Here is a recent article submitted for publishing:
Just about any tangible asset has the possibility of being held in a partneship or LLC for the purposes of rights to usage, offering the opportunity to distribute the total cost of ownership via the shareholders.
Fractionalizing a Multi-Hull is one of those assets that works. In that a growing number of individuals do not have the time or resources to maintain a yacht independantly, sharing makes perfect sense.
Let’s, first, define, the fractional alternative. We all look forward to the opportunity to go sailing, dropping the hook in that perfect anchorage, enjoying the sea and sand with good friends and family. One can do this by owning a yacht, chartering a yacht, possibly club membership in a yacht group, or in this case owning a share with other shareholders for that same opportunity. A fractional allows for pride of ownership, with the initial capital cost/operational costs of ownership defrayed by the percentage of ownership that one has in any yacht, but, know up front what you are getting into.
Why this alternative? There will always be that group of yachtsmen who will own yachts privately and commercially for their own personal/corporate satisfaction. I applaud them and look forward to working with those individuals in finding the right yacht to meet their specific needs!! What we are finding though, is that the cost of ownership continues to spiral as marina properties turn toward real estate developers, insurance costs continue to increase in attempts to cover losses due to over active hurricane seasons and potential owners find that they have less and less time available to manage the requirements of yacht ownership and still have the time for owner usage.
This is not a new concept. I have watched a number of attempts come and go over the years and here is a few comments you might be interested in knowing. Jet fractionals are much easier in that really one is buying space to meet the objective of getting from one place to another where conventional airlines just do not meet the needs or at least not within the parameters of the fractional owners. Typically, in yachts, the offerings are too difficult to narrow to meet any one group of owners interests, multiple manufactures, multiple lay-outs, equipment options and location of operation. This has made the execution of completed fractionals a bit challenging. Here is a few tips.
This is not a new concept. I have watched a number of attempts come and go over the years and here is a few comments you might be interested in knowing. Jet fractionals are much easier in that really one is buying space to meet the objective of getting from one place to another where conventional airlines just do not meet the needs or at least not within the parameters of the fractional owners. Typically, in yachts, the offerings are too difficult to narrow to meet any one group of owners interests, multiple manufactures, multiple lay-outs, equipment options and location of operation. This has made the execution of completed fractionals a bit challenging. Here is a few tips.
Involve those you know with common interests, it is far easier to work with a group of people or shareholders that you already know or come from an area of common interests. Family, work, the community and club affiliations are great places to establish the basis of shareholders who will work together in a partnership. This is not absolutely necessary in that there are many others who have the common interest of sailing and yacht ownership, even if you can bring another party or two that you know to the “party” it does make it a bit more simple to put the packages together. Location, Location, Location, choosing the base of operation a clearly great place that offers qualified services, and a great itinerary for sailing/usage is a key to success.
There are a few key points that need to be reviewed as you consider the different offerings:
There are a few key points that need to be reviewed as you consider the different offerings:
1. COSTS Generally each fractional program consists of Capital Cost, monthly maintenance and management as well as potential variable costs typically related to usage, i.e. fuel, transient dockage, provisioning, possibly the Captain depending on the yacht and size. Ownership is generally in shares of an LLC and usually has an end of term date where the vessel is sold and residual returns are distributed back to the shareholders. Each program identifies the number of shares per the LLC agreement, this can vary from typically (4) to as many as (10) based on yacht size.
Lets use the Lagoon 500...So, lets do an example of costs, given a Lagoon 500 where the complete price delivered say to the Caribbean complete with dinghy/outboard and the linens in place currently will cost approximately 1,100,000 USD. A 1/5th share equals 220,000 USD. The operating costs are as follows:
Lets use the Lagoon 500...So, lets do an example of costs, given a Lagoon 500 where the complete price delivered say to the Caribbean complete with dinghy/outboard and the linens in place currently will cost approximately 1,100,000 USD. A 1/5th share equals 220,000 USD. The operating costs are as follows:
2009 LAGOON 500 FRACTIONAL PRIVATE OPERATING BUDGET
Fixed Monthly Expenses annualized:
Management Fee $18,000
Dockage: $11,400
Dock Water $288
Dock Electricity $1,800
Annual Expenses:
Parts & Maintenance$38,582
Management Fee $18,000
Dockage: $11,400
Dock Water $288
Dock Electricity $1,800
Annual Expenses:
Parts & Maintenance$38,582
Annual Expenses:
Haul & Bottom Job and Hull Wax$3,750
Insurance $24,252
Licenses and Permits Fixed $900
Total Operating Expenses, $98,972
Insurance $24,252
Licenses and Permits Fixed $900
Total Operating Expenses, $98,972
Fractional Cost per Share holders 1/5th Ownership Annualized$19,794.40
Please be aware that there are normally usage turnaround fees attached to your usage.
Where the shareholders elect a limited charter option, each shareholder will have the opportunity to place weeks of usage into the LLC's charter pool of weeks. This can range as each sees fit relative to their intended usage from one year to the next. Depending on the number of weeks chartered each shareholder shall be credited back against their account by the percentage of weeks chartered.
The charter option could generate as sufficient return annually to cover the annual operating expenses. Of course this is completely a function as to your usage of allocated weeks available to you and what you have committed to the charter pool.
2. USAGE This will vary depending on the number of shares, downtime for maintenance and delivery time if to be operated out of multiple locations, usually established in the offerings. Usage in some arrangements may be sold for income where a charter opportunity exists within the program.
3. LOCATIONS Typically pre-defined for booking purposes by the owners.
4. YACHT TYPE Typically new yachts, though there are the possibilities of a used yacht where there is an agreed upon Fractional opportunity to present.. There is a wide spectrum of choices from luxury yachts as mentioned via the Lagoon 500 to a great opportunity in a Performance Cruising Gemini 105 for as little as 40,000 USD as an initial capital cost and 500 USD per month as an operating expense, given 1/5th ownership, plus turn-around fees located in great locations such as the Chesapeake or the Florida Keys.
These are the basics. Each offering needs to be considered in detail in that very few are operated in the same fashion. There are potential finance options, there is the potential of tax advantages. Each must be taken into consideration separately and legal and tax advise is recommended in any case prior to proceeding to any purchase. Be sure that agreements include clauses as to terminations and re-sells as well as how an owners default is handled within the Partnership or LLC. End of term agreements as to extensions and how the asset will be liquidated just adds to the comfort level of knowing what happens from the beginning to the end. In that the trick is to fill a complete yacht by the parameters of the offering, most offerings are presented without an ordered or pre-purchased yacht, therefore refundable deposits, time dated are often taken be sure that these terms are understood and what the requirements are once a complete group of shareholders have been assembled.
Fractional Yacht Ownership is a very valid alternative to conventional yacht ownership. Having the right team on your side to put together the packages that will create a positive experience is paramount.
As Always, you can find me most anytime at http://www.catamaransja.com/
