Whether your clients are owners already, or are considering making an acquisition, this will almost certainly be the single largest item of discretionary expenditure they have ever undertaken. When the whole process is handled properly the benefits are life changing and hugely rewarding. However, if not dealt with professionally the purchase of a yacht and ongoing ownership may become a time consuming and very costly burden, quickly negating the benefits and leaving bad feelings about the whole experience.
Any yacht of 30 metres or over is a high value and very specialised asset to which a unique set of risks apply. Family offices by their very nature are familiar with risk assessment, mitigation and control procedures and their application to an often broad range of asset classes. However, although these principles apply in exactly the same way to a large yacht as they do to anything else, a yacht is so specialised it would be very rare for even the largest Family office to have the necessary expertise in-house to carry out these procedures as effectively as the owner would deem desirable.
Such controls are necessary at any time but arguably even more so in times of market turmoil. The levels of volatility over the past 18 months or so in this market, which is still in its relative infancy, have been unprecedented, making experienced control vital. The market juddered to an almost complete standstill in autumn 2008 and barely any transactions were reported in the first quarter of 2009. From around Easter time last year sales volumes inched forward as market participants began to establish more realistic levels of pricing. What used to pass for normality in this market has not yet returned, although sales volumes are slowly increasing. Existing owners need to ensure the yacht is being efficiently managed and for those considering entering the market for the first time, or trading up, there are currently still some good opportunities.
Market activity breaks down into a number of different areas:
Newbuild Construction
For the best results, a yacht newbuild project benefits from professional management from the very earliest stages. Due to the substantial financial commitment and length of time required to build a new 30m-plus yacht it is vital that from the initial concept stage the correct advice and guidance is given. In the sometimes opaque yacht building industry clear guidance and trusted advice can ensure expensive mistakes are avoided and the final result meets the owner’s aspirations. The potential owner will benefit from strong technical and design support and then an impartial professional opinion as to whether the project can be constructed at a realistic cost in a realistic timeframe and still have a strong market value upon delivery.
There are large numbers of builders and sub-contractors who will profess to be ideally suited to deliver any project but an owner will benefit from independent advice as to potential partners’ technical suitability for any given project, as well as their financial stability and performance records.
Often an existing owner may chose to involve his Captain in a newbuild project and this
is entirely understandable given the level of trust which has been established over the years at sea. However, time spent as a Captain does not necessarily transfer seamlessly into an effective project manager for what is, after all, a multi-million Euro contract which will probably take up to two years to complete. An experienced specialist project manager can make certain the build is managed effectively from start to finish, ensuring it stays on budget and on time and results in the delivery of a top quality vessel with which the owner is delighted.
Purchase
The purchase of a yacht represents a very substantial investment and your client
will not want to be disappointed with the acquisition. Accordingly it is vital the client’s representative takes the necessary time to fully understand his client’s specific requirements, enabling him to draw up a schedule of vessels which are potentially suitable. It is important to ensure this schedule is compiled from the market as a whole, rather than just from the listings of a single brokerage house which may also be representing sellers and as such potentially suffer from a conflict of interests.
Clients need to have the most up to date market information to hand. It is also be helpful to know which yachts, although not on the open market, may in fact be available and it gives a significant negotiating advantage to be aware of distinctions between list price and actual market value, and of any lower figures at which vendors would actually be prepared to settle.
The purchaser will also advice on issues such as ownership structure, annual budgets, crewing, safety, VAT, insurance, charter, technical and compliance matters, so they have the full picture before proceeding further. In light of these reports the number of suitable vessels can be narrowed down to a shortlist. Viewings will follow, leading to final selection then sea trials and survey before purchase negotiations are concluded and delivery completed.
Refit
With often surprising frequency a yacht requires refit. Whether for certification, upgrade or just simply a refresh, a refit means the yacht will be out of use and necessitating often substantial expenditure. A refit can also provide an owner with the opportunity to add that personal touch to their yacht. However, due to the complexity of the works specified, demands on a
busy crew and the often complex charging structure of shipyards, refits may tend to take far longer, and cost far much more, than originally planned unless they are professionally managed.
Prior to commencing a refit a prudent owner should take advice on the scope
of work required, shortlist and negotiate the best terms with shipyards, define an accurate budget and be sure the value of the yacht is enhanced as a result of the planned expenditure. The owner will also need to conduct a full review of the required certifications and ensure these are kept current while insisting the standard of all refit works are completed to the specified quality.
With a professionally managed refit, the time the vessel spends out of operation in the shipyard can be kept to a minimum. Owners can also be confident all work will be completed to specification, on time and on budget and will ensure any post refit and warranty works are dovetailed in around the vessel’s operating schedule once she is re-launched.
On going Management
Whether your client is an existing owner or coming new to the market, the yacht will need to be managed. As noted above, a large yacht is a high value and complex asset to which a particular set of safety, legal, technical and financial obligations attach. If not properly controlled these may quickly become extremely time consuming, expensive and frustrating, reducing the pleasure of ownership. In the absence of specialist outsourced management these responsibilities will inevitably fall to the owner and/or captain.
Yacht management necessarily covers many different areas. For the safety of the vessel, guests and crew various safety management systems need to be adopted and these may vary according to the size of the vessel. Legal issues include advice on ownership structure, company administration, VAT issues, and insurances for yacht and crew.
An owner will need to have access to technical support and advice from people who have specialist knowledge of industry costs and practices who can then provide assistance in scheduling major capital expenditure effectively. It will also be very helpful to have independent advice as to what expenditure is necessary to maintain the yacht’s value.
Even to “stand still” expenditure is necessarily substantial and clients can benefit from advice as to what is a realistic operational budget. An experienced management company can assist with the creation and management of an agreed budget to provide accurate financial control, production of management accounts and a crew payroll administration service. Managers may also deal with fuel and provisioning, Flag and Class administration, and any charter management which may be undertaken.
There are many different organisations quite legitimately professing to offer Yacht Management, but interpretation of the scope of management varies from company to company so it is important to ensure at the outset the breadth of service that is on offer, how this service is priced, and that it is suited to a client’s needs.
For example, although a client may or may not wish to keep budgetary control in house it is highly unlikely that they would have the knowledge or capacity to deal with mandatory International Safety Management (ISM) or International Ship and Port Facility Security Code (ISPS) internally so at a minimum these aspects would have to be outsourced.
Environmental Issues
Minimising the environmental impact of your client’s yacht can bring genuine advantages above and beyond simply improving his “Green” credentials. Specialist consultants can now provide a full range of assessment services to enable the efficiency and environmental impact of a yacht to be accurately measured, and where possible, improved. These services range from the evaluation of an existing yacht, through recommending incorporation of the latest technology in a refit to a full-blown environmental project management service for a new build, all the while ensuring the prime function of the yacht, enjoyment, is not compromised.
Adoption of the latest technologies and best practices can help ensure that not only is the environmental impact of the yacht minimised, but also its systems are developed and/or upgraded to run with the optimum efficiency. Increased efficiency will feed through directly into lower operating costs giving immediate economic benefits. These, coupled with proven environmental credentials, will in turn tend to enhance re-sale value in due course. Looking ahead actions taken early enough in the design (or re-design) stages can reduce costs associated with subsequent modifications necessary to keep in step with evolving environmental credentials.
By conforming to the latest environmental standards there is a much reduced risk
of being excluded from environmentally sensitive cruising areas. Finally and from a PR-perspective, adherence to Classification Society Environmental Notations is a very tangible indication an owner is taking environmental responsibilities seriously.
