Wealthy piece together new ways to sweat their assets
Straitened times prompt a sharp rise in part-ownership deals
Caught by the worst recession in a generation, the world’s wealthy are thinking up creative ways of saving money by renting out or selling fractions of their assets. However, the supply of stakes in private jets, superyachts and other assets is running ahead of demand.
Fabrizio Harper, a director at fractionallife.com, a fractional ownership platform and research provider, said: “I’ve never seen so many long faces as at the Monaco boat show last month. All owners were talking about was how they could charter out their yachts.”
The number of global individuals seeking to rent out their private jets, vineyards and classic cars has increased by 50% over the past year, according to his website. There are about 400 fractional interest projects in Europe and the US.
The rental market is also booming, at least on the supply side. Research from UBS found that there were more than 3,000 private jets for sale worldwide at the end of August, 36% more than at the same time last year. Also, nearly a third of the global fleet of superyachts are up for sale, according to yacht builder Camper and Nicholsons, as the wealthy seek to extract money from their assets.
A spokesman for YachtPlus, architect Norman Foster’s London-based fractional yacht ownership company, said more than a quarter of its clients were former sole owners of large yachts who had contacted them, wanting to downsize to fractional ownership.
He said: “Clients who spend only a few weeks a year on their boat realise the management and berthing fees for a wholly-owned yacht do not make sense in this climate.”
The wealthy are also looking for ways to realise additional value from assets that they own. Launching in January, UtopiaExchange.co.uk is an online community built on a platform that allows members to trade asset downtime among themselves.
Its co-founder Giles Adams said: “Everyone is looking at their assets through a different lens as the recession continues. Even the most wealthy who don’t need to rent out their assets are looking at smarter ways to use what they own and so our appeal has been wider than we initially thought.”
He added: “Clients might look at their chalets in Verbier and think, ‘I could get four grand a week for that’.”
The trouble is demand has fallen. Total sales volume of the fractional interests, private residence clubs and destination clubs in 2008 is estimated to have fallen 34% to $1.5bn (€1bn) from $2.3bn in 2007, according to a survey this year from US consultant Ragatz Associates. Of the three components, fractional ownerships were hardest hit, declining nearly 50% in sales volume.
Many fractional ownership companies are being forced to discount their fractions and some are going into administration. Last month, Jet Republic, a Portugal-based jet charter company that launched last December, announced it would suspend operations until further notice.
UK fractional supercar ownership companies Club Velocita, Group 20 and P1 International have also run into difficulties. US-based timeshare groups Wyndham Worldwide, Starwood Hotels & Resorts and Marriott said they would cut their luxury timeshare and fractional ownership businesses.
Even investment guru Warren Buffett’s NetJets, a private jet-leasing company, last month cut about 350 staff, 5% of its workforce, due to the “severe economic conditions facing the aviation industry”.
Another factor affecting the industry is the murky reputation of some timeshare leisure resorts. Fractional offerings are different to timeshares because you own a fraction of the project. Chartering or renting is less risky because it is usually done on an ad hoc basis.
Hugh Hershaw, a manager at Morgan Forbes, a London-based fractional property ownership company, said buyers were now more risk-averse and suspicious of timeshares because of past experiences. He said: “Clients are feeling scared and feeling the pinch. They need more reassurance when seeking alternatives for their capital.”
Timeshare sales, not including fractional ownerships, in the US dropped 8.5% last year to $9.7bn from a peak of $10.6bn in 2007, according to an Ernst & Young study this year. The decline was the industry’s first since 1975.
Another challenge facing shared ownerships is the difficulty many would-be part-owners face when seeking financing. Nicholas Hughes, a partner at accountant BDO Stoy Hayward, said banks might not feel comfortable financing a group of people looking to buy a jet or a vineyard at the moment. Clients usually have to sell assets in order to raise cash to purchase an interest in another.
Piers Brown, co-founder of fractionallife.com, said the super-wealthy would save the fractional market, as they started to adopt fractional rather than whole ownership. He said: “The days of conspicuous consumption are over. Fractional ownership and asset sharing will be a major paradigm of the luxury consumer’s mindset over the next few years.”
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