Picasso’s Femmes d’Algers in Hong Kong; and some thoughts on the Marron deal.
This commentary by Marion Maneker is available to AMMpro subscribers. (The first month of AMMpro is free and subscribers are welcome to sign up for the first month and cancel before they are billed.)
The Marron Sale’s Effect on the Market
Yesterday’s news announcing the private sale of Donald Marron’s art collection through a coalition of the collector’s former galleries provoked a few comments in the press and on Twitter about the arrangement marking a meaningful change in the way the art market functions. It is certainly worth asking a few questions about how this might have come about.
The deal with Marron’s heirs comes at a time when auction volumes are shrinking but private sales are booming at Christie’s, Phillips and Sotheby’s. Presumably the large global dealers like Pace, Gagosian and Acquavella are seeing a similar increase in their own sales. Why? After a long run-up in art prices from 2009 to 2015, pricing has stabilized across the art market. For many major artists fair prices have been established at auction and enough trading has taken place around those prices (both in public and private) to reassure buyers and sellers that a deal is fair.
Auctions exist to provide a mechanism for price discovery. In that sense, the auction houses have done their job well, maybe even too well. It is now easier for the private market to function where sellers have the option of taking their time to find a fair price and buyers have the discretion of a private deal.
The other obvious factor in the Marron sale is the looming Macklowe collection. The Macklowe case may have served as a distraction for the auction houses in pricing the Marron collection, or it created a more complex decision-making tree for them. In other words, the Marron heirs may have been better advised to have waited to make their deal until after the Macklowe collection finds a seller. With two houses bruised over the loss, the Marron trove would be more valuable to at least one firm that needs the sales volume to compete.
In the competition for prominent estates with strong material, it is important to remember that the auction houses serve two purposes when they sell artwork. Obviously, they want to generate commissions which are their source of revenue, but auction houses are primarily relationship businesses. Selling high-quality works gives the specialists and business getters opportunity to approach and develop ties with old clients and new. Many of the prospects cultivated through headline sales will not purchase from a well-known estate. However, they are likely to eventually buy something from the auction house in future sales once they have established a connection internally.
That same idea lies behind the coalition of dealers now selling the Marron works. Since those same dealers handled many of the original sales to Marron, they most likely have a better handle on who the potential buyers are waiting next in line for the works. The directors at those galleries undoubtedly have their own list of clients. These works will allow them to open a conversation with those prospects whether they’re ultimately buyers of the Marron works or not.
Finally, the selling method for these works is going to be markedly different through galleries than through the auction houses. Auctions maximize value by generating competition. Private sales maximize value through the threat of competition. At auction, the best strategy for a high price is to attract bidders with the lowest possible estimate and then hope the competition drives the bidding well beyond that price. In a private sale, the dealer must establish a price low enough to challenge the buyer with the meaningful threat that another potential buyer will agree to the price on the spot but high enough to maximize the value to seller and the gallery. At auction, the price goes where it goes; but the dealer does not have the opportunity to revise a price upwards. The specialist can offer the work at a level high enough to allow them to field offers below the asking price and to leverage those offers to motivate potential buyers to edge closer to the offering price. Yet, there is no option to let the competition go beyond the asking price. Once someone says yes to this number, it is done.
This is not just an issue of sales strategy. From the press announcements, there’s a suggestion that the deal with Marron’s heirs is being financed by the seller. We are told the dealers have committed to a value of the collection (presumably each dealer has chosen and priced the works they want to sell) and that they committed to buying the works if they don’t sell. This means the dealers are hoping to sell the works before they pay the Marron heirs instead of having to finance the deal upfront.
This is obviously very good for the dealers. If the collection were split evenly, each gallery would have to finance more than $100m to pay the heirs upfront. Even for a global “mega” gallery, accessing $100-150m quickly is difficult and relatively expensive. If by June or September, or whenever the galleries have committed to buy the works, the dealers will be sitting on Marron inventory, and will have to make crucial decisions about how to price the works. Will they borrow money to hold the paintings for an extended period? Will they sell them at little or no profit to contain their costs?
The complexity of these questions illustrates some of the problems with viewing this particular deal as a harbinger of future “club deals” among the big galleries. Like the private equity industry that distributes risk by sharing profits, the Marron deal looks to more of a singular opportunity than an industry trend.
Coming Soon to Sotheby’s: Gerhard Richter Works
Art Market Monitor recently hired a new editor and analyst to help expand our market coverage. Already that hire is paying dividends by uncovering evidence that Sotheby’s Financial Services has made a loan secured by two Gerhard Richter works as collateral. [Update: a previous version of this item identified the Met as the borrower. The filing includes the Met merely because the works will be included in a show at the Met beginning March 4th.] The paintings are an Abstraktes Bild from 1990 and a Study for Clouds from 1970 (above). The firm’s financial services branch provides loans to facilitate sales and has expanded substantially within the past several years to feed an increasing demand for high value art lending. Typically, these loan terms include cash advances against future consignments. The financial filings do not indicate when the works will be sold but it seems likely that the works will appear in the Spring sales.
Most recipients of these pre-sale loans are private collectors. It is unusual to see a loan go to a museum of the Met’s caliber. Neither of the two works mentioned in the filings are listed in the Met’s permanent collection. This signals that the museum could be selling works donated from a private collection for the purpose of raising money.
The Study for Clouds (1970) was previously sold at Sotheby’s London in 2002 for $3m. Other works from the series have sold for prices as high as $6m in 2015 and a larger, later (1976) version of clouds sold for nearly $12m in 2013. Last year, a work of similar size but different composition sold for $1m.
Coming Soon to Christie’s? Picasso’s Femme d’Algers (f)
Christie’s is pre-marketing Pablo Picasso’s Femme d’Algers, version f (1955) to collectors in Asia while it debates whether to sell the work in Hong Kong or the West this Spring, according to advisors whose clients have been approached directly about the painting. One of fifteen versions of an image by Eugene Delacroix that Picasso painted in the Winter of 1955, the works were sold as a group to American collector Victor Ganz, who kept five of the paintings and sold the other ten to recoup his initial costs. That same year, Eleanore Saidenberg became Picasso’s New York dealer and would represent him until his death 18 years later. She acquired version ‘f’ of the painting, and it remained in her personal collection and then in her estate. Saidenberg’s trove of Picasso paintings has previously fed the market at various times over the last 20 years since her death in 1999.
Where to sell the work and how to price it are interesting questions in the current market and geo-political climate. Selling a major Modern work in Hong Kong would be a milestone in the development of the Asian market. But do Asian buyers want to buy closer to home? Or is part of the appeal in buying Modern art getting it from the “source?” Any sale in Hong Kong, of course, has to take into account the current social turbulence produced by the city’s protest movement and the attempts to curtail the spread of the coronavirus. Though much may have changed in Hong Kong by May.
How Christie’s estimates the work will also be interesting. Version ‘o’ of the work famously sold for $179m to a Qatari royal in 2015. The two works are very different paintings. Version ‘f’ is much smaller and less complex. There’s talk of it being offered with a $40m estimate.