Skate’s released a report on the art loan market this week which The Art Newspaper felt compelled to pass along to its readers without much inspection:
The report calculates that art loans could account for more than $10bn in 2015, at least twice the 2011 level, and could grow to become a $100bn market.
Several other art market journalists also passed along The Art Newspaper’s report amplifying its conclusions. But $100bn is an extraordinary number for art loans. And the report’s own chart of the 39 institutions that offer all types of loans against art is missing more information than it gathers. More than that, Skate’s cites 39 entities offering art loans but says its research only involves contacting fewer than 2/3s of those firms. Here’s where Skate’s informs us they only spoke to two dozen of the more than three dozen firms and adds that the $100bn figure is “conservative:”
Skate’s has polled about two dozen art-lending practitioners, pierced some art-market numbers, and researched various filings (including liens recorded on art assets with so called UCC filings in the United States) to produce this inaugural issue of the Skate’s Global Art-Loans Report. Our key findings are:
• Art-lending business is booming, with the 2015 art-loans book scheduled to grow above $10 billion this year, which is at least twice the level of the art-lending market last reviewed by Skate’s in 2011
• This still leaves ample room for growth, as Skate’s most conservative estimate of the addressable art-lending market size is $100 billion
It’s worth remembering that art loans provide funds against 50% of the value of the works pledged as collateral and the actual income to the lenders is rate charged on the loan. Nonetheless, here is Skate’s basis for $100bn:
Skate’s is using the Skate’s Top 10,000 Database to track the value of the world’s most valuable artworks by auction prices. The aggregate value of these 10,000 most expensive artworks totals $53.1 billion as of May 15, 2015, with the lowest-priced artwork on the list priced at $1,558,545 1. Assuming the auction market represents roughly half of all art sales in the high-end price category, the addressable market size for art loans against artworks over $1.5 million in value can be estimated at over $100 billion.
How the art loan industry would reach 100% penetration in the art market is difficult to imagine. Even if it could, the industry would need $200bn in art work to achieve a loan value of $100bn and income in the several billions from that. Even Skate’s doesn’t project that idea.
In fact, Skate’s doesn’t really think there’s a $100bn addressable market for loans:
Finally, when taking a $100 billion estimate for the addressable market size for art loans, one should take into consideration the total global art-auction trade’s annual volume of $6.75 billion (with artworks priced over $1.5 million)—or approximately $13 billion per annum if all the gallery, art fair, and other off-auction sales are taken into consideration. In other words, while the addressable market size might be $100 billion, the fact that it is more than 8 times the annual trading volume of the base asset (artworks over $1.5 million in market value) suggests that unless the high-end art trade continues to grow at its current pace of 15% to 20% per annum, the actual capacity of the art-loans market is unlikely to expand beyond $20 billion, due to collateral liquidity constrains.
But somehow Skate’s lost faith in its own $20bn number when it spoke to art lenders themselves who are clearly very bullish to promote their industry:
That said, many art lenders polled by Skate’s in the process of preparing this report expressed strong disagreement with this conservative estimate, claiming that they use none of these liquidity self-constraints in building the art-loan book at the moment and are comfortable with $100 billion addressable market size as a conservative estimate.
Mind you, Skate’s own report then goes on to quote Deliotte saying the current art loan market is $9.6bn with only $3bn of that collateral with non-recourse loans based upon the asset itself, not the borrower’s credit. All in all, the $100bn number is neither plausible nor useful.
Million-dollar sales boost art loan industry (The Art Newspaper)