In the Art World, “Capital Is Extremely Expensive Because It’s Extremely High Risk.”

James Tarmy illustrates the financing of art through this tale of Alice Aycock’s work displayed on Park Avenue in New York last year. Aycock’s dealer, Thomas Schulte, was facing huge costs to produce Aycock’s work. So he turned to Loretta Wurtenberger (above, and you can hear more about what she does in the interview or read this transcript: Loretta Wurtenberger Artelligence 2014 transcript):

“That capital is very expensive, because it’s extremely high-risk,” gallery owner Schulte said. “You don’t know if the work is going to go over so well, you don’t know if it’s going to be ready in time. You don’t know when you’re going to get your money back if there aren’t sales.” […]

“It’s a long-term financial investment,” said gallery owner Thomas Schulte, adding that he “very rarely” seeks external funding. “One work by Aycock cost $350,000 alone in production costs, and took over a year to make, and in that particular case we needed another year to sell it.” […] Aycock’s medium-size sculptures are priced at about $250,000 and her large sculptures start at $650,000.

Schulte said: “People from Sotheby’s estimated that we would sell two large sculptures in a year, but we sold many more than that, though no one could have known.”

The project itself was a risk, he said, “but it was a very high return.”

Wurtenberger had her own thoughts on the matter:

External financing can be “a negative sign, pointing to a speculative market,” said Loretta Wurtenberger, a co-founder of Fine Art Partners. “But it’s also a demonstration of the professionalization of the art market. It’s a sign the industry’s grown up.” […]

Wurtenberger’s firm will loan as much as $2 million for an artist to create sculptures, and $250,000 to $10 million to dealers who want to buy works on the secondary market. In both instances, she receives a percentage of the sale. Fine Art Partners works with artists whose careers are already established.

How the World of Fine Art Gets Financing (Bloomberg Business)