A Captain's Berth

Buying or Building Your Own Yacht is a Risky Venture that Requires Long Months of Investigation
| By Edward Kiersh | From Tom Selleck, Winter 95/96

One man wants to replace his "old lady." The other was simply looking for more power.

For Prince Charles and his coterie of advisers, a drama affecting the entire British Commonwealth is still being played out. Debated in Parliament and in the tabloids, the controversy concerns the royal yacht Britannia, whether this aging ship should be modernized or mothballed. In either event, a costly search to find the world's best naval craftsmen is about to begin. Will the work be done close to home in a yard like Scotland's Ailsa-Perth, or in Holland, at such famed yards as Royal Huisman or Feadship? The suspense continues to mount.

On a more modest scale, Steve Florio, president of The Condé Nast Publications, Inc., faced a similar quandary. Leaving The New Yorker magazine in 1994 to assume his new job, Florio, a longtime sailing enthusiast, realized that "my boat could cross the ocean, yet due to my new workload, I didn't have the time to cross the Long Island Sound."

Saddled with a sailboat that didn't fit his lifestyle (or that of most top-level executives), yet still craving the excitement of reaching distant ports, Florio had one option--buying a powerboat. That decision, coming after years of tending to beloved sailboats, was weighty enough for Florio. It was, however, his easiest choice. What followed was a tricky, and potentially financially devastating, journey to boat shows, shipyards and showrooms filled with fast-talking salesmen. He began a search that demanded the keenest of navigational skills, negotiating between his heart and his mind.

Whether yacht buyers have princely aspirations, want a $40 million "corporate tool" for entertaining purposes, or are in Florio's $1 million range, purchasing a new or used boat is a joy complicated by a range of perils and very easily mixed with disaster. That brokered used yacht may seem like an attractive buy in St.-Tropez or Portofino, but out on the open seas, the unschooled buyer may well be presented with a few harrowing surprises.

As for that custom-designed yacht, there's certainly a great feeling of fulfillment from visiting yards to watch craftsmen turn your blueprints into reality. "It's definitely a bit of an ego statement," says Florio, "to watch your own design being born."

Yet that statement can be out of sync with trends in the marketplace, or simply antithetical to efficiently operating a yacht. As for those picturesque boatyards, frequently shadowed by financial crises and unable to deliver at agreed prices, they, too, have spawned a caveat. All too often, buying a boat also means buying the yard.

They don't look like multimillion dollar mistakes. Sitting serenely in the water, their white fiberglass hulls gleaming in the midday sun, the yachts docked at the Derecktor Gunnell shipyard outside Ft. Lauderdale, Florida, seem ready for seagoing adventures. Their engines purr like Ferraris. Crews are busy at work in wide-body salons, polishing rosewood and teak trim that epitomize classical elegance. Even hearty captains appear, striding through pilot houses equipped with the latest electronics, to pronounce everything shipshape.

Brokers will come on board and tell unschooled clients that yachts like these $3 million to $10 million models are a great buy. In many cases it's difficult to determine whether the spiels are sheer flim-flam, or attributable to a broker's lack of experience. The brokerage business has its share of friendly "ushers"--wonderful men to have a drink with, who having recently sold houses or used cars, know little about a boat's interior sound levels, engineering, and true value.

But once all the talk fades, the shiny toys on board can't disguise the fact that many of the yachts here, whatever their price or pedigree, are still mistakes. Badly designed, they lack ample staterooms, quarters for crew, and at worst, are so overweighted with marble heads and flooring that their speed and fuel ranges are decidedly below standard.

After mooring here for months, these yachts will eventually change hands and move on to different ports. Yet, since so many new buyers are entering the market (relatively low fuel costs and an end to the luxury tax are feeding the frenzy), abandoned slots at Derecktor will soon be filled, often by other mistakes, the handiwork of untutored buyers unwilling to heed educated advice.

"I hear about these overpriced, badly conceived boats every week," says Jeff Ferguson, vice president of sales for Christensen Shipyards, Ltd. a boatbuilder based in Vancouver, Washington. Shaking his head as he decries a series of design faults in these Florida-docked yachts, Ferguson continues, "Guys with big egos, the entrepreneurs, think they know everything about building a boat. Instead of surrounding themselves with seasoned people, they stubbornly plunge ahead, without paying due diligence to brokers, the financial condition of yards, what features are hot in the market. So what happens? They wind up with headaches. Boats with design flaws. Boats that become like small businesses to maintain. Yachts which are virtually impossible to sell."

So how does the first-time buyer, often not knowing a thing about beam, draft and composite hulls, avoid taking a bath on his investment? One safe rule of thumb is to initially forget that glitzy custom design, the "statement" of a new yacht, and to enter these waters with an already sea-tested used boat, whatever the design.

Consider this strategy as a trial run, a less expensive way to separate your true needs from the myriad fantasies that surround yachting. Many of us dream about ocean crossings and piloting a hi-tech boat befitting James Bond. But owners are rarely this hands-on (meaning sufficient crew--and quarters for them--are needed). And, if sailing in a sheltered bay is a more likely weekend destination, this reality check will also greatly affect such variables as hull design, draft and engine size. Maintenance is a major consideration: The upkeep of a $20 million yacht can easily cost $2 million a year. These are all factors that will affect your investment.

One way to assess desired features in a yacht is by following what I call the Odysseus route. Strictly for heroes, this approach means combing through newspaper ads, then wandering from one marina to another. Would-be buyers might get lucky and land a fairly priced boat. Then again, by steering such an independent course, they may also be shipwrecked.

Consulting with a broker makes far more sense. But beware of those known as "superman" brokers--newcomers known for ignoring clients' real needs and selling them every flashy feature imaginable. You are better off dealing with veteran agents (recommended by yacht owners, naval architects and others in the industry), brokers adept at writing contracts, assembling crews and most importantly, finding yachts that suit a client's realistic needs.

"I first determine whether a client wants a motor or sailing yacht, and what they're going to do with the boat," says Gerry Hull of Fraser Yachts in Ft. Lauderdale. "If someone is crossing the ocean, the yacht needs a lot of fuel and stability--a deep draft boat. It's easy to get taken in this business. Often a client is just going from Nantucket to the Keys, and only needs a coastal boat."

Brokering boats for 15 years, Hull has a long checklist for prospective buyers. He first wants to know how many guests will typically be on board, so only yachts with a suitable number of staterooms will be considered. This also has an impact on a yacht's chartering potential, for while a 150-footer typically has five luxurious staterooms, it is far more problematic to lease a 70-footer with three staterooms.

The "operational style" of a yacht, whether it is going to be "military fashion"--formal--or more relaxed and open, is equally critical to determining what size yacht to buy. As Hull says, "If an owner wants cordon bleu service, this usually means a larger crew. That raises the issue of where they'll be housed. What type of amenities and quarters? How separate will they be from the owner, guests and staterooms? These concerns are extremely vital, for the crew makes or breaks the yachting experience. A great boat with an unhappy crew makes for a very bad vacation." To ensure that these matters are adequately considered, it's a good idea to hire a captain and travel with him during a search for a yacht.

Once the budgetary issues are resolved, the hunt for a yacht actually begins in earnest. Sitting in his office amid a stack of brochures and next to a computer generating listings of used yachts priced from $200,000 to $50 million, Hull insists, "Today is a great time to be coming into the market. Prices are very realistic. From inflated levels in the 1980s, they've come down to a very attractive range. There are some great boats out there, trading at prices which, if not bargains, will be easily recouped later on."

"The key reason to work with a broker is that he knows the 'comparables,' what boats are available, and what they're selling for," says Steven Kletjian, the CEO of UNICCO, a facilities service firm, who has purchased three boats through Gerry Hull. "A buyer naturally wants to pay as little as possible for the boat and what should be on it. But here, too, a good broker provides price guidelines, and can bring that buyer back to reality."

A note of caution: A buyer must trust the broker implicitly. (A few other agents with good reputations are Bill Sanderson of Camper & Nicholsons of Palm Beach, Florida, and Merle Wood of Merle Wood and Associates in Ft. Lauderdale). The broker is more than just a chaperone, escorting clients around the globe. During this often costly search, which can last from three months to three years, the agent serves as negotiator, an evaluator of naval surveys and, to boost a client's confidence, a hand-holding confidante-cum-psychologist.

"Looking for a boat is kind of a forced march from country to country," says Jeff Chapple, the semi-retired president of Marlin Management Services in Burlington, Vermont, who spent $30,000 on a few months of traveling before finding and buying a 115-foot Codecasa powerboat in Antibes. "You see so many boats, you can't remember them all. But a knowledgeable broker, the non-high pressure type, gets the buyer through this grind. He's a friend, yet he also gets you to think through the entire process."

Once an appropriate yacht is found, the broker negotiates the deal, typically receiving 10 percent of the price from the seller. The adventure, though, isn't over. An experienced broker arranges sea trials and inspections, which necessitates his calling in marine surveyors and machinery experts to write reports detailing everything from the hull's condition to the performance of the electronics. If it's determined that a yacht needs a refitting, a broker will often go back to the seller and renegotiate a final price.

"If the hull or engine needs major work, I want a good price adjustment to compensate for the defect," says Hull, who adds that deals become dicey when repairs hit the mid-six-figure range on $2 million to $5 million boats. Otherwise, "talks usually go smoothly," he says. "Sellers realize that whether it's this buyer or the next one, defects must be fixed. The only deal-breaker is when these repairs are going to take a very long time. Buyers want to go cruising; they don't want to be in a yard for six months."

There's an exhilaration from being in the hunt, the thrill of discovery. But there's also a flip side at times--the disappointments of seeing unimpressive yachts, plus the frustrating twists and turns of stalled negotiations.

Most new buyers, if buoyed by seasoned advisers, find the resiliency (and savvy) to overcome the challenges of a lengthy search. Yet others, after seeing numerous boats, have an epiphany of sorts. Dissatisfied with what's in the water, they decide to buy a new boat; they either go with a production boat or choose the custom route. As Gerry Hull says, "This is another journey. In fact, it's a whole new ball game."

Go to any boat show, and it's easy to think you took a wrong turn into a Miss Universe pageant. Women in bikinis come flying at you, flaunting brochures, champagne, gifts--a whole world of giveaways. Here, talk is cheap. Every boat, to the salesmen manning the exhibits, is the "yacht of your dreams."

A prospective new boat buyer should visit one or two of these shows. It is truly an experience, and along with all the production boats on display, a few reputable custom yachts are mixed in with the glitz and flashing lights. Just be careful. The P.T. Barnums are everywhere.

A planet removed from these noisy jamborees, there's Don Kenniston. A dour type, he picks and chooses his words, but as for a smile, forget it. He just sits in his muted Ft. Lauderdale office next to a few wooden ship models and basks in the magic of tradition.

Kenniston is the president of Feadship America. That might not mean much to the uninitiated, but to the well-heeled, from the crown prince of Abu Dhabi to megamillionaire John Kluge, the Feadship name says it all. Never bad-mouthed in an industry known for rumormongering and back-stabbing, the Feadship is universally regarded as the Rolls-Royce of luxury yachts.

"Quality personified, Feadship simply makes a perfect boat," says Mitchell Gibbons-Neff, president of Sparkman and Stephens, a naval architecture firm that designs boats and serves as a client's representative at a building site. "Feadship is the standard. Everyone wants to be like them, but no one has succeeded."

Built in Holland, the typical Feadship is a 165-foot long steel-hulled yacht, averaging $30 million to $40 million. But that's only the delivery price. While owning one of these classic-looking "super yachts," with mahogany columns, swimming pool and 15 knots cruising speed, brings you into very select company (only four or five are built a year), it is not a hands-on experience. A full-time captain is needed to pilot one of these babies, along with a large crew, which means heady yearly costs (for maintenance, fuel, dockage fees and insurance on a $40 million yacht, the tab is usually about $4 million).

"The Feadship is just not for everybody," Kenniston says. "If a buyer wants to relive the glory days of yachting, the 200-footers the Morgans and Rothschilds enjoyed, we're it. But if he's only going to be sailing on Long Island Sound, there are other nice small boatbuilders."

Which brings us back to those typical buyers seeking a $1 million to $10 million yacht. Should they buy an already-tested production boat with a proven resale value such as a Hatteras (in that case, says Steve Florio, "there'd be 200 of them floating around, all looking the same.") or brave the more adventurous route of custom building? It's a plunge that sometimes takes buyers into a world where the resale value of a boat is at the mercy of a whimsical marketplace, and litigation against underfinanced yards unable to complete a project is commonplace.

Production boats do have a few advantages. A prospective buyer can walk into a showroom, and instead of working off blueprints, will usually see a 50- to 80-footer on display. There is also the instant gratification of quicker delivery, plus the knowledge that a company like Hatteras or Bertram has built numerous boats like the one you have selected. As Richard Bertram and Co.'s Alan Stowell says, "There is no learning curve in production boats as there is in custom. All the mistakes and flaws have long been ironed out," at least at the major companies.

The typical production boat, such as a Bertram 50-foot sport fishing craft costing $1.1 million, is about 50 percent cheaper than a similarly equipped custom craft. Since these boats are designed to meet certain mainstream tastes, they have a predictable resale value.

But don't think that these boats can't be customized on the interior. Some owners of Hatteras yachts, which has had a custom yacht series since 1989, are as involved in the building of their yachts as anyone who chooses to go the full custom route. Hatteras offers pre-cast fiberglass hull yachts in various sizes between 92 and 130 feet for between $5 and $10 million; the interior options include everything from three-deck spiral staircases to hot tubs and saunas, and owners can select finishing sufaces to suit their budgets.

Nevertheless Florio opted for the custom route. Deciding to "put his signature on every piece of wood," Florio opted for a custom-built boat "I can run and fix myself without any crew." Before he reached that conclusion, he scoured the marketplace; went to seven builders, numerous boat shows, and three naval architects; and saw a flotilla of 50- to 160-footers, including a Feadship "with all the [on-board] toys."

It was a tiring one-year search, and because he constantly had to balance fantasies with his checkbook, Florio came to a few realizations that are instructive for other new boat buyers.

He first determined the size of the boat, and his budget, deciding upon a $1 million 50-footer, to be built at the Alden Yacht shipyard in Portsmouth, Rhode Island. "Romance cuts into clear thinking," says Florio. "Buyers just can't walk into yards with a blank check on their foreheads. You must know what details you really want [changing orders delays construction and inflates construction costs]. If you don't hire a firm like Sparkman and Stephens to supervise the whole damn thing, or find a reputable boatbuilder, you can easily be sold a bill of goods."

A yacht's design and its performance standards (speed, interior sound levels, etc.) will not only determine the cost of a project, but also influence resale value. Since yachts are normally kept for two to five years, protecting an investment is crucially linked to such specs as the number of staterooms and type of engine, and to yachting's most provocative four-letter word: the composition and construction of the H-U-L-L.

Here, instead of one universally accepted design formula, there is only loud debate. At Christensen, which mainly builds semicustom hulls, Jeff Ferguson says, "Fiberglass, a composite, is today's hot material. It's literally maintenance-free, lighter and far stronger than other materials."

But John Todd, the Ft. Lauderdale-based director of sales for Burger Boat of Manitowoc, Wisconsin, disagrees. "Perfection comes with an all-aluminum hull. Aluminum is stronger and more easily shaped into an efficient hull. It's faster with far less horsepower."

Steel has its own advantages, particularly its ability to withstand collisions and groundings. So the buyer is left with a dizzying choice. As Sparkman and Stephens' Gibbons-Neff suggests, "The only thing a buyer can do is weigh the options with an independent consultant. Fiberglass demands less maintenance, yet aluminum and steel are stronger. It's a tough call."

Besides consulting with boat designers and surveyors, buyers wrestling with design questions should talk to boat owners, sail makers (if building a sailboat) and other independent craftsmen. They aren't wedded to specific designs or materials, and can talk about a shipyard's financial condition, what it's like to deal with a certain contractor and whether they have reliable follow-up service.

Salespeople in boatyards are also talkative. Eager to praise their own specialties (Alden Yachts shipyard, for example, is known for fiberglass 43- to 76-footers, while Abeking & Rasmussen, based in Lemwerder, Germany, primarily builds 70- to 150-foot steel and aluminum boats), they're equally quick to point out their competitors' shortcomings.

Visiting a number of these yards is crucial to choosing a builder. Besides providing a look at different product lines, these visits determine whether a buyer feels comfortable with the staff and craftsmen. It is a long relationship--building a boat typically takes 18 to 24 months--so you have to have faith in these people. You must be convinced there will be no surprises ahead, for too many companies will take advantage of new buyers.

Most of the chicanery, if not outright lying, involves pricing estimates. Owners of undercapitalized yards will knowingly underestimate the price of a project to get the job (and the substantial deposit). Of course, the boat cannot be completed at this price, so the buyer is left with only unpleasant choices. He can either sue the company, walk away from the project, or pump more money into it. The latter is often the worst-case scenario, for it can mean a buyer's assuming a builder's debts, and his becoming a yard owner.

As Alden president David MacFarlane says, "One worry is to build a boat in a yard that's not up to a project financially. Then the buyer has to finance the yard. But even if a builder is able to deliver the boat, there's another reason to be wary of all the slick salespeople in this business. The buyer has to make sure that company will be around to service the boat."

Amid all the conflicting claims of superior workmanship and performance, how does a buyer avoid the financial equivalent of Davy Jones' locker? Along with visiting yards and consulting with naval architects, buyers should consider the following recommendations from industry experts:

* Don't be misled by how long a company has been in business. An established boatbuilder might be known for excellence in the 60- to 90-foot range. Yet it could still be in virgin territory when it comes to the engineering specs of building a larger yacht in a different material.

* Equate boatbuilding with starting a new business. Do a Dun and Bradstreet report on the boatyards being considered for the project (even a well-known company could be experiencing financial problems). Also get client references from boatbuilders. Talking with previous customers will give you a sense about a firm's track record of meeting delivery dates, handling repairs, etc.

"When the instruments weren't working perfectly, Alden got to me," Florio recalls. "It wasn't 'No, you fix it and send us a bill.' They would've had a guy in a plane coming to me that day if I needed it."

* Be realistic about your design wish list and stick to it. Change orders cost money and delay construction. So profile your project early on, from the type of engineering and electronics to the number of staterooms. Then hold fast. Don't turn a $1 million boat into a $1.8 million project, which, according to Christensen's Ferguson, "becomes an $800,000 resale disaster."

* Ask about guarantees. They differ from builder to builder.

* Get a lawyer who specializes in marine contracts and deals. Besides fine-tuning such contractual guarantees as delivery date, noise and speed levels, he'll negotiate the complicated issue of "building a boat to class"--or having its specs certified by Lloyd's or another classification society. Bringing a society's surveyors to a yard inflates construction costs (and renowned yards are already known for building to certain standards). But certification may increase resale value. It is worth considering.

In the end, though, after consultations with experts run their course, reason often gives way to the purely romantic: speaking with craftsmen and watching projects evolve in the boatyards. For some buyers, accessibility to those yards means a site in New England or the Northwest. For others, Florida or a European locale is more alluring. That's the funny thing about a custom project: Choosing a builder may hinge on simple logistics.

After still more decision making, inevitable complications during construction, and the last installment payment, the big moment finally arrives--the buyer watches his boat splash into the water. He has survived a two- to three-year journey rife with challenges.

For many, it is worth it. "You have more than just a yacht," says Florio. "Building a boat is really a badge of honor. It says you've made it to a certain point in life."

Many new owners, the "entrepreneurs" as they're called in the business, will immediately try to sell their boat to turn a quick profit. The advantage here for the next buyer is that the boat is already in the water. But again be wary. If a boat is badly reviewed by the brokerage community, a new $8 million to $9 million yacht may end up being pedaled for $7 million.

Owners such as Florio, who had previous ownership experience and sought comprehensive advice from numerous sources, take delivery with quite different aspirations: the sheer enjoyment and excitement of cruising from port to port.

During those passages, he'll often reflect upon going the customizing route, and savor one of boating's great pleasures. "I'll retreat to my little cockpit," he says, "watch the sun set, and light up a cigar."

Edward Kiersh is a writer living in Florida.

The Charter Trap

Many new buyers enter the market believing in the great myth of yacht chartering, that false assumption of confusing a yacht with a piece of property that can be regularly leased to generate cash flow.

It does make financial sense to "rent" your yacht during those periods of the year when you are not using it. The receipts from these charters will help defer the substantial upkeep costs of a large yacht, and also have the tangential benefit of keeping your crew happy. For every time a boat is chartered, the crew typically receives handsome tips from the people onboard.

Yet you shouldn't buy a yacht thinking it's going to be a cash cow. The reality is that a yacht has a limited "window of opportunity" for charters (Christmas, Easter and the summer months), at best 12 to 16 weeks out of each year. But during that period there's also the "transition" time between charters, when yachts are serviced and prepped for a new group of guests. So even an active boat (popularized by brochures and agents) is only chartered 10 to 12 weeks annually. What this means is that a 150-foot boat, if chartered for $50,000 to $115,000 a week, typically grosses between $500,000 to $1.2 million yearly, a sum that still falls short of covering all upkeep costs.

As one broker says with a laugh, "You invest in a yacht for pleasure, not to make money. If you think you can make money, think again. You'd be better served if you stuck your money under a rock in the backyard."


Shopping the Shipyards

Custom Yachts Abeking & Rasmussen
1600 S.E. 17th St., Suite 309, Ft. Lauderdale, Florida 33316
(305) 522-4007

Alden Yachts
1909 Alden Landing, Portsmouth, Rhode Island 02871
(401) 683-4200

Burger Boat Co.
1811 Spring St., Manitowoc, Wisconsin 54220
(414) 684-1600 or 1535 S.E. 17th St., Suite 121, Ft. Lauderdale, Florida 33316 (305) 463-1400

Christensen Shipyards, Ltd.
4400 E. Columbia Way, Vancouver, Washington 98661
(360) 695-3238

Feadship Holland (architects' office)
Aerdenhoutsduinweg No. 1, 2110 AB Aerdenhout, Holland
(31) 23 524 7000

Feadship America
801 Seabreeze Boulevard, Bahia Mar, Ft. Lauderdale, Florida 33316
(305) 761-1830

Goetz Custom Boats
15 Broad Common Road, Bristol, Rhode Island 02809
(401) 253-2670

The Hinckley Co.
Shore Road, Southwest Harbor, Maine 04679
(207) 244-5531

Royal Huisman Shipyard
Flevoweg 1, 8325 PA, Vollenhove, Holland
phone: (31) 5 274 3131; fax: (31) 5 274-3800 or Michael Koppestein, P.O. Box 837, Ogunquit, Maine 03907
x(207) 646-9504

Production Yachts Hatteras Yachts
2100 Kivett Drive, High Point, North Carolina 27261
(910) 889-6621

Richard Bertram and Co.
801 Seabreeze Boulevard, Bahia Mar, Ft. Lauderdale, Florida 33136
(305) 467-8405