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November 25, 2011 at 10:19 AM
The art market continues to generate profits for savvy collectors. Recent auctions at Christie’s, Sotheby’s and Phillips de Pury generated sales of $635 million, exceeding most expectations.
According to the Economic Times, Christie’s raised a total of $325.9 million and a near 100% sale for its post-war and contemporary art sale. Sotheby’s recorded its third-highest total for a contemporary art sale and the highest since May 2008 with $315.8 million. Philips De Pury saw $71.3 million with 85 percent sold by lot.
The strong price performance in many art sub-markets is good news for your clients who collect those works. In some instances, however, your collector-clients may find themselves art-rich but cash-poor, especially if some of their other investments like real estate have declined significantly.
Art banking could provide the liquidity these clients need. It’s a specialized form of lending in which artworks serve as collateral. Several auction houses and major financial institutions offer the service, including Sotheby’s, Bank of America (BAC), Citigroup Private Bank (C), Emigrant Bank and JPMorgan (JPM).
In addition, several boutique lenders specialize in art-backed loans: Fine Art Capital, Art Capital Group and Art Finance Partners, for example.
Clients’ motivations for borrowing against their art works vary. Claire MacAndrew, editor of “Fine Art and High Finance” lists several:
- Divorce
- Estate-planning strategies
- Asset diversification
- Life insurance premium financing
- Charitable giving
- Annual exclusion transfers
Other borrowers may view their art as potential collateral for other non-art investments. In October, Bloomberg reported that Michael Steinhardt, the former hedge-fund manager who has an extensive art collection, was using part of the collection to secure low-cost funding for real estate investments.
