Felix Salmon went to meet with Ian Peck of the Art Capital Group. Salmon assumes the bulk of Peck’s clients are private collectors:
[I]f its borrowers do end up defaulting on their loans. They take the painting, sell it, and then pay themselves a 20% commission for selling the painting before paying themselves back everything they’re owed in terms of principal, interest, penalties and the like. “The commissions and fees are designed to be prohibitive,” says Peck.
Still, if you can’t repay the money, that doesn’t mean Art Capital won’t lend to you: “we are an asset-based lender,” says Peck. If Art Capital doesn’t think you’ll be able to repay the money easily, it’ll try to structure something else: a bridge loan, perhaps, against its own future sale of the painting. “We’re not in the business of providing ninja loans,” he says, “but we will do a pre-planned sale where you get 50% of the value now, and we’ll consign it to Christie’s or Sotheby’s for sale.” Peck says that one third of his deals are designed from the get-go to end with a sale, rather than just the repayment of a loan.
Art Capital will also finance the purchase of art: if you need a bit of time to pay for a painting, whether it’s bought from a dealer or at auction, Art Capital will help pay for it. The downside, of course, is that you probably won’t be able to put that painting on your wall: Art Capital likes to have possession of the art that it’s lending against, since art is highly mobile and a lien won’t do you much good if you can’t locate the art in question. Besides, in jurisdictions like Switzerland, France, and Italy, the courts won’t recognize a security interest unless you have physical possession of the art in question. Sometimes, however, Art Capital can arrange for art to be loaned to — and displayed at — a museum, instead of languishing in its own warehouses.
One of the reasons ACG can make these arrangements is that their clients are as often–if not more often–dealers themselves who are financing the purchase of a work(s) while simultaneously looking for a buyer. Of course, that’s not all of ACG’s business. They buy up other loan portfolios for a fraction of the loan value and they provide liquidity services to clients with big art collections.
A Visit to Art Capital Group (Felix Salmon/Reuters)