Buy your own boat or charter one. These have long been the two choices if you wanted to enjoy cruising on a regular basis. Now, taking a cue from the private jet industry, fractional ownership offers an appealing third way to enjoy the regular use of a vessel.
What is fractional yacht ownership?
Jaime Torres, who owns Fractional Sailing Puerto Rico and operates Beneteau Fractional Yachting Puerto Rico out of the Puerto Del Rey Marina, in Fajardo, explains,"It's sharing both the capital investment or purchase and the unrecoverable expenses such as loan interest, marina expenses, repairs, depreciation and insurance while maintaining desired access to the yacht."
For Ricardo Rosales, a Doral, Florida-based businessman, fractional ownership made sense for two reasons. "First," he says, "I travel frequently on business and business demands meant I lacked the time to enjoy a boat as sole proprietor. Secondly, I also didn't want the full financial commitment as I was using my money to invest in and grow my business. In addition, I had chartered boats in the past, but having to charter every time I wanted to go out was not convenient."
The development of fractional ownership in the yachting industry has grown out of two trends, says Alex Suarez, managing partner of Atlanta, Georgia-based Classic Yacht Partners, a business venture that offers fractional ownership in two newly built, classically-designed Trumpy Yachts. "One is the economy. There's been economic uncertainty and diminished net worth in the last few years. People are more cautious as well as intelligent in spending their money because there is less to go around. Secondly, many wealthy people don't favor conspicuous consumption. Fractional yacht ownership resolves both of these issues."
How does it work?
There are different types of fractional yacht ownership, says Jim Veiga, who owns Atlas Yachts, Inc., in Fajardo, Puerto Rico, and also owns the SailTime franchise on island. "One is what I'd describe as fractional sailing or a sailing club and this is what SailTime is. There's one principal owner who sells memberships in a vessel. Members don't own the boat, but rather lease time and pay a flat monthly fee. It's like a time share operation, however there is a limited number of members, seven, for example, who use the boat like a 2010 Lagoon 400 Catamaran. The money the principal owner gets from selling memberships and the usage fee pays expenses such as the mortgage note on the new boat, dockage and maintenance."
Veiga says, "This model works best in markets like Toronto or Baltimore where people go out for a weeknight or weekend. It's not that popular in Puerto Rico because people want to go out for three days to a week at a time and are more familiar with chartering."
Another type of fractional yacht ownership is where a management company or managing partner sells shares in a vessel and partners each get an equal amount of time per year to use the vessel on an annual basis. This is what Classic Yacht Partners is offering. The cost for each partner to use either a 125-foot motor yacht inspired by the 1928 Trumpy named Truant and/or a 138-foot sailing yacht based on John Trumpy's personal sailboat named Sea Call, is approximately $1 million per yacht.
"In return," says Suarez, "Each partner gets 25 days and five conditional bonus days onboard. So in essence, each partner gets the personal use of a $10 million dollar yacht for $1 million."
First class service from six crew members for each vessel and monogrammed sheets for all owners to make them feel the yacht is all their own are just a few of the amenities. Owners can also opt to use both vessels at once for entertaining events that they can write-off as a business expense. Fractional ownership of private jets has largely been successful because of business usage and tax advantages.
The third type of fractional yacht ownership, says Torres of Fractional Sailing Puerto Rico, "is where the system is professionally managed by a third party. The owners get together and collectively put down 30 percent of the value of the vessel and finance the remaining 70 percent. This means very little down and low monthly expenses for a relatively expensive yacht . All maintenance and management issues are taken care of by the third party so that all owners concentrate on enjoying the yacht. Time is shared by the use of an online scheduling program. The scheduler ensures that all owners enjoy an equal share of the time on their yacht."
One of the aspects Rosales, who chose Beneteau Fractional Yachting, likes about the arrangement is having other partners. "The first day I joined the program, one of the partners gave me the initial instructions about using the boat in addition to instructions from the seller."
Another time, Rosales adds, "I was lifting the anchor by hand and scratched the hull. One of the partners offered to bring the repair man, which he did, and I just paid for the repairs. That was a time when I was very busy traveling and could not commit the time to take a day off to take care of the issue."
What are the advantages and disadvantages?
The advantages of fractional yacht ownership, says Torres, "are all the benefits of full ownership plus freedom from daily oversight of the boat for just a quarter of the price with very little, if any, compromise in the usage of the boat."
One disadvantage, says Rosales, "is that if a partner has reserved a time before you and you wanted to use that time, then you have to wait for a cancellation or not go at all. Another is that you cannot leave personal belongings inside the boat; you have to take your things with you every time. Yet, I feel these disadvantages are offset by the benefits."