10/30/2014

Art Accountants


We all of course have heard about art attorneys, but how about art accountants? Forbes recently ran an article on a large CPA firm in New York, Anchin, Block & Anchin.  The firm has a large art specialty group which serves high net worth individuals, private foundations, artist foundation and family offices. The article looks at some recent court cases involving art and taxes as well as the usual discussions of liquidity, high cost of ownership and a lack of transparency in the marketplace.

In any event, I think it is very interesting, and a positive sign of the growing interest in art as an investment with other professional groups. This growth can only help grow the appraisal profession and awareness on the need for credible qualified appraisers and appraisals.

Forbes reports
Art has been in the tax news of late and I was bemoaning the fact that accountants generally don’t know that much about art.  Of course there are exceptions and among them, perhaps foremost among them, is Gary Castle, a principal with Anchin, Block & Anchin. Gary is a  member of Anchin’s Art Specialty Group.  Among the clients he serves are high net worth individuals, private foundations, artist-funded foundations and family offices.  He is a  Chartered Accountant and has the corresponding British accent, which probably gives him an edge in the art world.  Depending on your point of view being a Chartered Accountant is equivalent to, slightly better than or almost as good as being a CPA.

A little known bit of CPA trivia is that when New York became the first state to license CPAs in 1896 it only issued licenses to American citizens.  Cynics thought that was to prevent chartered accountants from the UK, where the profession first took root, from stealing our lunch.  I’m certain it was patriotism, but we’ve gotten over those things – mostly.

Recent Decisions

The tax decision that caused the biggest stir in the art world in recent memory was that of Susan Crile.  Ms. Crile is a professor at Hunter College and a renowned artist –  world class really – with works hanging in the Guggenheim Museum, the Metropolitan Museum of Art and even the Worcester Art Museum.  Beautiful as her artwork was, her tax return was kind of ugly with consistent Schedule C losses offsetting about half her salary year in and year out.  The IRS attacked her with Section 183, commonly called the “hobby loss rule”.   The IRS lost badly in Tax Court on that issue.  Ms. Crile is not out of the woods yet, since there will be another decision on whether some of her expenses like tipping her doorman were really “ordinary and necessary” business expenses.  Gary Castle agreed with my perspective that exciting as this case might be, it is really of limited applicability.

The money shot tax decision for the art world this year was the Fifth Circuit decision in the case of the Estate of James Elkins .  You might say that the Fifth Circuit spanked the Tax Court in Elkins as the Tax Court had spanked the IRS in Crile.  Only the stakes were a lot higher – over $14 million in estate tax.  The issue was the valuation of fractional interests in artwork.  The estate had claimed a 44.75% discount for lack of marketability and control.  The IRS went for a zero discount.  The Tax Court allowed a 10% discount.  I covered the Tax Court decision. I passed on the Fifth Circuit decision because Ashlea Ebeling beat me to it and I didn’t have anything to add.

I asked Gary what his thoughts on Elkins were.  He defended the concept of minority discounts for fractional art interests indicating that it is no different than a minority interest in a closely held business.  My concern is questioning why somebody who owns 100% of something would divide it into pieces that sum up to less than the value of the whole.  Of course, the obvious answer is that if a family wants to hold onto art that has been collected, perhaps over a lifetime, the death of the collector presents them with a severe liquidity problem.  Regardless Gary does not think the success of the Elkins Estate should embolden planners to assume they will be able to sustain discounts approaching 50%.  Neither the IRS nor the Tax Court did a very good job analytically in Elkins.  If they had, somewhere between 10% and 45% might have been the answer.

Other Tax Issues

Although estate taxes play a major role in art planning, there are numerous other tax issues.  If you want to diversify your collection or get the yen to move from say Impressionism to Abstract, you might have significant taxable gains.  Although I’ve always believed that 1031 might have application in the art world, Gary confirmed that it is a viable technique.  He recommends that you involve an institutional exchange facilitator which might also be doing real estate and equipment, since they will have the facility with the proper tax execution.  I couldn’t pry a name out of him.

Then there are state tax issues. The New York Times recently ran an article about a sales and use tax dodge that some collectors were using.  Works that they bought were shipped on loan to a museum in a state that would not charge sales or use tax.  After a few months the work could be moved to the collectors home and he beats the use tax because the original use was the museum loan.  Gary’s firm put out an alert, that nifty as this idea might be it does not work if your bring the artwork into New York, New Jersey or Connecticut.

Art As An Investment

I asked Gary if he thought art makes sense as an investment, independent of what pleasure owning say a Picasso might yield.  He indicated that for someone with a net worth north of five or maybe ten million, it might make sense to have as much as 5% to 15% in collectibles including art, but also possibly collectible wines, automobiles or historical documents.  He believes that such investments can be counter-cyclical.

He noted some of the major problems with this category of investment such as lack of liquidity, a totally unregulated marketplace and costs of ownership.  An important element to the investment is maintaining its condition.  And if you want to move it, you can’t just hire the local moving man or as I once did a couple of college kids and a U-Haul.  There needs to be a condition report each time the work is packed and unpacked.  For whatever it is worth, he told me that oil on canvas is much more resilient than watercolors on paper.

Then there is knowing when to sell.  If you have focused your collection on a particular artist, your decision to sell several works could conceivably move the market adversely.

How Do You End Up With A CPA Art Expert?

Anchin, Block & Anchin with 350 people claims to be the largest single office accounting and advisory firm in the country.  They take up seven floors at 1375 Broadway in Manhattan putting them almost dead center between 42nd Street and Herald Square if you want to give them regards.

Gary says that concentrating all the firm’s intellectual capital in one place allows practitioners to effectively support one another.  Anchin was founded in 1923 and Gary has been there over 30 years, which reminded me just a bit of my own experience at Joseph B Cohan and Associates which was founded in 1917.  Herb Cohan took advantage of his intellectual capital concentrated in what was then the Peoples Savings Bank Building on the Worcester Common by roaming up and down the hall asking everybody the same question till he got an answer he liked.

I told Gary that I was surprised that I hadn’t heard of his firm.  He attributed that to my spending a career in the wilds of Central Massachusetts.  I tested that theory by asking Bob Charron, the last managing partner of JBC and now  Tax Operations partner at Friedman LLP.  He confirmed that Anchin is well known and well regarded.

A tax adviser ends up learning about the intricacies of his client’s concerns, because you cannot do tax planning in a vacuum.  The Anchin client base provides enough art collectors and people in ancillary businesses to make the effort worthwhile.  Ultra high net worth clients tend to value privacy, so I don’t know who Gary might be consulting for, but I was able to find a “for instance” which was pretty impressive.

Robert Wilson was a hedge fund founder and philanthropist who gave away most of his fortune which peaked at $800 million.  His most peculiar donation was $30 million to the Archdiocese of New York for its Catholic schools.  What made the donation peculiar was that he was an openly gay atheist, who thought the Catholic schools were good at educating kids.  More to the point of this piece is this quote from Wilson’s obituary:

Gary S. Castle, a philanthropic-giving specialist at the accounting firm Anchin Block & Anchin who worked with Mr. Wilson for many years, said Mr. Wilson had suffered a stroke in June.

I just checked the retail value of my limited edition print collection which includes a print of a B-25 taking off from a carrier that has signatures of veterans of the Doolittle raid.  Even with that, I barely break a thousand, so I won’t be needing Gary anytime soon.

 Correction

In an earlier version of this piece I indicated that Gary Castle was both a Chartered Accountant and Certified Public Accountant.  I also did not make it adequately clear that his opinion about the appropriateness of substantial investment of art was directed to persons with net worth well in excess of $10 million.
Source: Forbes

10/29/2014

Auction House Performance Commissions


I have posted in the past about the introduction, and potential use of success or performance commissions from the major international auction houses. These are added fees on sales should the selling price exceed expectations, such as the high estimate.

The Antiques Trade Gazette recently published an opinion piece by Pauly Viney, Chairman of UK auction house Woolley and Wallis and past chair of the Society of Fine Art Auctioneers and Valuers against the practice.

The ATG reports
The chairman of one of the UK’s most successful provincial auction houses has joined the condemnation of Christie’s new 2% success fee, saying he is appalled by it.

Paul Viney, chairman of Salisbury-based Woolley & Wallis, and a past chairman of the Society of Fine Art Auctioneers and Valuers, writes on this week's ATG Letters page that there can be no justification for such a commission, which the London auctioneers have decided to add to vendors' bills if lots reach their high estimate.

Mr Viney describes himself as 'extremely loath to denigrate a fellow member of our profession', but says that he is so appalled by the decision to impose the charge that 'I feel compelled to speak out'.

He dismisses Christie's argument that the commission will give an extra incentive to the vendor and the auction house as 'arrant nonsense' and blames 'bean counters'.

"I certainly can't see any self-respecting specialist advocating it," he concludes, arguing in turn that the 'unworthy decision' demeans auctioneers and 'sends out all the wrong messages'.

He further guarantees that Woolley & Wallis will never introduce such a commission while he is in charge, and he calls on fellow auctioneers across the country to take a similar stand.

Christie's, meanwhile, defended their position, saying: "We strive to be fair, innovative and competitive with our charges to clients. After an internal business review, we decided that all seller agreements (except online only sales) would be subject to a performance commission of 2%. But we would be entitled to this fee only if a sale reaches or surpasses the high estimate. It is linked solely to exceptional performance, and is, we believe, a reflection of the added value that such performance brings to clients."

Sotheby's Policy

Meanwhile, evidence has emerged that Sotheby's may have introduced a similar charge two years ago.

In October 2012 online analyst Art Market Monitor reported that a new clause had appeared in Sotheby's consignor contracts that read: "…a performance-related commission for each lot calculated as set out below will be charged in the event that the hammer price for the lot exceeds its final high presale estimate. Sotheby's performance related commission will be equal to the lower of (i) 2.00% of the hammer price achieved for that lot and (ii) the difference between the hammer price achieved for the lot and its final high presale estimate."

At the time Sotheby's were reported to have told the site: "This season, we formalised an existing practice which reflects our philosophy that when we exceed the expectations of our consignors, we should receive additional, incremental compensation which reflects that success."

However, the Art Market Monitor report is as yet the only identifiable source of this information and last week, when ATG asked Sotheby's whether such a charge had been levied since 2012, a spokesman replied: "Sotheby's does not discuss private client financial arrangements."
Source: Antiques Trade Gazette

10/28/2014

Obtaining an Art Loan


Forbes has an interesting article on how to go about obtaining a loan secured by fine art. What is interesting about the article is that it looks at not only the very top end of the market, but also the middle market.  There are lenders for the middle market, but rates tend to be higher (in many instances almost usurious) with loan to value ratios of 30% to 40%.

Due to the complexities in the art market, the bottom line on art loans appears to be unless you are a high net worth individual with individual pieces valued over $1 million, it seems like there might be better and less expensive alternatives when it comes to borrowing.
Would you spend more money on art if you thought that you could borrow money against its value? After all, buying art can be an expensive business and collectors are often loathed to part with it. Even collectors who do want to sell soon discover that art is an illiquid asset. If you could borrow against your prized Picasso, so much the better, and if you could borrow that money cheaply and channel that cash into something with a higher yield, art would start to look considerably more appealing as an investment.

The reality, though, is that art is hard to value and hard to authenticate and few mainstream banks want to lend against it. Some banks do offer art-secured loans at very low rates of around 2.5% to 3% to ultra high-net-worth collectors such as Steve Cohen, whose art collection is worth an estimated $1 billion.

Collectors at this level (and let’s face it, not many collectors are) can use these cheap loans to buy property, businesses or even more art, but there’s a big catch, and that it to arrange these loans, banks typically need to hold other assets with that institution that can be used to repay it. These borrowers are essentially taking out a loan against their whole portfolio, not just their art collection. Auction houses such as Sotheby’s and Christie’s also offer loans at competitive rates – as long as you are buying or selling art through them.

It is possible to take out a non-recourse, general purpose loan that is just secured against the value of your art from one of the other specialist lenders in the market. Interest rates here range from high single digits to well over 20%, but most lenders are only interested in making loans of over $500,000 and typically will only lend 40% of an artwork’s value. That means you need to have an artwork worth at least $1.25 million to be considered.

Some companies like Borro will make short-term loans against lower value art and collectibles, but will charge you interest of between 35% and a staggering 83% on an annualized basis. Then there are the so-called loan-to-own lenders, who bet that borrowers will default on the terms of their loan so that they can sell their precious artwork and keep the profits for themselves.

Put all these different lenders together and current size of the art lending market is estimated at £6 billion ($9.6 billion) a year, according to Deloitte and ArtTactic’s 2014 Art & Finance report, which was published last month. When you consider that global art sales last year were an estimated $63 billion, that isn’t very much at all.

However, the same report predicts the art secured-lending market could triple in size with the help of some new art insurance products, including those that allow collectors to keep the art they borrow against hanging on their wall.

If their art is located in the US, collectors can already do this. Under the Uniform Commercial Code, lenders can place a charge on the art collateral in someone’s home, but in most of Europe (except France, Belgium and Spain) and in other major art centers such as Hong Kong, lenders cannot register charges against art assets, so borrowers often have to hand over their art to their lender during the loan, which is not exactly an appealing prospect.

Today, though, some insurance companies are offering new products to protect the lender against the risks of letting the borrower keep the art. If the borrower grants a charge against the art collateral to someone else, or takes off with the art, or refuses to give it up if they default, the insurers will cover the lender for its loss.

Is this really going to result in the rapid growth of the art lending market, though? Dr. Tim Hunter, the head of Falcon Group’s new art division, Falcon Fine Art, which has just launched in London, says the company plans to allow clients in England, Wales and potentially other countries, on a case-by-case basis, to keep possession of their art.

That is certainly a departure from the norm, but the company isn’t relying on insurance to underwrite the risk. “Allowing clients to keep possession of their artworks is an important part of our model, but we’re not relying on any external product that may or may not be able to insure this service,” says Hunter, who is also an art adviser and spent 16 years at Christie’s, where he was a senior director in its Old Master and British Pictures department, a director in its Impressionist and Modern department and head of 19th Century European Art. “Falcon Group have been doing asset-backed financings for 20 years and I have 20 years of experience in the art world. In the end, there’s no short cut to knowing your client.”

Falcon Fine Art plans to offer clients non-recourse loans of one to three years, with the option to extend, financed from the Falcon Group’s own balance sheet. Although the terms will depend on the type of art, Hunter says interest rates will typically be in the high single digits and loan-to-value ratios will be 40%.

However, Paul Ress, managing director of Right Capital, another UK-based art finance company that matches borrowers, either individual collectors or professional dealers, with high-net-worth individuals that are willing to lend, thinks that the new insurance products for art lenders are one of the most interesting developments in the industry.

“They will allow more borrowers to keep collateral, while differential insurance, which hopefully is also coming soon, will insure lenders against a loss of capital if a painting has to be sold and doesn’t cover the amount of the loan. In theory, that shouldn’t be too expensive if you’ve done the right due diligence up front.”

Right Capital, which is about to open an office in Luxembourg, organizes asset-backed, non-recourse loans of between £500,000 and £5 million ($800,000 and $8 million) at interest rates ranging from 8% to 13%. Its typical loan-to-value is 35% to 45% and the company is currently looking at ways to bring multiple lenders into individual loans to spread the risk. Ress hopes that as more companies start offering art loans, there will be more standardization throughout the market, which will bring costs down for borrowers and lenders alike.

Right now, though, organizing art loans is a complex business, because art is a complicated asset. Ress and Hunter say that each loan takes four to six weeks to structure, which includes the time it takes to put together all the documentation on the title of the art, its value, its provenance and authenticity. Valuation is particularly subjective and contentious and art prices are also volatile.

“Valuation can be so variable when it comes to art,” says Ress. “We always form an internal view on what we think the valuation should be, obtain an independent view for the borrower, and insist that the lender obtains their own valuation too.” Even then, he says that lenders are sometimes only comfortable loaning 30% of the value of some contemporary works.

That is why art lending is still a niche market. There may be an increasingly large mountain of money tied up in art around the world, but there’s hardly a flood of new lenders that are dying to serve this market. On that basis, there’s not going to be a three-fold increase in art lending any time soon.
Source: Forbes

10/27/2014

Luxury Index


Knight Frank has recently updated its luxury index which includes many passion investment, such as art, cars, watches and coins.  It predicts the returns for the next year, five years and ten years.

See the chart below for some art sectors and the predicted returns.


They have another interesting chart, showing how furniture returns have performed over the past 10 years.


Early and Mid Century furniture performed well over the past 10 years, while English 18th Century, Regency and French 18th Century have all seen significant losses in value.

This is all very valuable information when writing market reports as well as referring to when discussing valuations with clients to validate market directions and adjustments.

Knigt Frank reports on the updated luxury index (follow the source link below to download the full Luxury Index Update)
To put things into perspective, for the £22.5m asking price of a rather nice house we are selling in Hill Street, Mayfair, at auction in 2014 you could have just about bought a 1962 Ferrari 250 GTO Berlinetta (pictured), about four of the world’s most expensive stamp – the  British Guiana 1856 1c black on magenta  sold by Sotheby’s for $9.48m in June (but only one exists so that could be tricky) – and the equivalent of 44 Edward VIII Gold Sovereigns, a rare example of which was sold by Baldwin’s for £516,000 in May.

Overall, however, the value of KFLII, which tracks a portfolio off nine collectables, rose by a relatively modest 6% over the 12 months to the end of June 2014.

Growth during the past five years has been 44% and over the past 10 years 182%.

This compares with a 10-rise of 135% by the top of the luxury London residential market. Only gold, with growth of 254%, has done better, but its performance has been far more volatile.


This strong long-term growth shows why collectables such as art, classic cars and stamps, are increasingly being seen as an investment as well as just something desirable to own.

I was recently invited to speak at an alternative investment conference about the latest KFLII results. It was clear that the audience of wealth professionals were keen to work out how their clients should be buying into the trend!

However, people should not automatically assume that everything will go up in value, particularly sectors where fashion and tastes change.

Antique furniture, for example, has seen its value consistently eroded over the past 10 years, mainly because it no longer fits with the contemporary design aesthetic of modern homeowners.

Budding collectors hoping for investment returns also need to do a huge amount of research. Our index can give an idea of a how a particular asset class such as art might be performing, but it will only reflect a slice of the market.

The HAGI classic car index that we use, for example, tracks the performance of the world’s most desirable cars. Not every old car will have risen in value to the same extent.

Even at the top of the market, the performance of the different marques, such as Porsche or Ferrari, will vary over time.

While the performance of some investments of passion can be less volatile than mainstream asset classes, such as gold and equities, not all sectors are immune.

Fine wine, while delivering very strong Five and 10-year returns, has had a bumpy ride over the shorter term following the sharp deflation of a speculative Bordeaux bubble, according to the results of the new Knight Frank Fine Wines Icon Index, created by Wine Owners.

Art has also been a top performer over the long-term, but some over-heated markets that readjusted in the wake of the financial crises are now finding their feet again.
Source: Knight Frank

10/26/2014

A Tale of Two Schiele"s


The NY Times is reporting on two similar Austrian Expressionist works by Egon Schiele which are to be sold by Sotheby's and Christie's. The two paintings belonged to a Viennese cabaret performer whose collection was part of a Nazi inventory. Chrisite's is selling one of the paintings under a restitution agreement and will compensate heirs while Sotheby's is following a US Court ruling which stated the family failed to file a claim before the statute of limitations ran out and that there was insufficient evidence the painting was looted by the Nazis.

Regardless, I would think Christie's is going to come out looking good, and Sotheby's, well not so much, even if they are correct and following the law.

The NY Times reports
The similarities between two art works being auctioned next month by Christie’s and Sotheby’s in New York are striking. Both were created by the Austrian Expressionist Egon Schiele. And both once belonged to Fritz Grünbaum, a Viennese cabaret performer whose large art collection was inventoried by Nazi agents after he was sent to the Dachau concentration camp, where he died.

But there is also a notable difference in the way the houses are handling the sales.

Christie’s is selling Schiele’s 1910 watercolor “Town on the Blue River,” on Nov. 5 in conjunction with a restitution agreement that treats the work as looted art and provides compensation to Grünbaum’s heirs.

Sotheby’s is selling a 1917 gouache and crayon work, “Seated Woman With Bent Left Leg,” on Nov. 4 under an arrangement that will not compensate the family. The auction house is relying on rulings by United States federal courts that found the family waited too long to file its claim and that there was insufficient evidence to conclude “Seated Woman” had been stolen.

“The court was very clear in finding that the works were not looted,” said Jonathan A. Olsoff, Sotheby’s lawyer and an expert on restitution cases.

The tale of these two works with a shared history illustrates how, even 70 years after the war, experts in the international art market can disagree substantively about how to handle the sale of works once owned by Jews in Europe during the Nazi era.

“The lack of standards is one of the biggest problems that we have,” said Thomas Kline, a lawyer in Washington who specializes in recovering stolen art and cultural property. The result, he added, is often “restitution roulette.”

The difficulties become particularly acute in cases like Grünbaum’s, where there are conflicting accounts, large gaps in the records and differing notions of what constitutes a just resolution.

Like Sotheby’s, several museums that own Schieles once in Grünbaum’s collection, including the Art Institute of Chicago and the Museum of Modern Art, say they have investigated the provenance and that they too are satisfied that their works were not looted. At the same time, the family has won support from experts in art restitution, and has listed the collection with the Lost Art Internet Database, which is run by the German government.

“These issues are extraordinarily complicated because there are no set rules and we don’t know definitely what happened in many cases,” said Monica Dugot, international director of restitution at Christie’s. “We have to be in a position where we can be sure we can convey good title to works in our sales.”

In recent years, both Christie’s and Sotheby’s have been praised for their diligence in provenance research and their efforts to arrange restitution settlements with heirs of plundered art. But decades ago, both sold paintings once owned by Grünbaum without such agreements.

The watercolor that Sotheby’s is offering next month was sold at auction in London in 2005. The owner, David Bakalar, purchased it from a New York gallery for $4,300 in 1963. But the 2005 sale was canceled when the Grünbaum heirs, Leon Fisher and Milos Vavra, claimed it had been looted.

For the next eight years, the watercolor was tied up in litigation and both auction houses steered clear of works once owned by Grünbaum out of concern any sale might be challenged. Now both houses say they make decisions case by case.

The debate over the Grünbaum works has largely focused on whether to believe a Swiss art dealer who said he bought dozens of Schieles from Grünbaum’s sister-in-law. Grünbaum had some 450 works, including 81 Schieles, when his collection was inventoried by Nazi agents in 1938, just a few months after Grünbaum, a celebrated comic known for his barbs about the Third Reich, was sent to Dachau.

It is impossible to know whether “Town” and “Seated Woman” were among those works. Neither is specifically named on the inventory, which notes only in a summary that the collection included dozens of colored works, drawings and prints. The cache of art was then moved to a storage depot in Vienna. Grünbaum died in 1941, and his wife, Elisabeth, died in 1942, in a concentration camp in Minsk.

The next time any of the works from Grünbaum’s collection surfaced on the art market was in the 1950s, when the Swiss dealer, Eberhard Kornfeld, sold some. Mr. Kornfeld later said he had purchased them from Elisabeth Grünbaum’s sister, Mathilde Lukacs-Herzl, who died in 1979. Mr. Kornfeld produced correspondence with Ms. Lukacs-Herzl, tax stamps and other documentation to support his account.

Jonathan Petropoulos, the former art research director for the Presidential Advisory Commission on Holocaust Assets in the United States, has called Mr. Kornfeld’s story suspicious, in part because the documents carry varied spellings of the name “Mathilde” in penciled signatures and because he did not identify her as the source of the works until decades after her death. In any case, Mr. Petropoulos, who was hired by the Grünbaum family legal team, argues that Ms. Lukacs-Herzl did not have title to the art because she was never declared Grünbaum’s heir by an Austrian court, as required.

William Charron, Mr. Bakalar’s lawyer, countered that the Federal District Court in Manhattan, which ruled on the Grunbaum’s family lawsuit over “Seated Woman,” “rejected the argument that Mr. Kornfeld had falsified documents.”

“All these arguments were aired thoroughly in the courts,” he said.

So the Sotheby’s catalog includes Mathilde Lukacs-Herzl’s name in the provenance of “Seated Woman,” which has an estimated value of $1.2 million to $1.8 million. In the Christie’s catalog, the provenance of the Schiele work for sale does not include any mention of Lukacs-Herzl. Its estimated value is $800,000 to $1.2 million.

Timothy Reif, a Grünbaum relative, said his family was glad that Christie’s and the owners of “The Town” watercolor, the estate of Ilona Gerstel, had chosen to recognize the family’s claim.

“The efforts by the Gerstel family and by Christie’s,” he said, “to reach out affirmatively to the Grünbaum family are examples of the way this tragic set of issues should be addressed.”
Source: The NY Times

10/24/2014

Is the Detroit Institute of Arts Collection Now Safe?


The Art Newspaper is reporting the DIA collection should be secure as the bankruptcy proceedings come to a close and as creditors are buying into the Grand Bargain to safeguard the collection.

The reports are unconfirmed, but if the "chatter" is correct, it looks as if it might be a done deal. I will say it has been an interesting journey to observe the negotiations as well as the unique spotlight shown on various, and rather wide valuation conclusion be appraisers.

The Art Newspaper reports
The safety of the DIA’s collection is close to hand after a deal is reached with the bankrupt city’s biggest creditor

The Detroit Institute of Arts (DIA) has cleared its biggest remaining hurdle to secure its art collection. Last week, the city of Detroit reached a settlement with its largest holdout creditor, the Financial Guaranty Insurance Company (FGIC). As Detroit’s 16-month-long bankruptcy trial comes to a close this week, the 11th-hour deal all but guarantees that the DIA’s collection will not be sold to pay down the city’s debt.

The bond insurer FGIC—which is owed around $1bn of Detroit’s $18bn debt—was one of the most vocal opponents to the so-called “Grand Bargain”, a scheme to safeguard the DIA’s collection while generating money for the city’s pensioners. Under the terms of its recent settlement, the city has agreed to demolish the Joe Louis Arena, home to Detroit’s hockey team, and allow FGIC to develop a hotel, offices and retail stores in its place. In exchange, the company will withdraw its objections to Detroit’s plan to emerge from bankruptcy. Last month, the city reached a similar settlement with the Syncora Guarantee Insurance Company, another major creditor.

The bankruptcy judge Steven Rhodes is due to render a final verdict on the city’s plan—including the Grand Bargain, which is considered its centrepiece—during the first week of November. But some bankruptcy experts already consider it a done deal. “The city was always going to propose a plan that did not involve selling the art,” says Laura Bartell, a law professor at Wayne State University in Detroit. “That’s what they did, and the judge is going to confirm the plan.”

Many expected the fate of the DIA’s collection to remain in limbo well after Judge Rhodes’ ruling, however, because creditors unhappy with his decision were likely to appeal. (FGIC and Syncora previously claimed that a sale of the art collection could garner as much as $8.1bn.) The recent settlements take the possibility of an appeal off the table. The creditors “like what they are getting—they won’t want to appeal”, Bartell says.

If both the city council and Judge Rhodes approve Detroit’s proposed plan—which they are expected to do—the DIA will be spun off as an independent non-profit. The state of Michigan has teamed up with local and national organisations to pledge $816m over 20 years to the cause. The money would essentially fund a “buy-back” of the collection from the city of Detroit while providing pensions to retirees from the city’s police and fire departments. (Donors to the so-called Grand Bargain include the Los Angeles-based J. Paul Getty Trust, General Motors and the DIA itself, which pledged $100m.)

Update: A spokeswoman from the DIA declined to comment until the judge has issued his final opinion.
Source: The Art Newspaper

10/23/2014

Deloitte 2014 Art Market Report


The Deloitte 2014 Deloitte/Arttactic  art and finance report was release a short while ago. I have just downloaded the report and have to study or read the full report, but I did wish to share the report with readers.  In the past the reports have been very good as it looks at the art market for financial stakeholders such as wealth managers.

The good news is the report states wealth managers continue to a positive view on alternative asset classes, such as fine art. And, that has to be a good thing for the appraisal profession.

The Deloitte release on the report states "It is particularly interesting to see that the wealth management community is already responding to this new demand, with 88% of the family offices and 64% of the private banks surveyed said that estate planning around art and collectibles is a strategic focus in the coming 12 months." (underline added)

Follow the source link below to download the 130+ page report. The download page also has links for the 2013 and 2011 reports (no 2012 report is listed).

Deloitte reports
In last year’s report we identified an increasing sense of convergence in motivations among key stakeholders in the art market and in the wealth management community regarding art as an asset class.

Based on the findings of this report, the wealth management industry is clearly taking a more strategic view on art as an asset class and how it might be used as a tool to build stronger and deeper relationships with clients, in an increasingly competitive marketplace.

This year’s findings suggest that art buyers and collectors are increasingly acquiring art and collectibles from an investment viewpoint (76% said so this year, compared with 53% in 2012), which will most likely increase the need and demand for professional and wealth management services relating to the management and planning, preservation, leverage and enhancement of art and collectible assets.

It is particularly interesting to see that the wealth management community is already responding to this new demand, with 88% of the family offices and 64% of the private banks surveyed said that estate planning around art and collectibles is a strategic focus in the coming 12 months. This highlights that art related tax, estate and succession planning issues are increasingly becoming a hot agenda topic. Also, 50% of the family offices surveyed stated that one of the most important motivations for including art and collectibles in their service offering was due to the potential role it could play in a balanced portfolio and asset diversification strategy. 
Source: Deloitte