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Horizons: Family Office & Investor Magazine

Brendan O’Shannassy: The Family Wishes to Buy a Yacht

Monday, September 21, 2020

Captain Brendan O’Shannassy is the founder of KATANA MARITIME, providing independent advice to Yacht Owners and their representatives. He began seafaring at 17 with a maritime cadetship with the Royal Australian Navy. He then served at sea with the Royal Australian Navy before undergoing commercial training and working in harbour tug, barge and offshore support in Northern Australia and South East Asia. He first entered yachting in the mid-’90s via Ocean racing and after completing all commercial studies returned in 2001. Brendan has worked with some of the industry’s most reputable yachts including captaincy of Princess Mariana, Octopus, Vava II, Amadea and Ulysses/ Andromeda. Brendan is a licensed marine pilot, ISM auditor and conducted postgraduate studies in Maritime Law and accountancy.

“The Family wishes to buy a yacht!” What does this mean to the Family Office? Too often the thoughts and stories include:

I. Cost Over-runs,

II. Crew Issues, and

III. Endless complexity

This does not need be the case and yacht ownership can be a wonderful experience for the guests and a manageable asset from the perspective of the family office. At the same time, the family and the key decision makers should also know that a lot can go wrong when buying a (super) yacht, and spending up to nine digit amounts or even more will not necessarily mean you’ll end up with the right yacht for you.

To begin it is worth defining what the yachting industry is. In 2018 there were 4,802 superyachts in operation recorded in the world (30m+). Of these 84% were motor yachts and 16% were sailing yachts. Since 2013 annual growth in Yacht numbers has been 12.2%.

The main yacht owning nations are listed below. This list is accurate by number but there is no further breakdown by size of yachts against owning nationality. This would further adjust the list if it were possible to overlay.

1. 23.6% USA
2. 9.9% Russia
3. 6.8% Greece
4. 5.6% Italy
5. 5.3% UK
6. 5.0% Turkey
7. 3.7% UAE
8. 3.6% Saudi Arabia
9. 3.5% Germany
10. 2.1% Australia

Given the significant investment in capital and operating costs there is a question that is often at the forefront of the Family Office team. Is Yacht Ownership and Yacht use really worth it?

A yachting experience is like no other. The guests are moved seamlessly through all stages of their travel to and from the yacht, there are no lines and crew handle all luggage and paperwork wherever possible. On boarding the yacht, the Captain will introduce the crew, there will be specialists to look after the guests, these will include but not be limited to:

I. Nurse
II. Swim Instructor (children)
III. Yoga (Vinyasa / Hatha / Relaxation)
IV. Personal Trainer
V. Spa
VI. Massage (Hot stone, Aromatherapy, Deep Tissue, Traditional Swedish, Balinese VII. Make-up
VIII. Beauty & hair styling
IX. Watersports – instructors for all equipment.

These crew are for the guests sole benefit, there is no booking or wondering who else, within the limitations of rest they are available for the guests.

They will have access to a wide array of equipment, again this list is only a start, there is likely to be more:

JET SKIS - STAND UP JET SKIS WAKEBOARD - WAKE-SURF - WATER-SKI – KNEEBOARD
JETSURF
FLYBOARD
E-FOIL BOARD
SEA-BOB WATER SCOOTER SNORKELLING
SCUBA DIVING



Each day the yacht moves to a new destination, these are discussed with the Captain and will be optimised for both the weather and the uniqueness of the experience each location provides. It is private, the pace slows down to a ‘yachting day’ where meals, swimming and relaxation guide the time. Really, nothing else compares to this personalised experience.

Don’t enter the “race to purchase”

The Yacht Ownership journey is best represented as a cycle. Too often there is a race to purchase but there are steps before this that are critical to a successful ownership. In many client meetings the conversation races very quickly, within the first 15 minutes, to questions such as: What size? Who should design it? Where should I build? And, If it is an existing yacht, what’s available? It moves to how much? And, as they hold up a glossy brochure, what do you think about this yacht? All exciting and understandable, but these are limiting questions and are the outputs of a process and not the foundation.

The foundation is the needs analysis which can be easily described as the Vision of the Yacht Owner and it is essential. This is where with an independent advisor the future owner defines the priorities, these may include;

I. an exclusive destination to entertain key business relationships,
II. a platform to explore the most remote areas of the world,
III. a private area for an extended family to spend time together,
IV. a watersports and sun platform,

Do you want to have the family and grandchildren or is it just a couple enjoying their peace? Are you lovers of the seagoing voyage and want to roam far and wide, or just appreciate the privacy and peace that a yacht offers in an anchorage with only small moves?

Also, important, the number of guests 12 or less or, greater than 12, and speed vs. stability – there is always a trade-off. Recently, more owners are focusing on how do you feel about the environmental impact and how much are you willing to invest in balancing this?

Overlaid are such personal preferences such as stylish and intricate or relaxed and ‘homestyle. Important sensitivities are of course Privacy and Security.

I have advised yacht owners at both ends of the above process and can say with 100% accuracy that the more time spent on the why; the better the what, how and where become.

A cautionary tale from wonderful yacht owners who bought a yacht that was very fast but rolled terribly, had enormous sun decks and small tenders for a large yacht that were stylish but uncovered. What they actually wanted was a stable yacht, with shaded areas, and covered tenders to get to shore without the weather interfering with them. These are the headlines they felt, but what was more significant over time was the fuel consumption and that the ship’s waste management had not been updated and so they were restricted on entering many of their favourite areas.

How did this happen?

The would-be Yacht Owners went straight to asking a broker what was available and did not understand how the yacht that “needed to be sold” did or did not meet their needs. This is not a negative comment on the Yacht Brokerage community, rather the yacht owners were not able to communicate their vision to an extent that the broker could support them.

This situation would have been avoided if these yacht owners had have been counselled and distilled their vision into an Ownership Proposition. With this they would have been informed and able to filter any yachts that did not meet their clearly defined wishes.

The next step is finally to look at real yachts and begin market research. This remains a challenging process and requires guidance. This can be done directly, through an independent advisor or with help of a reputable broking agency.

There is a note of caution at this point as if the family office chooses to liaise directly there are some risks, so many websites list all major yachts on the market. Who is really the sales agent? I would recommend finding an established and referred brokerage firm to work with that have direct contact to sellers. I speak only with respect for the leading yacht brokers. Any successful broker has gained and held the trust of many High Net Worth clients. They will not waste this currency on one poor deal.

At this point and prior to commitment it is wise to have the costs modelled. A five-year budget model is appropriate as this will capture a paint cycle and full survey including dry docking. It may be galling but at this point you will see just how much the crew costs. Salary, insurance, food, uniform, repatriation flights. Annual maintenance may look reasonable but overlay a full paint and the reasonable wear and tear over a 5-year cycle it will look significantly different.

It is beyond the scope of this article to go into more detail on operating budgets, but if there is one thing only that I implore a yacht-purchaser is to gain this model from an informed and unbiased advisor who has taken the time to develop the model based on your yacht and how you intend to use it.

After this model process is the acquisition phase. There is always excitement and time pressure as the new yacht owner wishes to make their dream a reality. Challenging as it may seem, this is a very dangerous time to rush as the basic surveys do not tell you the yacht is truly in order; they just tell you it is maintained and safe to go to sea.

Compliance surveys do not look at crew turnover, documentation, efficiency of administration and the existing management structure. Without these being inspected the chances of a negative experience escalate. Again, the successful owner and family office seeks guidance by an independent specialist in these areas.

The risk of this was brought to me on taking over Captaincy of a +100m yacht on behalf of the new yacht owner. I was not involved in the purchase and beyond what was available in the public domain had no knowledge of the yacht. I joined and realized that the crew had been given mixed stories during the sale and over 80% were in the last stages of departure. One had departed after poor treatment from previous management and had cleared the yacht’s servers of essential information. The certificates were in order but there was no maintenance standards, service and housekeeping procedures or guest training. It took 12 months to turn this around and I still wonder what remained missing that we did not find? A knowledgeable inspection prior to purchase would have learnt this and removed many of the problems.

Following the steps described, this situation can be avoided and the Yacht Owner can begin an enjoyable yacht ownership experience and the family office can relax in at least knowing the first stage is complete. The family has the correct yacht and the family office can return to the to their normal work.

 
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