Luxury spending has seen an increase over the past year. That may bode well for the megayacht market in the coming months. Regardless, banking regulations are far different today than they were two to three years ago, during the boom times.
That’s why for this Leadership Series spotlight, we interview Lisa Verbit, senior vice president and national marine executive for Bank of America. Bank of America is among the few lenders that has continued to lend to superyacht buyers. As for Verbit, she’s well versed in yacht lending. She joined the bank’s Marine Division in 1989, which is within the Global Wealth and Investment Management Group. (That same group now includes the U.S. Trust and Merrill Lynch wealth management businesses.) Three years later, Verbit became National Marine Executive responsible for the yacht-lending program. She regularly works with owners and buyers domestically and internationally who request financing from $1 million to in excess of $70 million.
Q: Over the past two years, several financial institutions that previously provided marine lending pulled out of the marketplace, but Bank of America did not. What drove the commitment to remain?
A: Our yacht loan offering is a valued-added product and service for our clients. Offering yacht loans has also provided us with many opportunities to bring in new clients to our private wealth space and to expand those relationships beyond the yacht loan to include deposits, investment management, estate planning, and other loan products, not only within private wealth, but across other lines of business. While we certainly had our share of issues to work through given the severity of the recent economic downturn, our portfolio held up pretty well.
Q: Lending practices have changed dramatically. What are two or three key pieces of advice you give to potential superyacht borrowers these days who may have last applied for a construction loan several years ago?
A: First, be prepared to provide complete financial information, and provide it all up front. The more information we have, the more timely we will be able to come back to them with an answer. This has always been true, but is worth repeating. Also, our pricing is driven in part by a given client’s risk profile. With more information, we are better able to determine this risk profile, and often times this will lead to better pricing, and even terms, for our clients.
Second, get us involved early in the process. We will need to approve of the shipyard chosen for the build, and the contract will need to include language that provides for the needs of the lender. We can advise clients on the necessary provisions that will need to be incorporated into their contract.
And third, allow for about two or three months for the underwriting and loan documentation process for U.S. builds and about four to six months for international builds.
Q: In preparation for lending to a client, does Bank of America examine the financial health of the companies the owner wishes to do business with, such as the shipyard and the designer?
A: Since most shipyards are privately held and do not provide financial information, we rely on background checks – D&Bs, public records searches, media searches, etc. We also will talk with surveyors and other vendors who can give you a good idea of what’s going on in a given yard. We consider the reputation of the yard, and our and our clients’ previous experiences with the yard. Finally, we pay attention to the number of projects we are currently financing in a given yard. We don’t want to be overly concentrated in any one yard. Red flags? Excessive lawsuits, slow payment of bills, bad reputation. The yachting community is a valued source of information for us.
Q: Is there a maximum percentage of the yacht’s value that your institution will loan? If so, what is it?
A: Generally speaking, we will lend from 50 percent to 70 percent of the contract price, taking into consideration the size of the project, the pedigree of the yard, and the client’s financial profile and needs.
Q: How are construction loans structured? In other words, are portions of the overall loan released every few months directly to the shipyard, or to the owner?
A: Typically the client’s equity goes into the project first; we then fund 100 percent of the remaining milestone or monthly payments up to the approved loan to value and loan amount. Payments are made directly to the shipyard and surveyor inspection reports are required prior to each payment.
Q: Are there different rates for yacht construction loans in comparison to other leisure-oriented loans, such as homes?
A: There are some differences, yes, but the biggest determinant of pricing will be the client’s risk profile.
Q: The nation seems to be slowly recovering from the recession. Are you seeing more inquiries for yacht construction loans? What about loans for refit projects?
A: We are beginning to see more inquiries, not so much for refits as for new build projects and pre-owned yachts. So we are pretty optimistic. No one seems to be in a great hurry, though, but that’s OK. We understand that a yacht purchase is a considered purchase. It’s not that infrequent that many months and even years will pass from the time we first speak to a client about a significant purchase and the day that we close the loan. And then we get the guys who want to close in ten days! Either way, we’re here.
Q: It’s always difficult to foresee the future, but does Bank of America believe the marketplace for marine lending will return to previous levels?
A: We don’t really have any great sense. We do believe things are getting better, but it seems likely that it will be a slow, incremental ride before we reach the previous highs.