Portfolio raises an interesting question: has art financing brought leverage to the art market?
The art boom was fueled in part by easy credit from private banks—and vice versa. Now, as the credit crunch continues to wreak havoc on global commodity and stock markets, many private lenders are pulling back, and art world professionals fear that will put even more pressure on the once-booming market for art.
U.S. and international art collectors borrowed an estimated $2 billion to $3 billion from private banks and other financial-services companies during the past decade, according to Art Capital Group, a New York-based firm that specializes in art finance. The loans are often backed wholly or partially by the art itself with private lenders typically charging modest monthly interest payments. Now, even the wealthiest collectors are finding it difficult to secure lending, experts say.
The usual patter on art-backed loans is that they do two things, provide working capital to dealers and create liquidity for collectors. Portfolio implies that the $2-$3 billion in loans went into further art purchases (the story opens with an anecdote about a collector who was cut off from funding and closes with the same collector sitting out the auction season because of it.) But no where in the story does the writer offer real evidence that the $2-$3 billion was substantially spent on art. Nor do they run the numbers to show how that $2-$3 billion would affect the market.
Remember, that’s $2-3 billion over a decade when the art market grew to an annual size of $50 billion. Conservatively, that would put the decade’s turnover at $150 billion. So the loans would have injected 1.3-2% more money into the overall market–that is, if the money was used to buy more art.
No Banking on the Art Market (Portfolio)
Also of Interest:
- Leveraged Art
The Financial Times’s Ian Driscoll studies art loans with Citi Wealth Management’s Suzanne Gyorgy, head of the division: Ms Gyorgy... - $300 Million in Art Loans: Tip of the Iceberg?
Colin Gleadell takes the New York Times story about art loans a little further by giving us some figures. Combining... - Aby Rosen’s Real Estate Woes
Aby Rosen’s RFR bought some buildings from Sam Zell at the top of the market in 2007: Mr. Rosen, also... - Art Capital Group Expects 150% Rise in Loans
Kelly Crow reveals the growing size of the art loan market in the Wall Street Journal: Art Capital Group expects... - Aggressive Art Capital Group
There don’t seem to be many heroes or innocent victim’s in the L’Affaire Leibovitz. New York Magazine story catalogues Art...
Newspapers and magazines have their agendas, and can easily find whatever statistics and unnamed sources to substantiate their theories (gee, sounds a lot like the Bush administration). Never let facts or evidence get in the way of a good story! They’re all just looking for different angles to support that the art market – and other luxury markets – are imploding. While there might be some truth to it, all they have to do is show the evidence and let smart readers decipher it.