “The orders keep coming on new builds and we have a lot more inquiries from overseas, especially Russia. I was in Lester’s Diner and heard three guys speaking Russian.”

Blake says small-vessel brokers will have a tough time at the Fort Lauderdale show, but thinks it will be a great show for the megayacht crowd, barring a hurricane.

“I gave up trying to predict [the Fort Lauderdale show],” says Smith. “I thought 2005 would be a disaster with Wilma, and we sold seven boats between [the show] and the end of the year. Serious buyers came.”

This article originally appeared in the October 2008 issue.

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