An Analysis of the Current Catamaran Market, New and Used
By: Phillip Berman, President, The Multihull Company
A few months back I described the current catamaran market as “silly time,” President Obama’s pithy description of the goofiness so often associated with running for office in America. Of course it’s silly time for any business when nobody knows what a product is worth and few people want to buy it. Buyers simply become too paralyzed to buy and sellers have no idea what to sell for. Such, I suppose, is the reality of a hard recession.
I can tell you as a yacht broker I’ve spent hours on the phone the past few months talking to sellers and buyers about their many anxieties. I have found this is all enormously interesting from a psychological/anthropological perspective, as it has given me insights into how buyers and sellers react to “hard times.” Some panic, some remain stoic, others simply muddle along mystified.
I’d say that from October 2008 until late March of 2009 the bulk of buyers I spoke with assumed they could pick up a gorgeous catamaran for 50% off last year’s prices. They hoped to take advantage of panic sellers and figured the first thing to go would be luxury items like sailboats. Lacking any real idea what last year’s prices really were – buyers, after all, no longer have access to accurate sales figures unless they are working with a broker who will provide it to them – we got a lot of calls from what I have come to call “E-Bay self-shoppers.” These well meaning but often exasperating buyers spend long hours online searching for that elusive bargain. And nearly all of them, regardless of the asking price, reckoned that whatever the seller is asking must be far too high. So we spent a lot of unproductive hours here reporting 50% offers to our unhappy sellers. The funniest part for me were the emails from people I have never met or spoken to who felt they needed to explain to me (often with long-winded rationalizations only Timothy Leary could have crafted) why the people selling cats should jump at their 50% offer. “It is gonna get worse, Phil, we’ll be standing in soup kitchen lines like the Great Depression in a matter of months…..” Cable TV didn’t help matters with Kramer telling us to move back in with mom and prepare for some Mad Max dystopia where we’d be battling it out in the streets for survival in run down Ford Explorers.
Well, not a single catamaran sold for 50% off last year’s prices, at least not at our company. We did sell two catamarans in February, however, for nearly 30% off what they might have sold for a year ago. Ok, sure, Mad Max was a fun movie, but I never shared this fear and neither did most of those who asked us to sell their catamarans. I do, however, congratulate the few courageous buyers who got some great deals from December to March. That said, the tide has turned in a very significant way since April. Silly Time is largely behind us and the market is sobering up fast. We have certainly not entered into a hot seller’s market, but things are a far cry today from what they were in December. In the past two months there has been a flurry of buying activity in the used catamaran market. There are several reasons for this:
1. Buyers that are going sailing are going sailing. It is a dream and they are going to live it. While they may be getting a $300,000 boat now instead of a $400,000 boat, they are not giving up.
2. Many serious buyers from October to March were sitting on the sidelines, waiting to see where prices might bottom out before jumping in to buy. I believe it is obvious to them now that brokerage prices have indeed bottomed out or are about to do so. Many are also wisely fearful that if the dollar weakens to the Euro cat prices may in fact rise very quickly in dollar terms.
3. Savvy buyers also recognize that you cannot print trillions of dollars and not expect serious inflation in a fairly short period of time. Cash will be worth less and less and it may well be the time to put it into some hard assets. Many people have told me they wished they bought a catamaran two years ago instead of their beachfront condo.
4. New boat sales came to an absolute standstill over the past several months as such that all the major builders were forced to cut back production dramatically, some as much as 50%. When demand comes back, as it appears to be doing now, there will inevitably be greater demand for used boats since there will be less supply in the market. This will either stiffen brokerage prices or raise them in the years ahead. I also believe that several catamaran builders will go out of business in the next one to two years. New boat sales remain largely stalled. Many companies are simply not capable of trimming back production 50% without running into trouble with burdensome debt loads.
5. It is obvious (although the guys in plaid shorts at the yacht club will never admit it!) that catamarans have won, monohulls have lost. People who truly intend to live on a boat, voyage on a boat, realize that sailing on a catamaran is faster, more stable, more comfortable, just as safe, and offers a great deal more privacy for guests. The only growth market left in sailing is catamarans. A catamaran is not like a tract home in Arizona, or a condo in Miami. More people want them and there are not enough of them to go around. (An interesting statistic is that we have a wide range of people who are attempting to trade real estate for catamarans. Want a condo in the Virgin Islands? Farm land in Colorado? A townhome in Vegas? A resort villa in Montana? Acres of farm land in Colorado? If so, and you want to trade your cat, let us know! There is clearly a lot greater demand for catamarans now than real estate.)
All this said, where is the market now, where might it be headed? Here is what I predict, based upon what we have seen and experienced here at my company:
1. Buyers are back. They are back because they realize there are still some good buying opportunities in the market.
2. The market for clean, late model, owner version cats from well known builders remains strong. That said, prices have adjusted downward about 10% to 15% off last year’s highs. I believe this adjustment is rather permanent for the next year, just as I believe my retirement account will not see the Dow at 14,000 again for several years. Of course I hope I am wrong.
3. I think the demand for bareboat charters has slipped enough that there remains something of an oversupply of garden variety charter cats, especially in the Caribbean. For owners of cats operating in “non-guarantee revenue programs” they will be earning less than in years past, and this will likely precipitate more inventory in this market segment, leading to price declines on somewhat older (5 year or more) four cabin, four head, x-charter cats. I see value declines of up to 20% off last year’s prices and this might last a year or more. So, if you can live with an x-charter boat with high engine hours and four tiny heads you can get a very low price on a cat compared to last year. I think it is a fantastic time to buy a cat that is configured for charter that you can place back into charter. The downside depreciation is heavily mitigated if you buy properly in this market. Even if your boat does not charter as many weeks for a few years, it no longer has to because it cost you so much less to purchase her. That means you can sail her more yourself and she also gets less wear and tear.
4. Demand for true voyaging cats – cats designed to sail comfortably and swiftly in Blue Water conditions – remains high. They are in shorter supply and higher demand than any other market segment. They have seen value declines, yes, but not nearly as high as those in brands that sell nearly 50% or more of their yachts into charter programs.
5. There are still some very good deals for new boats from all the major builders who have backed up inventory and need cash – demonstration boats, overstocks, etc. While no builder can discount a boat like bank owned real estate in Phoenix or San Diego, they can offer very attractive deals to serious cash buyers. I do not think these deals will last much longer.
6. Marine lending has tightened up a lot. Many banks have left the marine lending business. As such, the ability to secure financing is extremely hard now for all but the most over-qualified buyers. Last year, as we all know, they would loan to anybody (which got us into this mess) now they will hardly lend to anybody (which is helping to keep us in this mess). But as the economy starts to recover I believe the bankers will start to open up.
7. The one great wild card that may alter things dramatically and which I cannot predict is the exchange rate between the dollar and the Euro, and to a lesser extent the South African Rand and British Pound to the dollar. Many fail to understand that the catamaran market is a truly international one. Americans really own a small share of the total catamaran market. In fact, many more Europeans own cats than Americans. And they bought their boats in Euros and will be counting the Euro when they sell them. Any time the dollar weakens to the Euro the price of catamarans will go up in dollar terms. The boats being sold in Euros will cost more dollars, and the dollar sellers will be able to lift their prices yet still sell for less than the Europeans. Over the past two years when we had the very weak dollar to the Euro this is largely what occurred – as a result, Americans are often shocked to learn how few used cats really are for sale in Florida and North America. The reason for this is that foreigners bought them from us over the past two years. Any cat over 38 feet is easily sailed long distances. Smart buyers will gladly spend $15,000 to sail a boat across the Atlantic if they are saving double or triple that amount on the purchase itself.
Ok, so there you have it. Straight-talk from the catamaran express. I promise next time to pick a running mate who can not only see Russia, but that little blip on the chart plotter to keep me from running into it.
Happy sailing,
Phil
