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Business Observer Thursday, May 28, 2009 12 years ago

Against the Tide

The boating industry may be down, but it's not out. One entrepreneur is betting yachts and larger boats will ride out the economic downturn and he says he's already seeing the first signs of a recovery.
by: Jean Gruss Contributing Writer

The boating industry may be down, but it's not out. One entrepreneur is betting yachts and larger boats will ride out the economic downturn and he says he's already seeing the first signs of a recovery.

Marc Harris tells the tale of two boat shows.

The first one, in Fort Lauderdale in October, was watching-the-paint-dry slow. Buyers weren't buying and sellers weren't selling as the financial crisis swallowed Lehman Brothers weeks before. “New boats took a hit,” Harris says.

Then, barely six months later at the Miami boat show in February, the spread narrowed between what buyers were willing to pay and what sellers were willing to give. The result: “A lot of boats sold,” Harris says.

Harris, who has been a yacht broker for a decade in Florida, figured the market bottomed and decided to launch a new yacht-brokerage company he'd started planning more than a year ago, Marcali Yacht Brokerage and Consulting.

“That, to me, cemented my thoughts,” he says of the success of the Miami show.

Harris is typical of successful entrepreneurs. They don't look back and always see opportunities ahead of them. If you were to look in the rearview mirror, this would not be a good time to jump into the yacht-brokerage business.

Sales at Florida motorboat and yacht dealers dropped 50% in 2008 compared with the previous year, according to sales data from the Florida Department of Revenue. In 2008, 245 yachts measuring 60 feet or longer were sold in the U.S., a 21% drop from 2007, according to the National Marine Manufacturers Association.

Harris concedes that some of his friends thought he was “nuts” to start a yacht brokerage firm in such a down market. But the Tennessee native says the Miami boat show may have been a turning point in the boating economy that will only be confirmed by the data later.

Harris, 54, is ambitious. He launched the firm in Fort Myers three months ago and already has $15 million in inventory, including a $12 million yacht. He plans to have 12 employees in Fort Myers and 24 in a new office in Fort Lauderdale later this year.

To a certain extent, Harris says the slower market has allowed him to devote more time to building his business. If he and his staff can make a success of it in this tough environment, they'll benefit when the good times eventually return.

In some ways, boat and yacht sales are subject to the same economic forces that affect any other industries, such as real estate. Excess supply and weak demand forces prices down. Harris estimates prices for larger boats and yachts in the secondary market fell 18% last year.

Lenders who foreclosed on boats where the owner got overextended were a big reason prices fell. Obviously, banks don't want to own boats anymore than they want to own houses.

“The toys go first,” Harris says. Owners of boats in the 28- to 40-foot range in length were hardest hit.

But the laws of economics only go so far in the yacht world. That's because there's a certain level of demand that never goes away. “Someone wants a toy,” Harris says with a twinkle in his eye that suggests he understands man's weakness for a boat.

“That puts boats in a different class,” he says. “They defy all economic standards.”

The result of this basic level of demand is that prices have leveled off after falling steeply last year. What's more, some sellers won't go below a certain price. “It may mean a yacht doesn't sell,” Harris says. Still, with prices substantially below where they were, buyers are starting to return.

Prospective buyers encompass every level of the buying spectrum, from the weekend boater who wants a flats fishing boat to one looking for a large yacht. European and Latin Americans are especially eager buyers now, Harris says.

“These people we're talking with are legitimate buyers,” Harris says. “We did six sales last month.”

Harris says most buyers pay no heed to the bad economic news. “The public is tired of hearing it,” he says. “Enough is enough.” Harris says sales will pick up in earnest when the incessant drumbeat of bad economic news subsides.

“When the media is positive, it will make a difference,” he says.

Building the brokerage
Harris started in the business by running fishing charters out of Redington Beach in Pinellas County in the 1980s. The Tennessee native moved to Florida to learn the trade, putting hours as a mate in the engine room.

“One thing led to another,” he says. By the 1990s he was running corporate-owned yachts as captain, managing everything from the crew to the finances of boats as long as 150 feet.

As he met prospective buyers on fishing and corporate charters, Harris he was becoming a broker by default. “I found myself helping them locate and buy boats,” he says.

So he joined Royal Yacht & Ship Brokerage in Clearwater and moved to Fort Myers five years ago. With the market down, Harris decided to launch his own firm.

A slow market allows Harris to focus on his customers and perfect his business, he reasons. “Most of clientele are long-standing,” Harris says. “I live by the creed that it's one client at a time.”

Selling boats is much harder than it used to be. “To sell a boat, your advertising costs have quadrupled,” he says. Much like real estate, there are listing services for yachts where buyers and sellers can view each other's inventory.

Still, much of the work involves personal salesmanship. “The personal touch is important to me,” Harris says. “I'm dealing with a pretty educated client.”

Typically, brokerage fees are about 10% of the sale price and the commissions are split if there's a buyer's broker involved in the deal. “We have a network of very experienced brokers in this state,” Harris says.

Fort Lauderdale and Miami are world-class boating hubs, so Harris plans to open an office there this year with 24 agents. Meanwhile, his Fort Myers office will grow from four currently to 12 by the end of the year.

If he has financial projections, Harris won't reveal what they are. But he has no doubt about the future: “I'm an eternal optimist. I think it's on the upswing now,” he says.

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