By Daniel Fisher for Forbes
Hank Halsted is in the business of selling big, expensive boats at Northrop & Johnson, a yacht brokerage in Newport, R.I. But even he urges caution for anyone tempted to jump into these waters for the first time.
“It’s about as deep a buyer’s market as ever has been,” says Halsted, president of the brokerage, founded in 1949 to cater to Manhattan’s wealthy. There are literally hundreds of power yachts over 100 feet long for sale around the world, many for 40% or more below the prices they brought six or seven years ago. Compared with the cost of new construction, he says, “I wouldn’t even want to say it.”
But buying a superyacht isn’t like buying a luxury car, or even a multimillion-dollar house.
“It’s so much more expensive than any home you can imagine,” says Jennifer Saia, director of charter operations at International Yacht Collection in Fort Lauderdale, Fla., another superyacht brokerage. “It’s a moving part.”
That shiny white 170-footer you picked up for less than half of what it cost to build has to be painted every five or six years, for example. Figure on at least $500,000 to remove all the hardware, prep and spray paint an object the size of a good-sized mansion.
These boats require crew, too. Captains cost roughly $1,000 per year per foot of boat---that’s $110,000 or so to command an embarrassingly small 100-footer and $220,000 or more for yachts over 200 feet. You’ll also need an engineer for another $90,000 to $130,000 because the complex mechanical systems are beyond the skills of a mere crewman. In addition, plan to hire at least one crew member per guest. Deckhands and stewards are relatively cheap at $30,000 to $50,000 per year – hey, it’s not a bad gig for a young person – but good chefs cost at least $70,000 a year.
Then there are the periodic refits as engines wear out, interiors fall out of style (that mirrored Last-Days-of-Disco look may have worked in your bachelor years, but the wife wants French Provincial) and hull rivets corrode. Halsted says he urges would-be buyers to plan on spending at least 10% of the purchase price each year on crew and routine maintenance, and to set aside another 10% each year for the heavier capital expenses. If you’re buying a bargain boat on the used market, you’ll need to set aside even more. Older boats cost more to maintain.
Back when Northrop & Johnson was founded to cater to the rich Bermuda racers at the New York Yacht Club, luxury yachts cost about $1,000 per foot to build. No longer. Designers are specifying more exotic materials (like titanium and carbon fiber to reduce weight and increase fuel efficiency). Moreover, yachts today come with elaborate navigational electronics, air conditioning and water-treatment systems, and VSAT satellite-data systems for 24-hour video and internet connections (so much for getting away from it all).
A good rule of thumb for a state-of-the-art motor yacht over 100 feet now is $1 million per meter, or more than $50 million for an impressive, but not outlandish, 170-footer. (Billionaire Roman Abramovich’s 525-foot Eclipse, currently the world’s largest private yacht, reportedly cost $300 million, or $1.9 million per meter.)
Don’t even think about commissioning a new yacht unless you hire a project manager to oversee the work. Change orders on a $50 million, complicated piece of floating machinery can be ruinous, and fights with the boat yard expensive. It was a dispute over cost overruns on the world’s largest sailing catamaran that drove Derecktor Shipyards in Bridgeport, Conn. into bankruptcy in 2008; the owner of the 145-foot yacht, now named Hemisphere, obviously didn’t consider the fact he’d need the yard’s cooperation to launch and take possession of his boat.
Owners can recoup some of their costs by chartering to other rich folks.
“The growing trend has been to view the asset as a business,” says Robert Saxon, president of International Yacht Collection. His firm manages a number of superyachts including a 205-footer with an annual operating budget of $3.5 million that the owner can cover by chartering it out for 10 weeks a year at $425,000 a week.
There are limits to how much income you can wring from a boat, however. Marine regulations limit private yachts to 12 passengers, no matter how large, so don’t count on packing a 150-foot yacht with paying guests. Most yachts have six staterooms, plus accommodations for crew and staff like nannies and secretaries.
Charter income doesn’t come close to amortizing the purchase price of the boat, but charter owners can cover their cash expenses each year. Saia of IYC says most boats charter no more than 12 weeks a year. When times are good, owners can charter their boats out as much as 28 weeks a year, but no more. Yachts need to move from the Mediterranean to the Caribbean with the seasons; crews need time off; and yachts have mechanical downtime. Figure on paying the brokers 20% of rental income to charter and manage the yacht, on top of the annual maintenance expense.
If you are considering putting your yacht out for charter, don’t skip the amenities. There are more than 1,400 superyachts in the charter fleet these days, from 70 feet to more than 200 feet, and the list of minimum accoutrements is lengthy. A Jacuzzi is mandatory, along with VSAT connection, a large and attentive crew (1 per guest is typical), and “water toys” including sailboats, windsurfers, Jetskis and scuba equipment. Don’t try to get by with an inflatable dinghy, either: Luxury charters require a “towed tender,” yachtspeak for a 30-foot motorboat to shuttle guests from yacht to shore.
Even brokers who are in the business of selling yachts urge customers to charter for a few seasons first before they consider buying. “I’m in favor of chartering right up until you are run over by the need for pride of ownership,” says Halsted of Northrop & Johnson.