Entering an Opaque Market
For many, the superyacht industry remains a mystery. However, tools now exist to rebalance the information dynamic between buyers & sellers and the brokerage community.
For some individuals the purchase of a superyacht represents the culmination of a lifelong ambition and for others it may only represent the addition of another asset to a portfolio of enjoyable things. Regardless of perspective, the acquisition of any such large and high value asset comes with associated risks, risks that can be exacerbated by a lack of transparency or a poor quality of advice. Unfortunately, at times the superyacht industry suffers from a proliferation of both. Herein we explore just some of the red flags and considerations that principals and their family offices should be aware of when entering an industry that is notoriously opaque.
Arguably the easiest way to avoid headaches during a transaction is to build a high-quality owner’s team. Typically, the owner’s team for a second-hand purchase would include a include a broker, lawyer, and surveyor. If a new build project was being considered, then the assembled team would need to include a variety of other specialist roles. Each of the professions has a crucial role to play in ensuring the buyer does not make potentially expensive mistakes, but herein we will focus on the role of the broker. A good broker should guarantee that the buyer finds a vessel suitable for their needs in terms of specification, quality, cost, or otherwise sells a vessel in such a way that net losses are mitigated.
“As a buyer the first move is to find a broker to work with because they’re going to be the person that can present you the various options. When searching for a broker, I’d encourage a buyer to speak to several different individuals from various companies. It may become evident, but it should be noted that there is a significant disparity in the quality of some companies, as well as a disparity between the experience and ability of individuals within those companies,” starts Will Christie, founder and CEO of Christie Yachts. “Crucially, one should always ask for examples of their experience and deals that have been completed – it’s surprising how few people do that. Better still would be to get them to introduce you to their clients to get direct references. If someone is unable to provide such references, then questions should rightly be asked about the quality of their service.”
Resources now exist that enable principals and their family offices to independently corroborate the opinions that they receive from the brokerage community. VesselsValue, which will attend the Prestel & Partners Family Office Forum in London from 20-21 June, has a proprietary algorithm for calculating the value of superyachts, as well as a database of over 11,000 24m-plus superyachts and 4,805 transactions. Through a variety of metrics, VesselsValue is not only able to calculate value, but model depreciation rates, analyse the performance of brokerage houses and consider the resale opportunity of individual vessels.
“A business like VesselsValue can become a strong reference for principals and their family offices to corroborate or challenge the guidance that they are being given by a broker, especially where this relates to the potential sale of a vessel,” continues Christie. “When certain brokers and brokerage houses compete to list a superyacht for sale, they are really partaking in ‘The Beauty Parade’. Unfortunately, many then dangle large valuations in front of owners, each higher than the last broker, as a means of winning their business, knowing full well that the vessel will not sell for that amount. At this point the owner’s expectations have already been badly managed.”
When superyachts enter the market at inflated prices they don’t sell. Gradually they will apply asking price reductions to drag the asking price towards a more realistic value. However, not only does the owner lose the value attached to the reductions, but potential buyers also begin to question what might have been wrong with the vessel in the first place and, if these losses were not significant enough, the owner will have to continue to pay for the operation and maintenance of the yacht throughout this period. The net loss of an unrealistic initial valuation can be significant.
“Another thing owners should be aware of is the terms of any agreements they enter with regards to central agents when selling. We have seen well known brokerage houses ensnaring owners with marketing costs. If the boat doesn’t sell within the first 12 months, the owners can cancel the central agency, but they will be required to cover the costs of marketing the vessel while it has been with the brokerage house. So, during the period of the central agency, the brokers place very expensive adverts in the yachting press, which is great marketing for their firm, but not very helpful for the owner. However, when the owner gets frustrated and wants to cancel the central agency agreement, they are slapped with a marketing bill for £100,000 and it becomes harder to walk away from that contract. In the end many owners stay with the broker, and they begin to apply price reductions. The price reductions then keep coming and it puts the seller in a very weak position,” explains Christie.
The superyacht market has always been perceived as opaque, and with good reason. However, with the right people and tools at their disposal, principals and their family offices now have access to sufficient information to lessen the white noise and hold advisors to account where the numbers may not necessarily support the rhetoric.
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