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The problem of how to value superyachts

Business
Written by
Justin Ratcliffe

Over the past few decades, the increase in demand for large yachts and the corresponding increase in competition has resulted in significant price differences as brands vie for their slice of the market. Accurate costing is essential to ensure a shipyard makes a profit and to provide a reliable basis for client negotiations, not only when a new-build project is being tendered, but also for estimating the pre-owned value of a yacht.Sheherezade, OPUS & Dilbar yachts by LürssenPhoto: Tom van Oossanen / SuperYacht TimesThe problem is that no specific tool for making accurate valuations currently exists, at least in part because shipyards are notoriously reluctant to share their cost data (research by the Delft University of Technology and Azure in 2016 to develop a Superyacht Cost Estimation Tool relied on information from subcontractors). Instead, owners’ teams and brokers refer to price per gross ton when making comparisons. But gross tonnage (GT) as a measure of a vessel’s overall internal volume was adopted in the late 1960s to provide a universal tonnage measurement system and determine things like manning regulations, safety rules and port duties for commercial shipping. It was certainly not intended as a price comparison formula for superyachts.

“It’s crucial that any comparisons made are done so correctly,” says Theo Hooning, Secretary General of the Superyacht Builders Association (SYBAss). “Superyachts are incredibly complex products, built for different purposes and different levels of comfort. As such, comparisons such as price per gross tonnage – or worse price per metre – are not only simplistic, they are damaging to the entire industry. It’s imperative that brokers and clients understand these differences and realise the value of a product beyond the numbers. Yes, clients want to make comparisons when searching the market, but as an industry we have a responsibility to ensure that any comparisons made are done so accurately.”

Price comparisons used to be made on the basis of cost per metre of length. But as the yachts got bigger and it was realised that a yacht’s volume is proportional to the cube of its length, price per metre was mostly dropped as meaningless and people switched to price per GT to make cost comparisons.

This can work for some series or semi-custom yachts with similar specifications (that may also have sister ships for comparative purposes), but quickly falls apart when comparing full-custom projects.Bravo Eugenia motor yacht by OceancoPhoto: Tom van Oossanen / SuperYacht Times“Semi-custom is by nature very lean and highly optimised,” says Rose Damen, Managing Director of Damen Yachting. “I think the industry understands that semi-custom shipyards are not making huge profits, so the value is there and it’s more about getting the quality and finish for the luxury experience that you want.”

Nick Bischoff, Country Manager for Benetti Americas, points out that when the BNow line of semi-custom Benetti yachts over 50 metres is up and running, they will know with a high degree of certainty what each yacht will cost, give or take major addons and customisations, so a price per GT will be 99 percent accurate. “It's the fully-custom yachts that create a challenge,” he cautions. “Gross tonnage is a good ‘guesstimate’ but it’s far from being scientific and assumes all things are equal, which they are not.”

“It is impossible to compare prices for custom superyachts based on gross tonnage because of the variables in the main cost drivers,” agrees Paris Baloumis, Group Marketing Manager for Oceanco. “The GT price comparison is significantly influenced by any deviation from a ‘standard’ that will impact the complexity and therefore the cost of the yacht.”

These ‘deviations’ typically include the design and execution of the luxury interior, the size and shape of glass windows and doors, and the number and complexity of large moving components like hull doors, opening balconies and other automated parts. Then there is the delivery schedule, the scope of inclusions and exclusions, the type and quality of equipment, redundancy and sustainability, the quality and finish of the technical spaces, and noise and vibration levels. Is the propulsion diesel-mechanical, diesel-electric or hybrid? Does it have azimuthing pods or inline shafts? With or without battery banks? Fin stabilisers or gyros? A steel or aluminium hull?Project Cosmos yacht in build at Heesen YachtsPhoto: Charl van Rooy / SuperYacht Times“If you build a high-speed yacht with a complex propulsion system, it might have a relatively low volume but a high price,” says Robert Drontmann, Sales Manager at Heesen. “A cost evaluation based on volume alone means you could end up comparing a high-volume steel yacht that is simple to build with a low-volume aluminium yacht that is highly complex. They’re too diverse to compare.”

In short, custom projects are very different in design intent and complexity, and they are built by shipyards with different base specifications and benchmark standards. In this context, Baloumis likens the price-per-GT model to “comparing the price by volume of a Porsche Cayenne with a Ferrari Roma.”

Nor does price per GT measure value for money, which Rose Damen believes is a question of perception as much as material cost. What will the quality of the finishing be? What is the build experience going to be like? How is the warranty service? What sort of yacht is going to make my family and I happy?

“It would be a shame if architects feel they need to design for the lowest price per GT, rather than the best experience on board,” says Damen. “It’s more important to think about what the client wants for their money rather than focusing on volume… You can compare apples and oranges, but if you want an orange, an apple is not going to satisfy you.”Bold yacht in Cala di Volpe Photo: Charl van Rooy / SuperYacht TimesThe concept of Compensated Gross Tonnage (CGT) was first developed by the OECD in 1977 as an indicator of the amount of work required to build a given type of ship, which could be used as a means of comparing the economic output of the shipbuilding industry around the world. Correction factors were developed for each vessel type and the GT was multiplied by the appropriate factor to give the CGT. Correction parameters did not exist for large yachts, so those for passenger ships were used instead.

In 2010, SYBAss asked the Delft University of Technology and the University of Genoa to create specific CGT values for superyachts based on data provided by its members. The report showed that approximately three times more effort is required to build a superyacht compared to a passenger ship of equivalent size, but it was still an economic comparison between yachts and commercial vessels, not with other yachts.

“CGT does not make a lot of sense in a superyacht context,” explains Baloumis. “For example, the man-hours required to build a superyacht varies from shipyard to shipyard. Moreover, in some countries it takes more time to build a vessel, but the final cost is less because of lower labour rates.”

“An adapted CGT could be an interesting new analytical tool,” says Damen. “Particularly for comparing broad trends across the sector, such as comparing motor yachts with explorers and sailing yachts. However, we should be cautious about adding more complexity to volume calculations.”Benetti BNow 50mPhoto: Benetti / RWDAssessing the relative value of pre-owned yachts is even more problematic. Not only do all the variables associated with new builds have to be factored into the equation, but also elements such as the yacht’s maintenance history, the number of owners and the average resale value of the shipyard’s existing fleet (as with cars, different brands have different depreciation rates).

“A big mistake is that all too often the valuation is based on the new-build contract price, neglecting the owner’s costs between the contract and delivery,” says Antoine Larricq, a senior sales broker with Fraser. “These include pre-project expenses for custom designs, project management costs, the owner’s supply of loose furniture, tenders, linen, tableware, deck equipment and crew uniforms. In short, everything that is part of the yacht’s inventory at the time of sale.”

Automated services are now available that claim to provide instant valuations by having algorithms do the number crunching. VesselsValue, for example, is an online platform that uses mathematical functions with adjustable parameters to model the inherently non-linear dependence of value on a yacht’s age and size.

 “Algorithms are continually recalibrated to reflect the latest information allowing stakeholders to stay abreast of market developments,” says Sam Tucker, Head of Superyachts at VesselsValue. “Of course, they are subject to certain conditions and assumptions, which a human surveyor may be able to adjust for on a case-by-case basis. However, automated valuation models are now commonplace in other industries such as real estate and early concerns about their ability to cope with changing market conditions are no longer an issue.”Atlante exterior beach club“I'm not entirely convinced by this idea,” counters Robert Drontmann. “If you enter lots of data, then it may be correct, but what I’m really afraid of is that the emotional and geographical factors are really difficult to understand using algorithms. I think you need a human response to answer these types of questions.”

Indeed, the emotional factor is arguably the biggest intangible and the hardest to pin down. After all, the decision to invest in a custom superyacht is based on the promise of pleasure, which means different things to different people.

“Emotion is left out of the cost per GT equation,” says Giordano Pellacani, Sales & Marketing Director Custom Business at Ferretti Group. “How do you put a value on the emotion of an exterior or interior design? Believe me, it’s very difficult and like evaluating the emotion of a piece of art: for some it represents real value, while others may be completely unmoved.”

There is another all-important variable missing from both the automated and the price per GT valuation model: the state of supply and demand. In the current buyer’s market, cost and value appear to be aligned and the times when yachts resold for more than their original price are a thing of the past, but a yacht built on speculation and ready to go today will cost less than a yacht being made to order with a delivery in three years.

As Nick Bischoff points out: “At the end of the day, a yacht is worth what someone is willing to pay for it.” 

This article was first featured in The SuperYacht Times newspaper. Subscribe now to receive your copy straight to your door and never miss another issue.

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