Buying a new ship and need advice.

We are new to the forum and have introduced ourselves as such in the appropriate forum category. We are in the process of finding our ship and have asked our broker about a new boat. Says of course he can accommodate the purchase with 25% down upon signing the purchase order, 95% of the remainder of cost 20 days before the vessel ships from overseas to our pick-up point in Florida and the final payment at commissioning and delivery. I am concerned that they want 96.25% of the cost before I've even seen it. Is this unusual or is this SOP for new ship purchases? I'd rather not name the broker or yacht dealer but they are a large reputable east coast outfit. Total cost is over $1mil.
Any help or advice is appreciated.

Love your handle, especially in light of the detailed information you present

I've seen this type of arrangement on custom and semi-custom vessels, on both well established manufacturers and builders on their last legs.

I paid the Coot's builder 100% of the purchase price (three progress payments) before shipment from China. The builder periodically sent photos during construction and over 100 upon completion (many shown here at TF). Builder welcomed/encouraged buyers to visit the plant and boat, as well as take a trial run before shipment. (I purchased the boat directly from the builder and used no middlemen except for hiring a firm to handle the import fees and paperwork.)

We went through the whole process to buy new but a used boat we had been watching dropped into our price range the day we were to sign. What you are being told is standard for new construction. You should also be given the opportunity (at additional expense) to go see your boat being built and inspect it then.

I did not want to order new because I had the same concerns you do, but more importantly I much prefer a used and cared for boat where 90% of the build issues (and there will be build issues) have been taken care of by the original owner. Unless you are going to keep it right where the manufacturer service is located you will be piling up issues and traveling somewhere once the pile gets big enough. I firmly believe boats and motorhomes should be bought for pleasure, and that means letting someone else work out the kinks.

Dave

RAsh Decision said:

... Total cost is over $1mil.
...

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How much will your shipping and taxes be? Mine was 22 percent of the purchase price.

I'm building a boat now and the terms are similar, but with a few key differences. Nordhavn is the builder (it's not secret), and the terms are their normal terms, so still no secrets.

- 10% when the build contract is signed

- 10% when the boat starts to mold

- There are no additional payments over the course of construction. I have about 1800 progress pictures, about half of which I have taken, and half provided by the yard. Visits to the yard are encouraged. I've gone twice so far, and plan to make one more trip when the boat is essential complete. I would absolutely monitor this phase since this is when they have 20% of the money, and you have nothing.

- 75% is due when the boat is complete, but before it ships. My final trip will be timed to inspect the boat before making the big payment. At this point I also become a named insured on the boat which protects me in case of loss which, though infrequent, does happen.

- After final commissioning and acceptance, I take ownership and pay the remaining 5% plus any additional commissioning costs.

In general I think it's a fair agreement that balances the risks on both sides. My only recommendation would be to make sure you are comfortable with the yard's ability to deliver. The less comfortable you are, the more I'd look for protections like escrowed payments, title that flows to you on default, etc. There are lots of ways to do it.

I am not blessed with as high a pile of cash that you've got, but I'm also not in as much of a rush as you are to part with it. It's a buyer's market now, probably the strongest one we've seen in years. If you are determined to spend that much, you could get 2x the boat used, or you could pay 1/2 if you buy exactly the same boat used. Plus, you don't have to mess with import duties and that nonsense.

Call any time, I'm more than willing to help you spend your loot.

2x the boat is what we did at our budget point for half of its new price. We would never have thought of getting all the options we ended up with on only a 3 year old boat. 2010 was a great time to buy used and I would say it still is a good time.

Dave

Waiting for a new trawler

I can't comment on the standard practice. However, I have purchased 3 new boats in my life, the last two were semi-custom. In the last two cases the a down payment was made equal to about 25% of the cost of the delivered boat. The remaining payments were made as the boat progressed through certain key points in the build, e.g., the first payment was made when she came out of the mold, the next was when engine was installed and the third occurred when the deck and haul were attached, and so on. It was an effective method because it made sure the builder was moving the project along. The builder was very aware when the project fell behind schedule and did an excellent job catching up.

Hope this helps.

RAsh Decision said:

I am concerned that they want 96.25% of the cost before I've even seen it. Is this unusual or is this SOP for new ship purchases? Any help or advice is appreciated.

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Three things:

Why not make trips to the far East to see, evaluate and assess the vessel under construction? This is commonly done.

Do you have an occasional on-site owner's rep? This too is common.

Ignore those of us envious guys who attempt to manage your money on-line.

Progress payments similar to what you've described are typical on a new build. However, whether you're comfortable with that or should be depends greatly on the builder. There are ways of making sure the contract protects you during the process as there are many cases of builders going out of business with partially finished boats. But if you have protected yourself and not paid ahead of progress, then you can get it finished by someone else often.

To me there are two keys. First I'm not going to pay 95% having not seen it at all. But I'm not going to build without monitoring and actually visiting the yard during the build or having a representative do that for me. I don't place the initial order without visiting the yard either. To me, I want to see. Would you build a house and not look at it during the entire construction?

The second is never let what you've paid get far ahead of the value of what has been done to that point. If the builder's payment schedule forces that then that to me is a warning sign.

I think Twisted Tree was right on target and that's how we're doing it. I personally think the schedule the OP was given is a bit aggressive. The one Twisted Tree has is more like ours. We had 10% at signing, 10% when lower deck hull molded, 10% when all decks placed on each other, 30% when floated, 30% when sea trial completed, balance when turned over to us for our shakedown cruise.

Mark was very comfortable with photos. He was dealing with a builder he had a lot of confidence and trust in. Seahorse is one that probably merits that.

Now, maybe I'm extra cautious, but I wouldn't sign any contract without a lawyer experienced in this field reviewing it. The main thing is making sure that were anything to go wrong, you own what has been done to that point, that it's not part of a bankruptcy or something else.

If you've chosen your builder carefully, the experience is likely to go very well as long as you haven't asked them to do something completely unique and beyond that with which they're familiar.

BandB said:

If you've chosen your builder carefully, the experience is likely to go very well as long as you haven't asked them to do something completely unique and beyond that with which they're familiar.

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The vessel appears to be a GB 43 EU, pretty much a bread and butter build by a reputable builder. But no matter who the builder, care and attention on the part of the owner is required as mentioned in above posts.

sunchaser said:

The vessel appears to be a GB 43 EU, pretty much a bread and butter build by a reputable builder. But no matter who the builder, care and attention on the part of the owner is required as mentioned in above posts.

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On the assumption that is correct.

I am a huge fan of Grand Banks and think this is an excellent boat......but....

All the more reason to be extra cautious. Grand Banks has had a very tough time. Their sales are a small part of what they once were. They have been on watch by the Singapore Stock Exchange for some time and to come off watch needed to show a profit last year, which they didn't. So they got an additional year extension. They sold additional stock last fall to raise money. And Livingston (CEO at the time and largest shareholder, had run things for decades) had a buyer for the company a couple of years ago, but the board voted no and fired him. So there has been conflict among the shareholders and the stock now has fallen from Singapore $0.355 a year ago to S$0.215 now or about US$0.17 per share.

Now I think they have plenty of funds for this year and should have no problem completing a boat. But companies with financial issues often let other things slide a bit. They did sell their Singapore plant in 2012 and all manufacturing is done in Malaysia.

This certainly is a bread and butter boat for them as stated. But as I stated earlier I would monitor production of any builder and there is nothing about Grand Banks, especially considering what I've said here than would make me less inclined to do so. If I'm going to buy a $1 million plus boat. Did you know Galati has this boat in inventory, new 2014 model, in St. Petersburg for $1,123,547?

If you order, I reiterate, Lawyer to review contracts. It gets complicated even knowing who you're buying from. Is it the dealer? Is it Grand Banks Yachts Limited of Singapore? (The parent). Is it a Grand Banks Yachts Ltd., of the US? Is it Grand Banks Yachts Sales LLC of the US? Is it Grand Banks Yachts Sdn. Bhd. of Malaysia (the manufacturing arm), or Grand Banks Yachts Australia Pty. Ltd.? The reason this is important is that your contract may well not be with the manufacturer or anyone with assets. I would want it at least guaranteed by the parent.

And, if I'm ordering a boat such as it, I'm absolutely visiting the plant before placing the order and a couple of times during production. You can get a feel there for what is going on. Are they waiting for parts, for engines? How are things running? Are other boats being finished on time?

I'm not at all trying to dissuade you from Grand Banks. Just make you aware that just because a builder has a good history doesn't make this perfect.

In fact, change the name Grand Banks to another builder and you're likely to have the same issue.

Marlow has their many entities and yet in one case their sales contract was under the name that didn't exist legally. Figuring out who to even sue was complicated, so they sued them all, but then the battle was to determine who was liable.

Ordering a boat is a huge financial transaction for most of us. Even with all precautions there are no guarantees. But it sure can improve your odds.

Many thanks to all.

Thanks to all that helped me in this discussion, especially BandB and twistedtree. Lot's of help with important decisions. I had read the GB financial reports, new about the BOD internal squabbles and the SGX watch list. Thus, my concern about the terms of the contract. Looks like if we go this route we'll get to see a part of the world we've not visited yet.

This is valuable information and much appreciated.

Rick

I agree with everything BandB says about builders and their precarious positions coming out of the past several years. However I think that everything he says about GB applies equally to any other manufacturer. This big difference with GB is that they are one of the few publicly traded builders, so all this info is available and you can actually see who the different companies are, what the debt is, how much cash they have, and how profitable (or not) they are and have been. With most other companies all that is opaque. You have no way of knowing how much cash they are hemorrhaging, how much cash they have, how in debt they are to their suppliers and others, whether they have any hope of getting an engine delivered for the build because they are behind on payments or need to pay up front, etc. etc.

And BandB's points about the morass of related and unrelated companies leading from build to sale is really important. I've been spared that with PAE since there is only the Yard and PAE. The key is to know how much money you have at risk at any given time, and what assets (if any) will become yours in the event of default. In the absence of a specific agreement, and with a contract with a dealer (how I think it works with GB), no assets will be yours until you take title to the boat, so going after the dealer is your only recourse and they likely don't have much in the way of assets. If, on the other hand, your agreement says that the boat's title passes to you automatically on default, then at least you have something. Who knows what you'd do with it, but it's something. Another approach would be some sort of bonded performance guarantee that gets you your money back if the boat isn't delivered within some reasonable amount of time or if the builder defaults.

Another approach, thinking about it, is to only pay a modest deposit until the bat is delivered. My understanding is that GB requires their dealers to purchase and stock boats, so the deal for you purchasing a stock boat would be a deposit followed by full payment on delivery. The dealer has to take the risk and pay any progress payments as the boat is being built. If you are ordering a boat, why should your terms be more harsh? If anything they should be lighter since the dealer is ordering a boat that they already have sold. I don't see why you should suddenly assume all the dealers risk and payment schedule. Just a thought.

twistedtree said:

I agree with everything BandB says about builders and their precarious positions coming out of the past several years. However I think that everything he says about GB applies equally to any other manufacturer. This big difference with GB is that they are one of the few publicly traded builders, so all this info is available and you can actually see who the different companies are, what the debt is, how much cash they have, and how profitable (or not) they are and have been. With most other companies all that is opaque. You have no way of knowing how much cash they are hemorrhaging, how much cash they have, how in debt they are to their suppliers and others, whether they have any hope of getting an engine delivered for the build because they are behind on payments or need to pay up front, etc. etc.

And BandB's points about the morass of related and unrelated companies leading from build to sale is really important. I've been spared that with PAE since there is only the Yard and PAE. The key is to know how much money you have at risk at any given time, and what assets (if any) will become yours in the event of default. In the absence of a specific agreement, and with a contract with a dealer (how I think it works with GB), no assets will be yours until you take title to the boat, so going after the dealer is your only recourse and they likely don't have much in the way of assets. If, on the other hand, your agreement says that the boat's title passes to you automatically on default, then at least you have something. Who knows what you'd do with it, but it's something. Another approach would be some sort of bonded performance guarantee that gets you your money back if the boat isn't delivered within some reasonable amount of time or if the builder defaults.

Another approach, thinking about it, is to only pay a modest deposit until the bat is delivered. My understanding is that GB requires their dealers to purchase and stock boats, so the deal for you purchasing a stock boat would be a deposit followed by full payment on delivery. The dealer has to take the risk and pay any progress payments as the boat is being built. If you are ordering a boat, why should your terms be more harsh? If anything they should be lighter since the dealer is ordering a boat that they already have sold. I don't see why you should suddenly assume all the dealers risk and payment schedule. Just a thought.

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Not sure who he's buying from. GB did make their own entry into the market in Seattle. Now have sold that to Miller. On special orders, maybe the dealer is working it different. But GB is generally a stock boat and I'd suggest looking at the one Galati has or others in inventory.

And you're right about so many manufacturers having the morass of entities and the questionable finances. Even some US builders complicate it. Someone like Trinity, you find Sabates has an entity that is selling. Now people like Hatteras and Westport are straight forward. And people like Carver and Sea Ray are simple as you're buying from the dealer.

And PAE/Nordhavn is to be praised for their openness and transparency. One of the things I judge on is when you ask the questions you get a straight answer.

I know one US builder though that certain men will tell you they own the company. Technically that's true. But another company has an option they can exercise at any time.

I always joke (but not really joking) that the builder wants to check your credit, so then they should fill out a statement and provide financials to you.

If you want to look at how things can go wrong, look at all those hurt when Genmar liquidated.

And this isn't just the boat industry, it's any major industry. When I worked for my previous employer we got goods produced around the world, but we kept people on site at every contractor we used. There it was not just financial and quality but treatment of employees as well.

A good lawyer and good diligence on your part can protect you. Still I don't see why a deal like this would be required on a GB. If you're paying the money to a dealer then their health enters in too. But dealer deposits should be no more than 20% until delivered.

Follow this link to a lawsuit against Lagoon catamarans, Read the agents sales agreement closely. Only a fool would sign an agreement that basically says "give us your money then shut-up and go away"

BandB said:

Still I don't see why a deal like this would be required on a GB

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As best I can tell, dealer stock is very limited. After all, if you were a dealer how many boats would you have ordered and stocked over the past few years? There's at least one dealer in CA who still has a 2009 boat that he hasn't sold.

I think one of the biggest attractions to ordering a new boat is that you can get exactly what you want. If someone has that in stock, and it's not too far away to make transport/delivery cost prohibitive, then it's fortunate for the buyer.

Some options can be added by the dealer, but that can be hit or miss, especially with respect to quality of work. I had to re-do 100% of the dealer-installed equipment on my Grand Banks because the installation was so poor. And some equipment like air conditioning is not real practical to add after the fact. And things like stabilizers are much easier to do as part of the initial build. Then there are other things like cabin layout, stateroom layout, etc.

I image the OP has looked at the boats in stock, or at least is looking now Maybe he will get lucky and find what he wants.

boatpoker said:

Follow this link to a lawsuit against Lagoon catamarans, Read the agents sales agreement closely. Only a fool would sign an agreement that basically says "give us your money then shut-up and go away"

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Also you have to go to Singapore for arbitration.

That's always one thing too is they establish where either arbitration or a lawsuit has to take place. Which are the governing laws. Now US courts will often bust through those walls and let you sue a US entity regardless if you did business on US soil. But venue is the first of many expensive battles. Look how many filings just on the subject of the parties and venue in the Kakawi vs. Marlow case.

Don't sign million dollar contracts your lawyer hasn't approved.

twistedtree said:

As best I can tell, dealer stock is very limited. After all, if you were a dealer how many boats would you have ordered and stocked over the past few years? There's at least one dealer in CA who still has a 2009 boat that he hasn't sold.

I think one of the biggest attractions to ordering a new boat is that you can get exactly what you want. If someone has that in stock, and it's not too far away to make transport/delivery cost prohibitive, then it's fortunate for the buyer.

Some options can be added by the dealer, but that can be hit or miss, especially with respect to quality of work. I had to re-do 100% of the dealer-installed equipment on my Grand Banks because the installation was so poor. And some equipment like air conditioning is not real practical to add after the fact. And things like stabilizers are much easier to do as part of the initial build. Then there are other things like cabin layout, stateroom layout, etc.

I image the OP has looked at the boats in stock, or at least is looking now Maybe he will get lucky and find what he wants.

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We prefer to order. It's like we're looking at Hatteras 60 MY's and there are several in stock but we insist on a lower helm and none of those have it. Also a hinged arch. The foreign boats we've purchased were dealer inventory, well importer inventory. The boats we've had built have been US builds and ordered straight from the builder. So, to this point, we haven't faced the issue he faces.

As to dealers ordering and stocking, thats one reason GB had planned on setting up some of their own centers, but they just reversed that move and sold their centers in Seattle and Australia. Also, GB was going to build some boats for stock, but reversed that.

Frankly, if dealers aren't going to stock then why use dealers if you're a builder? Why not just brokers?

I was a bystander to a boat builder failing. It was not pretty. I was not aware of the legal details, but the last couple boats were unfinished and their titles were tied up as company assets. One customer apparently had his contract modified where he held title throughout construction. He hired his own crew to finish, and got a finished boat.

Others posting seem to have much more experience than I in this area, but on my layman's level, flags go up when a large amount of money is handed over before vessel is delivered. A typical Carolina boat build is handled this way and many buyers have been burned. Seems strange for a well established production boat company.

Ski in NC said:

I was a bystander to a boat builder failing. It was not pretty. I was not aware of the legal details, but the last couple boats were unfinished and their titles were tied up as company assets. One customer apparently had his contract modified where he held title throughout construction. He hired his own crew to finish, and got a finished boat.

Others posting seem to have much more experience than I in this area, but on my layman's level, flags go up when a large amount of money is handed over before vessel is delivered. A typical Carolina boat build is handled this way and many buyers have been burned. Seems strange for a well established production boat company.

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Many boats over history have been started one place and finished another. There have also been a couple of instances where yachts were being built and the only way the owner could get his yacht completed was by buying the boat builder. And by that point the builder was worth less than his partially completed yacht.

Yes, seems like every shipyard on the east coast has decided they would build boats at one time or the other.

BandB said:

And by that point the builder was worth less than his partially completed yacht.

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Speaking of which, what's Grand Banks' market cap? Want to chip in with me and by them? Sounds like we already have at least one boat sold....

twistedtree said:

Speaking of which, what's Grand Banks' market cap? Want to chip in with me and by them? Sounds like we already have at least one boat sold....

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173 million shares at S$0.215 for S$37.2 million or US$29.4 million.

So just under $30 million. Problem is they said no to a much larger per share price less than 2 years ago although it wasn't much more in total since they've diluted the shares since.

Funny they would rather sell new shares at a low price, diluting their shares, than sell the company. The current market cap is equal to basically their cash and Inventory. The book value of the company right now is probably around US$49 million or $39.

Interesting Discussion.

In dealing with US boards of directors, at least we have translucent transparency.

With a foreign board, who knows what's really going on: at best,
at worst,

When a board refuses an apparent higher, good offer, for a company that's losing money, I'm inclined to think they are making money, while everyone else is losing theirs.

Send em another million, they need it.

Wxx3 said:

Interesting Discussion.

In dealing with US boards of directors, at least we have translucent transparency.

With a foreign board, who knows what's really going on: at best,
at worst,

When a board refuses an apparent higher, good offer, for a company that's losing money, I'm inclined to think they are making money, while everyone else is losing theirs.

Send em another million, they need it.

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Actually their leading shareholders and their board are all quite well known and easy to figure out. The Board has undergone several changes. Livingston did actually make his way back on the board. Three shareholders own 46% of the stock.

Pride and Ego often enter into factions at odds with each other in these situations. I think they underestimated significantly what a turnaround would involve, thinking suddenly they would be back to their best days. Perhaps they thought the previous CEO was the problem. Sometimes they're intent on proving they can do it. Now, who knows their thoughts. They had a decent quarter ending in December. Do they think they've turned it around?

Wxx3 said:

Interesting Discussion.

In dealing with US boards of directors, at least we have translucent transparency.

With a foreign board, who knows what's really going on: at best,
at worst,

When a board refuses an apparent higher, good offer, for a company that's losing money, I'm inclined to think they are making money, while everyone else is losing theirs.

Send em another million, they need it.

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Actually I have no suspicions as to the board. Today it's the acting CEO, the largest shareholder, a representative of the second largest. and three independent directors.

BandB said:

173 million shares at S$0.215 for S$37.2 million or US$29.4 million.

So just under $30 million. Problem is they said no to a much larger per share price less than 2 years ago although it wasn't much more in total since they've diluted the shares since.

Funny they would rather sell new shares at a low price, diluting their shares, than sell the company. The current market cap is equal to basically their cash and Inventory. The book value of the company right now is probably around US$49 million or $39.

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To put that into perspective, Chaparral and Robalo are public as Marine Products Corporation and have a market cap of $318 million.