Sleeping bears: slump reaches superyacht segment - Trade Only Today

Sleeping bears: slump reaches superyacht segment

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With orders drying up and values sinking, the once-immune big boats are going into 'hibernation'

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Few have escaped the pain of this recession. Even the super-rich are feeling it, and so the superyacht industry is feeling it, too.

For years, it seemed the super-rich would never lose their appetite for superyachts. "Now suddenly our industry is not immune to recession," said Rupert Connor, president of Fort Lauderdale-based Luxury Yacht Group, in a glum report to the Superyacht Symposium, held March 18 and 19 in Miami.

For the first time in 17 years, demand in every sector of the superyacht market is in decline, he says. Although most yards have a backlog of two or more years, new megayacht orders have dried up, and megayacht brokerage sales have stalled. Buyers reportedly were offering 60 percent of the asking price for preowned megayachts in February at the Miami Yacht and Brokerage Show.

The superyacht charter market is moribund, as well. Few were in the mood to charter superyachts this winter in the Caribbean, even with rates slashed up to 50 percent. Charter yachts went into "hibernation" for the winter with skeleton crews. More may slumber through the summer.

Forbes magazine reported in March that the number of billionaires worldwide is down by a third this year, to 793. Their average net worth is $3 billion - 23 percent less than it was in 2008. Their collective net worth has shrunk by 45 percent, to $2.4 trillion. The fortunes of the just-plain-rich have fared no better.

"A lot of people fell victim to the idea that the rich are insulated from recession. They're not," says Brian Deher, director of operations and planning for Island Global Yachting, an international megayacht marina chain. That's bad news for the folks who build and service superyachts.

Yacht hibernation

It's also bad news for those owners who are finding that the megayacht they once prized as an asset is now an albatross. What to do with a $10 million or $30 million or $80 million yacht that you really can no longer afford to own or operate, or that you want to put on ice until better times return? Put it into hibernation, says Kent Chamberlain, president of PartnerShips LLC, a new Fort Lauderdale firm that is in the business of managing "distressed" megayachts.

"One of my clients was worth $1 billion a year-and-a-half ago. He's broke now," says Chamberlain. This particular client is a real estate developer, as are many who have put their multimillion-dollar yachts up for sale in this recession. As his projects stalled and his fortunes declined, so has his ability to pay the mortgage on his yacht. He can't afford it anymore, and the brokerage market is so depressed he can't sell it, except for less than what he still owes on it. Like many homeowners, he is between a rock and a hard place.

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That's when Chamberlain and his crew step in. They offer to put the boat in hibernation, which - just as it sounds - means  the yacht will go into in-water storage. Chamberlain says he can save an owner - or mortgage-holder - 50 to 70 percent on monthly operating expenses, depending on whether the yacht is inactive or semiactive, and maintain its condition so it doesn't lose value.

"You know, they say the worst thing for a boat is not to use it," Chamberlain says.

PartnerShips cuts operating costs and protects the asset until the yacht is sold. And the company, on a few hours' notice, can open up the yacht, roll up the runners, turn up the air conditioning, and put a crewmember or two in uniform for a walk-through for a potential buyer. The last thing Chamberlain wants to do is leave a buyer with the impression that this is a yacht that has been sitting neglected at the marina. In fact, he says his crew meticulously maintains yachts and their systems according to schedules recommended by the builder or systems manufacturers.

To save money for the owner, Chamberlain cuts the crew - maybe to just one, probably an engineer - finds cut-rate dockage at a secure location, shuts down non-essential systems, conditions them for inactivity, and employs his staff to oversee daily, monthly, quarterly and semiannual maintenance.

So far, most of Chamberlain's clients are lenders who have repossessed yachts or owners who are behind on payments and want to cut their costs and sell their vessels. However, he also is working for the U.S. Marshals Service, which wants him to put a seized 90-footer in hibernation and inventory everything on it.

"Repos and seizures," says Chamberlain, who has brokered yachts for 29 years; owns a yacht sales, charter and management firm; and founded a fractional yacht ownership company 18 months ago, just before the recession roared in. "You have to reinvent yourself in these difficult times. This is my reinvention."

Once the recession eases, Chamberlain hopes he can segue this new business into one that will help owners trim the operating costs of their superyachts in what he suspects will be a much more frugal post-recession environment.

Distressed superyachts

Hibernation was on the minds of a lot of people at the Superyacht Symposium. "Thank God, boats are hibernating," says Andrew Cosgreave, Fort Lauderdale managing director of yacht broker and charter firm Northrop and Johnson.

It offers an option for distressed yachts. It offers an option for an owner who doesn't want to pay 14 crewmembers, luxury marina rates, utility bills and fuel expenses to get to charter grounds when the boat has no bookings. It also is an option for an owner who has had to slash costs and lay off workers at his or her business and doesn't want to be seen now as just another fat-cat CEO who doesn't understand Main Street is hurting.

"Conspicuous consumption is out," Cosgreave says, at least for now and probably for the foreseeable future.

Island Global Yachting's Deher agrees. "Even if you can afford the extravagance, the black eye that CEOs are getting is sending them into hiding," he says.

Highlander, the Forbes family's 151-foot Feadship, is probably the highest-profile yacht now in hibernation, at a dock at the Merrill-Stevens Shipyard in Miami. Its helicopter has been sold, and all but one of its staff was laid off, according to published reports in the New York Post and The Triton, the news source for yacht captains and crews.

Megayacht yard Rybovich in West Palm Beach, Fla., is catching that hibernation wave and offering discount dockage, maintenance and upkeep; reduced insurance; and a program of brokerage sales events for inactive or semiactive yachts.

"There are a lot of yachts that aren't being used as much as previously," says George Whitehouse, a Rybovich vice president. "We have the capacity to help these owners if they have to cut back on crew. As we all know, it's a crazy time."

Cosgreave suspects there are a lot more distressed superyachts than meet the eye. "There's a huge factor of pride in this," he says. "People don't want to be tagged as distressed. There's a lot of buzz behind the market."

Capt. David Peden, dockmaster at Reynolds Park Yacht Center in Green Cove Springs, on the St. Johns River in rural northeast Florida, has fielded calls from brokers looking to send megayachts into hibernation in this little town far off the beaten path. Peden says they like his rates and secure, out-of-sight location, but he's had to turn them down. He has a five-year waiting list.

"Owners are saying, 'I won't be on the boat. I don't need to pay those resort marina rates for a tennis court and swimming pool I'm not going to use,'" Peden says.

Charter yachts, too, are looking for cheaper slip rates at out-of-the way places like Puerto Rico and Grenada in the Caribbean, says Deher.

Few new orders

European shipyards are working on backlogged orders from happier times that should carry them through 2013 or 2014, says Cosgreave. But new orders are drying up, and a few prospective owners are backing out of contracts and walking away from deposits.

Yards that were building super-yachts for $1.75 million, $2 million or $2.75 million a meter a year ago are building them now for $1.35 million a meter, What those numbers mean is that an owner's boat starts losing value as soon as the yard lays the keel, says Cosgreave.

"Buying a yacht as an investment has gone flat," he says.

Trinity Yachts, of Gulfport, Miss., builder of custom yachts from 124 to 300 feet, exemplifies the challenges facing megayacht builders. Trinity has 19 orders on backlog but has taken no new orders since last July, says president and CEO John Dane III. He says two of his builds are "troubled," and a third has been suspended. Dane says he fielded 10 serious inquiries for yachts of more than 150 feet in September at the Monaco Yacht Show and no inquiries at the Fort Lauderdale International Boat Show, which fell at the tail end of the October stock market panic when the Standard and Poor's Index plummeted 27.1 percent.

The brokerage market in these extravagant yachts remains in gridlock because buyer and seller can't agree on how much a boat should be discounted. "People are willing to buy a boat, but for a very low price," says Dane. "There are still buyers out there, but they are waiting for the bottom of the market."

Dane projects more order cancellations at shipyards and some layoffs. He says Trinity's sister company, United States Marine, is staying busy building high-tech 90-foot patrol boats for navies and law enforcement agencies worldwide. That business remains strong. "We are diversifying to get through this time," he says.

As the recession grinds on, spitting out yet more distressed megayachts, Chamberlain expects to see demand for hibernation services like his grow.

"There probably will be more [businesses like] us as time goes on," he says.

This article originally appeared in the May 2009 issue.

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