Fractionalize This

The idea of splitting up and sharing costs of yacht ownership is back—with lots of players. But can it work?

Patricia Borns

Published: November 2006

For as long as there've been yachts for sport and leisure, people have dreamed of ways to own them for less, if not for free. Yachting's own executive editor, Don Wallace, grew up boating on the 1939 Wheeler 42 flying bridge convertible that his father bought with two other young lawyers and a doctor. The year was 1959, and they shared the boat's use and upkeep on a handshake. "Today they'd form a limited liability corporation, book their weekends online and hire a management company to sweat the details," says Wallace.

"It's a fractional world and we all live in it," adds Wallace, who was, he would admit later, exaggerating. Little did he know that fractional ownership is an idea whose time has come—again.

Just as investors owned shares in Dutch East Indies Company clippers, Sandy Spaulding believes the time is right for a shareholder-owned fleet of recreational Hinckleys cruising Nantucket and Jupiter Beach. Spaulding, chairman of Barton & Gray Mariners Club—and past president of Hinckley Yachts—was a skeptic who became convinced that managed yachts like Flying Swan, the club's new Picnic Boat, fulfill a need for real and prospective boaters.

"We deliver the promises of yachting by taking away the headaches," says Spaulding. "Insurance? Don't worry. Repairs? We'll handle that. If we don't relieve the burdens of access to the water, they'll play golf instead."

Nautor's Stephen Barker agrees: "Fractional ownership makes sense for the way we live today," he says. His sentiments are shared by the world's leading yacht brands. Their fractional programs aren't all of a species, however.

A Google search on fractional yachting pulled 207,000 leads with a dizzying range of choices to compare. Straight, or pure, fractionals (as I think of them) are companies like SeaNet, which offers a 53 Sunseeker Manhattan in four $315,000 equity shares. Your investment entitles you to five weeks of use a year and can be borrowed against or sold like any asset, while your share of the maintenance (about $37,000 annually) keeps the yacht in luxe shape without your so much as coiling a line.

Fractional leases, on the other hand, offer simplicity and smaller capital outlays. The same 53 Sunseeker leased from the Yacht Share gives you 28 pampered days annually for $60,000 down and $2,400 a month, all costs included, and at the end of the year, you walk away. Dreamboat and other companies are partnering with vacation clubs to sell time slices on a yacht that can be exchanged for other yachts or luxury condos—in other words, timesharing.

Old-style fractional ownership, like that practiced by Wallace's father, still exists. If you've already found your dream yacht and need partners, asset management companies, such as Breeze Easy, wield the legal and financial instruments to create fractional ownership of anything from a pontoon boat to a mini-liner with its own gym.

However they slice it, most companies that deal in fractional ownership or leasing make yachting feel like a luxury charter vacation right down to the captain at the helm. This can be hugely appealing or a mixed blessing, depending on your point of view.

"I like possession of the boat, to tell you the truth," says lifelong yachtsman and ex-naval officer Lyman Perry. Recently Perry simplified his life, first by switching from a sailing yacht to a Hinckley Picnic Boat, then by becoming a member, then commodore of Barton & Gray Mariners Club. His access to Nantucket Boat Basin is a major advantage considering the 10-year wait and $300,000 membership fee of local yacht clubs. At the same time, he says, "I've always been hands on, single-handing, priming the engine if it runs dry. Having that layer between me and the boat will take getting used to."

Chris Lessard, on the other hand, purchased a share of YachtSmart's 85-foot Azimut after chartering hooked him on the yachting life. "It's not the boating, it's the service," he explains. "My wife and I have young children. Can you imagine family vacations without a chef on board?" He's moving up to YachtSmart's Benetti Classic 115.

Terry White flirted with fractional ownership but agreed to leasing a captained 51 Sea Ray from Shared Yachts. "I'm of the opinion that if you want a yacht, you shouldn't own it even if you're loaded to the nines," says the time-starved TV producer who appreciates the fact that "the champagne is waiting when I arrive and I never lift a finger—I just write a check and it's done."

For Dave Lewis, who owns a J105 but wanted something more than "the boys on sailboats racing thing," leasing a 530 Carver Voyager Pilothouse from The Yacht Share was "like signing up for four weeks of chartering." Lewis met The Yacht Share president Bob Kyle at a boat show and was impressed. "I love the fact that Bob transits the boat between very appealing destinations," says Lewis. "We just returned from the Exumas. Spectacular!"

Breeze Easy's William Blozan tells me he can spot a prospect for fractional ownership at boat shows as the fellow walks up the aisle. "If he stops to look at a genset, he's not a candidate. But if he wanders over and asks, 'What can you put me in today?' he's a fit." Are you a fit? Here's how to crunch the numbers.

If you spend less than 28 days a year on the water, why pay for the boat the other 337 days, runs the advertising line. Marketers want us to believe this means big-time savings and tax write-offs. "As a business investment, you can deduct 100 percent of your share of the annual operating expenses, the interest on the loan, plus 10 percent annual depreciation of the total investment," a cost comparison on Monocle Yacht's Web site claims. Far be it from math-challenged me to comment, so I called an expert, CPA Mike Kimball, who advises owners of charter yachts.

"I don't quite know how to put this… but I can't verify any of it. It's just hype," said the author of Tax Guide for Business Yachtsmen in his Texan drawl.

That's not a deal-breaker, however, because to some fractional ownership it isn't about money: "Most fractional owners could own the boat ten times over but don't want the hassles," says industry consultant William Mirguet. "The programs offer a turnkey solution: Schedule it, enjoy it and walk away."

Bob Kyle sees yet another attraction, one observed by many fractional CEOs. "People are gravitating to our programs as a way to get into a larger or even a second yacht." Personally, when I think of what a quarter-million dollars buys versus the boat I could have if my nest egg were multiplied by 10, I'm sold.

One problem the fractional marketers face is that the concept is not exactly fresh—and not exactly proven, either. "Fractional yachting is still finding its sea legs, and some must fail before the industry succeeds," counsels Mirguet, whose own Drake Yacht Shares was one of those to go under. My own first fractional encounter was with a company peddling a Sovereign 120 at Jacksonville's Super Bowl XXXIX—three months later, the phones were disconnected and the principals had disappeared. Otherwise, fractional is no riskier than other investments where your money is escrowed and refunded with interest if the deal doesn't go—a common situation with condo developments in Las Vegas, for instance.

Fractional ownership does have its own quirks, however, and some of them make ownership resemble parliamentary politics as practiced in small emergent republics. Often, most companies don't own the boat they're selling and are essentially looking for a quorum to go ahead. "The typical owner group starts with a lot of interest from many, everyone waiting for the other to go first," says Virgin Trader's Will Driver, who recently had five prospects waiting to deposit on a Horizon 82. An ocean away, Synergy Yachting's Phil Scott had four prospects waiting for two others to take ownership of a Marc Lombard-designed Privilege 585. "It can be a slow burn," the U.K.-based Scott concedes.

If you don't fall into a good thing immediately, don't give up. Yachts, fractional or otherwise, are rarely an impulse buy. So check out the Fractional Who's Who in our sidebar and get out there. And remember, says Mirguet, "It takes patience and a good lawyer to find the right program, but it's totally worth it when you do."

PATRICIA BORNS

Yachting Magazine
November 2006

http://www.yachtingmagazine.com

Posted:
17/03/08
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