Post by Moses on Dec 15, 2004 2:42:28 GMT -5
(excerpt)
....The inflation rate for luxury goods reached 7% last year, more than twice the overall U.S. inflation rate, according to a study conducted by Merrill Lynch & Co. and the consulting firm Capgemini Group. The real rise isn't in trinkets for the mass affluent such as handbags, clothes and shoes. It's in the big-ticket items for the wealthy.
Vacation-home prices in Aspen, Martha's Vineyard, Northern California and other elite spots have doubled in recent years, real-estate agents say. Palm Beach has become an island of billionaires, with financier Ron Perelman recently selling his oceanfront estate there for more than $70 million.
Sotheby's and Christie's both topped $90 million in sales at their postwar and contemporary art auctions this month, with only a handful of works selling for less than $1 million. Racehorses are hitting prices not seen since the mid-1980s, with one yearling recently selling at auction for more than $8 million.
The luxury boom stems from a huge increase in personal fortunes. The wealth held by millionaires world-wide rose to $28.8 trillion as of the end of 2003, according to a separate Capgemini-Merrill study, up 11% from $26 trillion in 2001. That's more than the annual gross domestic products of the U.S., Japan, Germany, France and the United Kingdom combined. Those at the very top appear to be doing especially well recently. The wealth controlled by individuals in North America with more than $30 million in financial assets -- such as stocks and bonds, but not including real estate -- jumped 45% to $3.04 trillion in 2003 from $2.1 trillion in 2002, according to Capgemini-Merrill.
A generally rising stock market over the past decade, soaring executive compensation, higher real-estate values and lower taxes on the wealthy are all cited as explanations for the rising wealth. Also, more and more entrepreneurs who started family businesses after World War II are cashing out because of industry consolidation, creating what private bankers like to call "major liquidity events." Today's instant multimillionaires tend to be younger than the rich of the past, and more likely to splurge on lifestyle goods to differentiate themselves from hoi polloi affluent people.
[More Millionaires]
Edward N. Wolff, a professor of economics at New York University who studies wealth, likens modern-day big spenders to nobles at the court of France's Louis XIV, who reigned from 1643 to 1715. To ensure the nobles' loyalty, Louis continually raised the "entry price" of being in his court, requiring them to wear increasingly expensive clothes and keep larger and larger homes. The nobles' need for greater wealth made them even more dependent on the king's good graces, and left them less money to spend on arms.
Today, Mr. Wolff says, it's the wealthy themselves who are bidding up the price of being on top. "For the wealthy to keep their status, they have to compete in terms of luxury consumption," Mr. Wolff says. "The mere fact that this group can pay these prices becomes an indicator of social standing."
Of all the unnecessary purchases, yachts are among the hardest to justify. Owners of a yacht -- generally defined as a vessel longer than 85 feet registered for private use -- rarely use their boats more than a month or two a year. Upkeep can cost millions of dollars a year, and yachts typically fall in value after three or four years. A new paint job alone can cost more than $100,000. What's more, international maritime law generally prohibits yacht owners from carrying more than 12 guests, excluding crew members, although some big boats can get permission for 36 guests. That means a yacht can't host large parties while cruising offshore.
Yachts do give their owners one important value: exclusivity. Norberto Ferretti, chairman of the Ferretti Group, one the world's top yacht builders, says his customers like the privacy and freedom that comes with cruising on a yacht. Entertaining guests on a yacht is "much more special than just bringing them to your villa," he says. Best of all, yachts separate the seriously rich from the merely well-off.
"Rich people can go to a beautiful hotel and pay $3,000 a night for a suite," he says. "The trouble is, when you go down the elevator, you're in the lobby with people who paid twenty times less. My clients don't like that."
Yet even yachts are becoming more mass-market. With cheaper, composite-material hulls and mass-production techniques seeping into the yachting world, yacht builders can now crank out larger volumes. There are 257 orders for "starter" yachts -- between 80 feet and 100 feet -- scheduled for 2005, up from 139 in 2001, according to ShowBoats International, a magazine for yacht owners.
For yacht owners to feel special at the marina, they now have to have boats of at least 200 feet, builders say. As of July 2004 there were 35 boats under construction of over 200 feet, including five measuring 295 feet or more, according to the magazine Yachts International.
Today's biggest yachts are loaded with new technology and toys. Computer-controlled stabilizers -- which anticipate the rocking movements of a boat and offset them with underwater fins or gyroscopes -- make megayachts perfectly still even when anchored. High-tech security systems, stereos, theaters and swimming pools have become standard. Most come with garages, to house jet skis, motorcycles, small motorboats and other vehicles.
In the U.S., the yacht wars started when Leslie Wexner, chairman and chief executive of Limited Brands Inc., built the 315-foot Limitless in 1997. The ship has 3,000 feet of teak wood along with a gym.
Shortly after, Microsoft Corp. co-founder Paul Allen bought the 354-foot Le Grand Bleu, which has its own 72-foot sailboat on board. Then he commissioned Lürssen, the German builder of the world's largest yachts, to produce the 414-foot Octopus. It was planned to be the biggest yacht in the world. Delivered last year, Octopus has a 59-foot speedboat, personal submarine, swimming pool and music studio, according to builders. The helicopter pad on the main aft deck doubles as a basketball court. People familiar with the boat say it cost more than $250 million to build and will cost more than $10 million a year to run.
[Octopus]
Octopus, the 414-foot yacht owned by Microsoft co-founder Paul Allen, is equipped with two helicopter pads, a basketball court, music studio and submarine.
While Octopus was under construction, Larry Ellison, the hypercompetitive Oracle Corp. chief who's also an avid boater, was building his own superboat. It was originally slated to be 393 feet. As the building of Octopus proceeded, Mr. Ellison expanded the size of his boat. The result, a 452-foot colossus called Rising Sun, was launched this fall, making Mr. Ellison king of the heap at least temporarily. The price tag was more than $200 million, people familiar with the project say. Neither Mr. Allen nor Mr. Ellison will comment on their yachts.
Now, a Saudi family is building an even larger ship, according to yacht builders and brokers. The boat, called Platinum, is expected to be about 525 feet long. It's scheduled for launch next spring.
Yachts are even outgrowing the yacht builders. Until recently Azimut-Benetti SpA, the world's top yacht builder, could build yachts up to only 230 feet. With demand for larger boats so strong, the company last month announced a joint venture with Fincantieri SpA, a cruise-ship builder, to meet the demand for the new breed of megayachts.
Paolo Vitelli, Azimut-Benetti's chairman, says one of his clients ordered a yacht and saw one of his business competitors with a larger boat. "He asked us to make his one meter larger than his competitor's," Mr. Vitelli says.
Demand is so strong that some custom-ship builders are booked until 2006. Since construction takes two or three years, a boat ordered today might not be delivered until 2008 or 2009. Buyers who want a boat right away must pay a steep premium for a finished new boat.
On a recent morning at the Fort Lauderdale boat show, Don Davis stepped aboard Regency, his new 142-foot, three-deck motor yacht. With a touch of a button, two giant sliding glass doors sprang open to the sprawling living room. The carpet is hand-knotted from wool and silk in China, according to crew members. The bathrooms are fitted with Italian marble and the walls paneled with African Makore wood.
The grand stairway, sculpted from wrought iron and wood, spans three flights. Retractable plasma television screens adorn almost every room, along with surround-sound speakers, audio players and amplifiers. Mr. Davis designed the boat's X-shaped logo, which adorns the dining-room carpet and the formal China. Just filling the gas tank costs more than $12,000.
Mr. Davis, a Texas businessman whose interests include real estate and car dealerships, is selling Regency to build another yacht, perhaps even larger. His asking price is $18.5 million, and he's already gotten five offers.
The size competition may be reaching its limits. The sudden proliferation of big boats has led to a world-wide shortage of berths, or yacht parking spots. Boats over 300 feet are too big for most marinas and have to anchor far from shore or at cruise-ship terminals. Many of the supersized boats have been dogged by cost overruns and quality troubles, builders say.
"One owner came to me just after buying a huge boat and wanted to sell it," says Henk de Vries, managing director of Feadship, a Dutch yacht builder. "He said that when he stood on the deck, he felt too far from the water."
Write to Robert Frank at robert.frank@wsj.com
— Robert Frank
Wall Street Journal
2004-12-14
online.wsj.com/article/0,,SB110297517061098911,00.html?mod=home%5Fpage%5Fone%5Fus
....The inflation rate for luxury goods reached 7% last year, more than twice the overall U.S. inflation rate, according to a study conducted by Merrill Lynch & Co. and the consulting firm Capgemini Group. The real rise isn't in trinkets for the mass affluent such as handbags, clothes and shoes. It's in the big-ticket items for the wealthy.
Vacation-home prices in Aspen, Martha's Vineyard, Northern California and other elite spots have doubled in recent years, real-estate agents say. Palm Beach has become an island of billionaires, with financier Ron Perelman recently selling his oceanfront estate there for more than $70 million.
Sotheby's and Christie's both topped $90 million in sales at their postwar and contemporary art auctions this month, with only a handful of works selling for less than $1 million. Racehorses are hitting prices not seen since the mid-1980s, with one yearling recently selling at auction for more than $8 million.
The luxury boom stems from a huge increase in personal fortunes. The wealth held by millionaires world-wide rose to $28.8 trillion as of the end of 2003, according to a separate Capgemini-Merrill study, up 11% from $26 trillion in 2001. That's more than the annual gross domestic products of the U.S., Japan, Germany, France and the United Kingdom combined. Those at the very top appear to be doing especially well recently. The wealth controlled by individuals in North America with more than $30 million in financial assets -- such as stocks and bonds, but not including real estate -- jumped 45% to $3.04 trillion in 2003 from $2.1 trillion in 2002, according to Capgemini-Merrill.
A generally rising stock market over the past decade, soaring executive compensation, higher real-estate values and lower taxes on the wealthy are all cited as explanations for the rising wealth. Also, more and more entrepreneurs who started family businesses after World War II are cashing out because of industry consolidation, creating what private bankers like to call "major liquidity events." Today's instant multimillionaires tend to be younger than the rich of the past, and more likely to splurge on lifestyle goods to differentiate themselves from hoi polloi affluent people.
[More Millionaires]
Edward N. Wolff, a professor of economics at New York University who studies wealth, likens modern-day big spenders to nobles at the court of France's Louis XIV, who reigned from 1643 to 1715. To ensure the nobles' loyalty, Louis continually raised the "entry price" of being in his court, requiring them to wear increasingly expensive clothes and keep larger and larger homes. The nobles' need for greater wealth made them even more dependent on the king's good graces, and left them less money to spend on arms.
Today, Mr. Wolff says, it's the wealthy themselves who are bidding up the price of being on top. "For the wealthy to keep their status, they have to compete in terms of luxury consumption," Mr. Wolff says. "The mere fact that this group can pay these prices becomes an indicator of social standing."
Of all the unnecessary purchases, yachts are among the hardest to justify. Owners of a yacht -- generally defined as a vessel longer than 85 feet registered for private use -- rarely use their boats more than a month or two a year. Upkeep can cost millions of dollars a year, and yachts typically fall in value after three or four years. A new paint job alone can cost more than $100,000. What's more, international maritime law generally prohibits yacht owners from carrying more than 12 guests, excluding crew members, although some big boats can get permission for 36 guests. That means a yacht can't host large parties while cruising offshore.
Yachts do give their owners one important value: exclusivity. Norberto Ferretti, chairman of the Ferretti Group, one the world's top yacht builders, says his customers like the privacy and freedom that comes with cruising on a yacht. Entertaining guests on a yacht is "much more special than just bringing them to your villa," he says. Best of all, yachts separate the seriously rich from the merely well-off.
"Rich people can go to a beautiful hotel and pay $3,000 a night for a suite," he says. "The trouble is, when you go down the elevator, you're in the lobby with people who paid twenty times less. My clients don't like that."
Yet even yachts are becoming more mass-market. With cheaper, composite-material hulls and mass-production techniques seeping into the yachting world, yacht builders can now crank out larger volumes. There are 257 orders for "starter" yachts -- between 80 feet and 100 feet -- scheduled for 2005, up from 139 in 2001, according to ShowBoats International, a magazine for yacht owners.
For yacht owners to feel special at the marina, they now have to have boats of at least 200 feet, builders say. As of July 2004 there were 35 boats under construction of over 200 feet, including five measuring 295 feet or more, according to the magazine Yachts International.
Today's biggest yachts are loaded with new technology and toys. Computer-controlled stabilizers -- which anticipate the rocking movements of a boat and offset them with underwater fins or gyroscopes -- make megayachts perfectly still even when anchored. High-tech security systems, stereos, theaters and swimming pools have become standard. Most come with garages, to house jet skis, motorcycles, small motorboats and other vehicles.
In the U.S., the yacht wars started when Leslie Wexner, chairman and chief executive of Limited Brands Inc., built the 315-foot Limitless in 1997. The ship has 3,000 feet of teak wood along with a gym.
Shortly after, Microsoft Corp. co-founder Paul Allen bought the 354-foot Le Grand Bleu, which has its own 72-foot sailboat on board. Then he commissioned Lürssen, the German builder of the world's largest yachts, to produce the 414-foot Octopus. It was planned to be the biggest yacht in the world. Delivered last year, Octopus has a 59-foot speedboat, personal submarine, swimming pool and music studio, according to builders. The helicopter pad on the main aft deck doubles as a basketball court. People familiar with the boat say it cost more than $250 million to build and will cost more than $10 million a year to run.
[Octopus]
Octopus, the 414-foot yacht owned by Microsoft co-founder Paul Allen, is equipped with two helicopter pads, a basketball court, music studio and submarine.
While Octopus was under construction, Larry Ellison, the hypercompetitive Oracle Corp. chief who's also an avid boater, was building his own superboat. It was originally slated to be 393 feet. As the building of Octopus proceeded, Mr. Ellison expanded the size of his boat. The result, a 452-foot colossus called Rising Sun, was launched this fall, making Mr. Ellison king of the heap at least temporarily. The price tag was more than $200 million, people familiar with the project say. Neither Mr. Allen nor Mr. Ellison will comment on their yachts.
Now, a Saudi family is building an even larger ship, according to yacht builders and brokers. The boat, called Platinum, is expected to be about 525 feet long. It's scheduled for launch next spring.
Yachts are even outgrowing the yacht builders. Until recently Azimut-Benetti SpA, the world's top yacht builder, could build yachts up to only 230 feet. With demand for larger boats so strong, the company last month announced a joint venture with Fincantieri SpA, a cruise-ship builder, to meet the demand for the new breed of megayachts.
Paolo Vitelli, Azimut-Benetti's chairman, says one of his clients ordered a yacht and saw one of his business competitors with a larger boat. "He asked us to make his one meter larger than his competitor's," Mr. Vitelli says.
Demand is so strong that some custom-ship builders are booked until 2006. Since construction takes two or three years, a boat ordered today might not be delivered until 2008 or 2009. Buyers who want a boat right away must pay a steep premium for a finished new boat.
On a recent morning at the Fort Lauderdale boat show, Don Davis stepped aboard Regency, his new 142-foot, three-deck motor yacht. With a touch of a button, two giant sliding glass doors sprang open to the sprawling living room. The carpet is hand-knotted from wool and silk in China, according to crew members. The bathrooms are fitted with Italian marble and the walls paneled with African Makore wood.
The grand stairway, sculpted from wrought iron and wood, spans three flights. Retractable plasma television screens adorn almost every room, along with surround-sound speakers, audio players and amplifiers. Mr. Davis designed the boat's X-shaped logo, which adorns the dining-room carpet and the formal China. Just filling the gas tank costs more than $12,000.
Mr. Davis, a Texas businessman whose interests include real estate and car dealerships, is selling Regency to build another yacht, perhaps even larger. His asking price is $18.5 million, and he's already gotten five offers.
The size competition may be reaching its limits. The sudden proliferation of big boats has led to a world-wide shortage of berths, or yacht parking spots. Boats over 300 feet are too big for most marinas and have to anchor far from shore or at cruise-ship terminals. Many of the supersized boats have been dogged by cost overruns and quality troubles, builders say.
"One owner came to me just after buying a huge boat and wanted to sell it," says Henk de Vries, managing director of Feadship, a Dutch yacht builder. "He said that when he stood on the deck, he felt too far from the water."
Write to Robert Frank at robert.frank@wsj.com
— Robert Frank
Wall Street Journal
2004-12-14
online.wsj.com/article/0,,SB110297517061098911,00.html?mod=home%5Fpage%5Fone%5Fus