Private Museums and Tax Exempt Statue

The NY Times just ran an interesting article on a Senate Finance Committee meeting looking into the tax exempt status of private museums and if they do in fact benefit the public good. It seems like there is a concern that private museums are being set up more for the tax benefits and self interests rather than for the the public good. The committee sent letters to several private museums requesting information, including Glenstone, a local private museum in the Washington DC area.  Glenstone state they are on track for 25,000 over the course of a year.

The NY Times reports
The Senate Finance Committee is scrutinizing nearly a dozen private museums opened by individual collectors, questioning whether the tax-exempt status they enjoy provides sufficient public benefit to justify what amounts to a government subsidy.

Senator Orrin G. Hatch of Utah, the committee’s Republican chairman, sent letters this month to small galleries like the Brant Foundation Art Study Center in Greenwich, Conn., and Glenstone museum in Potomac, Md., as well as Eli and Edythe Broad’s new $140 million art museum in Los Angeles, asking for information about visiting hours, donations, trustees, valuations and art loans.

Republican committee staff members said the inquiry was part of a broader effort by Mr. Hatch to re-examine bedrock institutions, including museums and private universities, that have long enjoyed preferential tax treatment.

“Tax-exempt museums should focus on providing a public good and not the art of skirting around the tax code,” Mr. Hatch said in an email statement. “While more information is needed to ensure compliance with the tax code, one thing is clear: Under the law, these organizations have a duty to promote the public interest, not those of well-off benefactors, plain and simple.”

A broad debate about the personal and corporate tax system has emerged yet again as an important element in the presidential campaign. But little attention has been paid to the longstanding charitable deductions for museums, nonprofit theaters and other institutions — an exemption that is zealously defended by both donors and recipients.

The Hatch letter noted that “charitable organizations have an important role in promoting good in our society,” but questioned whether “some private foundations are operating museums that offer minimal benefit to the public while enabling donors to reap substantial tax advantages.”

“Such an arrangement would be inconsistent with the letter and intent” of the law, it added.

The letters were sent after an article in The New York Times earlier this year that examined the proliferation of tax-exempt private museums created by wealthy art collectors, sometimes in their own backyards. Some of the galleries severely limit public access, closing their doors to outsiders for several months at a time, shunning signs and advertisements, and requiring visitors to make advance reservations.

As investors have poured money into the skyrocketing art market, financial consultants and tax experts have said that many wealthy individuals are looking to convert their personal collections into private foundations or museums as a way of reducing their tax bills.

Founders can deduct not only the full market value of the art they buy, but also the value of cash and stocks they donate. The cost of insuring, conserving, warehousing and other expenses associated with a masterwork’s upkeep are also tax-free.

Internal Revenue Service guidelines are vague when it comes to establishing the degree of public benefit that justifies an art institution’s tax-exempt status. But public access and adequate signage are both considered prerequisites, according to previous agency rulings. There are also strict restrictions on displaying the art in a donor’s own home.

Aaron W. Fobes, the spokesman for the finance committee, said the panel’s “concerns are confined to a small number of private foundations and are not something that is symptomatic of a larger problem in exempt organizations.”

Some tax experts have questioned whether some of the small, out-of-the-way museums that are on or close to a donor’s property — like the Brant study center (founded by the newsprint magnate Peter Brant) or Glenstone (created by Mitchell Rales) — meet I.R.S. guidelines.

Philippa Polskin, a spokeswoman for Glenstone, said in an email that the museum was “gathering information in response to the questions sent by Senator Hatch and looks forward to sharing information with the committee about their efforts to build Glenstone into a world-class museum.”

Since the end of September, she said, “with future reservations already received, Glenstone is tracking toward a 12-month attendance of around 25,000 visitors.” She added that the number of visitors is expected to increase four- or fivefold when a planned expansion is completed.

The Brant Foundation did not respond to requests for comment, but it had previously defended the art center’s charitable work and public service.

Other institutions that were sent a letter, like the Rubell Family Collection in Miami and the newly minted Broad museum, are on an altogether different scale, however.

The Rubells’ 45,000-square-foot contemporary art center, located in a former Drug Enforcement Administration warehouse in Miami, helped revitalize the surrounding Wynwood neighborhood when the family opened it in 1993. The center reports that tens of thousands of people visit the center every year.

Mr. Broad’s grand three-story museum, which opened in September, is one of the most ambitious ventures of its kind in recent decades. Mr. Broad, who has donated millions to other nearby cultural institutions, including the Los Angeles County Museum of Art and the Museum of Contemporary Art, has been active in transforming that stretch of downtown Los Angeles into a cultural hub. The Broad Foundation did not respond to requests for comment, and the Rubell Family Collection declined to comment.

Several well-established art institutions, like the Isabella Stewart Gardner Museum in Boston, the Frick Collection in New York, the Phillips Collection in Washington and the Barnes Collection in Philadelphia, grew out of a wealthy art collector’s private purchases.
Source: The NY Times 


A Look at Art Prices, Rarity and Value

I hope everyone had a great Thanksgiving and holiday weekend.  After a few days off, time to get back to posts. The NY Times ran an interesting article that briefly covers a lot of territory, from price, stores of value, private museums, difficulties in donating, odd items with limited collector interest, and ultimately collecting things because they are beautiful.So it really touches on a lot of divergent collecting areas.

The NY Times reports
LOOKING back on some of the most popular antiques he has sold, Bill Rau, chief executive of M.S. Rau Antiques in New Orleans, said two truly stood out for both their value and scarcity.

The first was an Enigma machine, which was used by the British to decode German military messages during World War II.

“They’re exceptionally rare,” Mr. Rau, a third-generation antiques dealer, said. “Up to 1990 they didn’t exist outside of intelligence circles. Forty-five years after the war, they were declassified. As recently as two years ago, we sold them for $100,000.”

At a Bonhams auction in March, one sold for $269,000. The auction house sold another one in October for $365,000. Mr. Rau said he has bought and sold five Enigma machines over the years, and their rarity has translated into healthy appreciations in value. He had an Enigma machine for sale at the New York Art, Antique & Jewelry Show, which ended on Tuesday, priced at $198,500.

Yet in the annals of memorable, rare and expensive antiques, none stand out as much as the so-called sex chair that Prince Edward had fabricated in the 1880s — while he was waiting to become King Edward VII — to support his weight during his visits to a bordello in France.

“We sold it 14 years ago, and people still come in and talk about it,” Mr. Rau said. “It was one of those things that everyone who was past a certain age was intrigued by it. Even the most conservative people said, ‘Wow.’”

He wouldn’t disclose the price a collector paid for it, but said it was an object that commands whatever someone will pay. “You could ask $100,000, $1 million or $5 million, and no one could tell you that you’re crazy,” he said.

Price is just one of the variables that collectors of art and antiques need to bear in mind as the auction and private-sale markets this fall have been hot and cold. Big prices were paid for top pieces, but overall numbers for the major fall sales, which ended last week, did not always meet expectations.

A rare and exotic object commands more money, but it also has fewer buyers. There are more people able and willing to pay for a code-breaking machine than a crown prince’s bordello throne. The recent purchase of “Nu Couché” by Modigliani for $170.4 million by the Chinese billionaire Liu Yiqian qualifies as one such piece that gets much attention but has few buyers.

“Art has become a separate asset class, but it’s a thinly traded market, particularly at the high end of the market,” said Michael Kosnitzky, a partner at Boies, Schiller & Flexner, who works on tax issues for wealthy families. “And because the market is thin, there is greater risk. Anything that goes up could go down. People have to hold for the long term.”

And if the collection goes up, there are tax considerations as well as insurance and display questions. And then there is the quandary a collection presents to heirs: What exactly do you do with a nine-foot-tall Siberian bear skeleton worth just under $100,000? (In this case, the owner moved from his sprawling Montana ranch and sold it.)

Some collectors see what they amass as a store of value. That may be more true in some cases than in others.

John Carona, who served 24 years in the Texas Senate and House, has collected some 200 canes over the last two decades. Some are distinguished by their carving, like the wooden one with a gold handle that belonged to Daniel Webster, the 19th-century congressman and secretary of state.

Mr. Carona also collects so-called system canes, which contain something else inside them, like a rifle or an entire set of dental tools, including a drill. He said he had one cane that could be reconfigured into a violin.

The canes cost several thousand dollars apiece, with a few reaching into five figures. But he said he saw them as an investment. He tracks the fairly active auction market for canes, and believes canes appreciate as much as 20 percent in some years.

“Being a collector, it never really cost you anything,” Mr. Carona said, who sees his canes as an asset class and not a hobby that consumes money.

Canes are easier to store and transport for sale than one of Mr. Carona’s other collections: wood-carved barber chairs. He has nine of them and admits that their value is probably not increasing at the same clip as his canes. He plans to leave the chairs to his sons.

That was what Andreas Bechtler’s parents did for him and his sister, though their patrimony was a collection of several thousand works of art by artists including Giacometti, Miró, Picasso and Calder.

With his collection worth tens of millions of dollars, Mr. Bechtler took the 1,200 works he inherited from his parents, plus 300 from his own collection, and opened a museum in his adopted hometown, Charlotte, N.C.

“The realization that there was this collection in my hands gave me the feeling of a real caretaker,” he said. “All of a sudden I realized, yes, wouldn’t that be fantastic if we could keep it together.”

Putting a collection in a museum, and reaping the prestige and tax benefit from doing so, is what many collectors dream of. But it is challenging, expensive and often difficult to accomplish.

Mr. Bechtler got the idea for a museum in 2000, but did not open one for a decade. During that time, he said he passed on offers from existing museums to build a wing for his collection. The city of Charlotte eventually agreed to build a separate museum, but it had to pass a tax increase to pay for it.

Wary that the city’s finances could one day take a downturn and put the art at risk, as happened last year in Detroit, Mr. Bechtler has donated the art to a separate nonprofit entity that has, in turn, lent the works permanently to the museum.

In other words, Mr. Bechtler’s donation was a complicated undertaking — and he had world-class art.

Those with smaller collections may have an easier time figuring out what to do with them, though there is an element of luck involved. An institution needs to have a desire for what is being offered.

Andrew Alpern, an architect and lawyer in Manhattan, amassed two seemingly esoteric collections and donated both to Columbia University.

The first was architectural drafting tools, which went to the Avery Architectural & Fine Arts Library at Columbia in 2010. The second, a collection of 750 drawings by Edward Gorey, went to its Rare Book & Manuscript Library in 2013.

“It gives you a really good feeling of satisfaction that something you cared about and that you put together for a long period of time will continue to exist when you’re gone,” said Mr. Alpern, 77. “That’s satisfying. It’s more satisfying than just giving a good sum of money to an organization.”

Mr. Alpern said he also got more than $500,000 in tax deductions.

Mr. Kosnitzky, the lawyer, said the various taxes in selling art or antiques in New York — the federal, state, city and investment income taxes — can approach 45 percent.

Advisers said that few people end up finding places to accept their collections, either major or esoteric, and that needs to be addressed as people get older.

“In my experience, very few clients move from approaching the art as a personal asset to an investment or a collection,” said Lisa R. Featherngill, head of wealth planning at Abbot Downing, the private wealth management division of Wells Fargo. “Quite often, they get kind of stuck in this place where it’s a personal asset, and the kids are going to want it. Hopefully, they talk to them, but they might not.”

And knowing both when and how to dispose of those collections can be a challenge.

Susan Borowitz, a photographer and screenwriter whose credits include the television show “The Fresh Prince of Bel-Air,” thought of selling her collection of Punch and Judy memorabilia when she and Andy Borowitz, the humorist, divorced. It was something they had collected together.

“I talked to my kids about it, and they said, ‘No, this reminds of us of you guys at a happier moment,’” she said. “I’m going to let them decide what to do with it. Hopefully, I won’t be in such a sorry state financially that I’ll have to sell this stuff off.”

She added, “We weren’t collecting them to be an investment to be sold at the right time. It was always just about surrounding yourself with beautiful things that make you smile.”

Short of a collection of world-famous paintings, that may be the best way to approach any art and antiques collection.
Source: The NY Times 


Tips on Packing and Shipping Artworks

artnet news has an interesting article with 7 tips on shipping which will help in avoiding damage and loss.  The 87 tips are:

  1. Don't try this at home
  2. Vet the shipper
  3. Always get a condition report before the work ships and immediately after it arrives.
  4.  Find out whether third party shippers or other subcontractors will be involved.
  5. Don't assume that all parties will follow best practices just because you do.
  6. Be careful with ephemeral materials
  7. There is no substitute for common sense when packing and shipping artwork.
artnet news reports

Thanks to multi-billion-dollar November art auctions in New York and the ever-growing behemoth that is Art Basel in Miami Beach each December (with an estimated $3 billion worth of art on view), the tail end of the calendar year has become one of the busiest for the global art trade.

This frenzy of buying and selling between dealers, auction houses, and collectors, translates into an equally dizzying routine with regard to art shipping—be it from auction houses to private homes, to freeports in Switzerland and Singapore, from residential collections loaning works to prestigious museum shows, and from art fair booths to the homes of eager buyers abroad.

So what could go wrong? Plenty.

"I would say that the majority of art losses occur while items are in transit," says Laura Doyle, fine art specialist with Chubb Insurance.

artnet News spoke to Doyle and other experts on issues including insurance, shipping, and conservation to bring collectors the most crucial and up-to-the-moment tips about what they should do after they seal the deal on a major acquisition. There were cautionary tales galore of inexperienced art handlers, unwitting maintenance workers, or unsuccessful do-it-yourself-ers and their ensuing mishaps, which include permanently damaged paintings and one instance of a decapitated sculpture.

Here, then, are seven shipping nightmares and advice on how best to avoid them:

1. Don't try this at home (AKA don't do it yourself).
"We always encourage clients to work with professionals but sometimes they take things into their own hands," said Doyle. "We've had a number of clients who have had damage when they try to rent a U-haul to transport things themselves or try to hang things themselves." Doyle noted one client who rented a U-haul to transport marble sculptures and "didn't have them properly packed. He had them standing up in the back of the U-haul and he had ropes holding them together. He wound up swerving on the highway and decapitating one of the sculptures."

2. Vet the shipper
Make sure the shipper has expertise in handling art, said Doyle. "When we're advising clients on how to ship an item we always suggest that the truck has GPS, climate control, a security system, proper suspension, as well as two drivers. And then if possible, the truck should always take a direct non-stop route."

And even after you've vetted your shipper it's important to be as specific as possible with the dimensions and weight of the work, advised Colin Quinn, vice president and director of claims management at AXA Art Americas. A case in point: A gallery that is an insured AXA client "enlisted the services of a fine art shipper to transport an installation from a lender's home to the institution a considerable distance away. The dimensions of the installation were approximately 5 by 8 feet and weighing over 300 pounds, but for some inexplicable reason, the shipper only assigned two art handlers who attempted to load the work Laurel and Hardy style onto the waiting truck. Predictably, the work was dropped, causing significant damage, to the chagrin of the lender and institution."

Lesson learned? "Be sure that the dimensions and weight are clearly relayed to the shipper and adequate art handlers are assigned to the task."

3. Always get a condition report before the work ships and immediately after it arrives.
Another client mishap for one of Doyle's insured art owners occurred when they hired general movers (i.e. non art specialist movers) to handle a 9th-century Indian sculpture of a Hindu god. "It was an elephant and they ended up picking it up by the trunk—which would have been the weakest point of the piece," said Doyle. "The trunk broke off the face and they actually threw it away. So we couldn't even try to to have the piece restored."  Doyle said, "We always tell clients to do a condition report before they have anything transported and then again to commission a report once the items are received. Just so they can see any changes." Though we would politely point out we think that broken/missing elephant trunk would be pretty tough to miss!

4. Find out whether third party shippers or other subcontractors will be involved.
"It's not unusual for art transporters to subcontract out jobs to third parties," said Doyle. "So it's important to understand if that's going to happen and to make sure that that third party has the same standards and has background checks on all its employees. The company you're hiring may not be doing the actual transit. That's especially true if you're going long distance or internationally when shippers specifically work with a network. You want to make sure that that sub-contractor party knows exactly how many crates they're shipping because there have been instances where things have gone missing."

5. Don't assume that all parties will follow best practices just because you do.
"One of our insureds consigned a sculpture to a gallery and took great pains to oversee the packing and crating of the work prior to shipment," recounted Quinn. "The sculpture was carefully fastened into the crate which was marked 'fragile,' with the top end clearly indicated. When the work was returned to the owner it was in a larger crate with the sculpture covered in bubble wrap and surrounded by Styrofoam packing peanuts. When the owner removed the bubble wrap it revealed the sculpture had broken into three pieces. When the owner complained to the gallery they explained that the original crate had been inadvertently discarded and they had to make do with the materials at hand. " Quinn added,  "It is important to convey shipping and return instructions to all parties entrusted with the artwork."

6. Be careful with ephemeral materials
In our recent story about the "Five Riskiest Art Buys" we told you about artists such as Damien Hirst or Marc Quinn whose use of unorthodox or ephemeral materials can prove problematic from a conservation viewpoint. That also holds true for when such unusual works—think of Marc Quinn's self portrait cast in the artist's own blood, or Hirst's shark immersed in formaldehyde—have to travel.

"The most common time for a work of art to be damaged is when it is being moved. Art is safest installed or stored in a safe place and left untouched," says Miami-based Emily McDonald Korth, a conservator and founder and CEO of Art Preservation Index (APIx), a stability rating system for fine art. The term for it is "benign neglect," she adds.

McDonald-Korth said that as much as she loves German artist Anselm Kiefer's work, "his material choice is consistently problematic." She recounted attending the opening of a recent show. "It was a massive installation of his which I was really looking forward to seeing. When I walked into the gallery, it was so impressive and gorgeous. As A got closer to the work, in some of these pieces there was measurable handfuls of materials sitting underneath the work,  It wasn't only a conservator that could see…it was obvious where the pieces were falling off…I assume that this happened during shipping and installation, and it happens a lot."

McDonald-Korth's advice? "Make sure you have a full-time person taking care of those things," like maintenance, conservation and shipping for such fragile work. "It really is worth it. If you're spending $75 million on a painting, you can afford that."

In the same vein, Doyle says it's crucial for handlers to understand the materials they are working with. Even something as innocuous-seeming as bubble wrap, when improperly used, can leave bubble imprints on a work (above). Not only do these permanently mark and damage a work, the bubble imprints can then trap moisture and lead to mold, notes Doyle.

7. There is no substitute for common sense when packing and shipping artwork.
Final words of wisdom from Colin Quinn, and a case study to go with it. An insured client agreed to ship a large installation from his location to a gallery a short distance away. The work was too large to fit through the elevator doors of the owner's residence, so the art handlers enlisted the help of the building owners who instructed the art handlers to place the work on top of the freight elevator and the building super would manually lower the work to street level. "For reasons best known to the super he pushed the up button for the elevator and the work was crushed as it went to the top floor of the building."
Source: artnet news 


Market Softness and Guarantees

The NY Times just posted an interesting article on recent auctions and growth of guarantees.  The article points out that overall the total sales numbers are down. The article makes an interesting point, does the growth in guarantees signify a market weakness? Also, given the issues surfacing with global economics, will the art market start to slide as well, especially in the modern and contemporary sectors.

The NY Times reports
LONDON — In the end, what should have been one of the biggest weeks in the art world was overshadowed by events in the wider world.

On Nov. 13, just as Christie’s afternoon auction of Impressionist and modern art in New York was ending, terrorists were attacking a stadium, a concert hall and cafes in Paris. The assault on a city where Picasso, Modigliani, Giacometti and so many other artists have lived and worked had a special poignancy for the art world.

Before the attacks occurred, those in the art business were already trying to make sense of the results in New York. The recent sales suggest challenges ahead, particularly in the key sector of 20th- and 21st-century art.

The $170.4 million with fees — the second-highest price ever paid for a work at auction, not accounting for inflation — tendered by the Chinese collector Liu Yiqian for Modigliani’s 1917-1918 “Nu couché” at Christie’s “Artist’s Muse” sale on Nov. 9 inevitably created a sense that the auction market was booming.

But overall numbers were down. Last May, evening sales of contemporary and modern art at Christie’s, Sotheby’s and Phillips netted a total of $1.8 billion with fees. Six months later, the total for these events dropped about 33 percent, to $1.2 billion. And even as economic uncertainty cools overall demand for investment-grade 20th- and 21st-century Western art, the dominant driver of growth in the market, auction houses are still facing the consequences of offering generous guaranteed prices to sellers.

“We’ve seen a reduction in sales value correlated to the amount of guaranteed lots,” said Anders Petterson, the managing director of ArtTactic, a research company in London. “It looks as though May 2015 was the peak. Since then we’ve seen Sotheby’s and Christie’s trying to wind down their financial exposure. People are still prepared to pay huge prices for selected lots, but guarantees have created a perception that the market is stronger than it is.”

In May, 84 of 180 lots, or 47 percent, carried guarantees in Christie’s “Looking Forward to the Past” sale of 20th-century masterworks and in Christie’s and Sotheby’s evening contemporary auctions. But this time, just 37 of 154 lots, or 24 percent, had guarantees at the equivalent three evening auctions.

Those figures would seem to support the notion that wealthy sellers’ ability to make Christie’s and Sotheby’s compete for the privilege of guaranteeing them minimum prices — waiving fees and giving them a portion of the buyer’s premium — has artificially inflated the market. It has certainly made it more difficult for the auction houses to make money.

In a recent instance, the Taubman family’s deft use of competitive tendering led Sotheby’s to pay out $515 million to secure the collection of A. Alfred Taubman, the auction house’s former chairman. The first two Taubman estate auctions, of Impressionist, modern and postwar masterworks and of contemporary art on Nov. 4 and Nov. 5, netted a total of $419.7 million respectively.

Immediately after the two sales, Tad Smith, the president and chief executive of Sotheby’s, said in a news release that with hundreds of more works from the collection to be offered this year and next, the auction house expected to “cover the Taubman guarantee in its entirety.” He added that “that these first two auctions represented 90 percent of the value of the property in the collection.”

The stock market has been less impressed. The release on Nov. 6 of third-quarter results showed commissions from Sotheby’s sales were down 12 percent from the same period in 2014 because of “significantly weaker sales results in higher margin categories such as old master paintings, Asian art and jewelry.” On Nov. 6 Sotheby’s stock was valued at $34.09. At the close of trading on Thursday the price stood at $28.97, a decline of 15 percent. On Nov. 13, the day after Sotheby’s evening sale of contemporary art brought in $294.85 million (a 22 percent decline from a sale in May), Bloomberg News reported that the auction house was offering buyouts to its employees in an effort to reduce costs.

Christie’s, which is privately owned, also has had problems with guarantees. The top price at its New York auction of contemporary works on Nov. 10 was $36 million — for Andy Warhol’s “Four Marilyns” (1962), which had a presale estimate of $40 million and had been guaranteed by Christie’s itself. The work had been bought privately eight months before by the Turkish collector Kemal Has Cingillioglu for a reported $44 million. Guarantees are generally based on prices that include the buyer’s premium, and sellers generally don’t want to lose money, so the guarantee was likely to have been about $45 million.

The themed sale, “The Artist’s Muse,” brought in $491.35 million. It was widely viewed as having a less coherent premise than its May predecessor, which raised $705.9 million.

“On the one hand, they’re taking hits, but they’re also trying to offload the risk,” Lisa Schiff, an art adviser in New York, said of the practice of collectors or outside investors providing all or part of some guarantees. “It just can’t keep going up and up. This is the ebb and flow of the market. It’s the healthy course of any capitalist enterprise.”

Nonetheless, auction houses are still making money from bread-and-butter contemporary sales. Sotheby’s, for instance, grossed $98 million at its Nov. 12 day auction in New York. Though many owners would also be selling for free or minimal charges, guarantees are rare at this lower price level and virtually all of the buyer’s premium — a total of perhaps $20 million in this case, i.e. 20 percent — would have gone to the house.

So-called higher-margin categories, including Asian art, can yield a combined 40 percent of fees from the seller and the buyer. Unfortunately for Sotheby’s and Christie’s, the market for these categories appears to be contracting, with recent sales showing mixed results. That may reflect a simple drop in demand, but also sellers’ and buyers’ reluctance to pay 15 percent and 25 percent apiece for the privilege of using Sotheby’s or Christie’s when cheaper live and online alternatives are available.

Sotheby’s achieved a notable success on Nov. 11 in London, selling out a private European collection of classical Chinese furniture, a hot subsector of the market. The 26 lots netted a total of 11.1 million pounds, about $17 million, 10 times the presale estimate. A huanghuali wood altar table sold to a Chinese collector for £1.8 million. But another Sotheby’s auction of Chinese ceramics and artworks on the same day raised just £2.7 million, with half of the 195 lots failing to find buyers. Its equivalent auction last year brought in £8.9 million. Bonhams, which has been a force in the Asian art market in recent years, also found it hard going, with a Nov. 13 sale of Chinese art raising £2.3 million, less than half the proceeds of its similar sale a year earlier.

The latest auctions have done little to calm the market’s nerves. In Sotheby’s sale on Wednesday night of the latest Taubman tranche — 31 lots of American art — eight works failed to find buyers, and the total of $13 million still left an $82 million gap between achieved sales and the total guarantee for the collection. Martin Johnson Heade’s superb but unfashionable 1887 landscape, “The Great Florida Sunset,” which had a presale estimate of $7 million, sold for $5.85 million with fees.

It would appear that the art world, like the world at large, has some challenging times ahead.
Source: The NY Times


Art as an Asset

In The Black, an Australian publication had an interesting article, or perhaps a basic primer to art as an investment.  It looks at making a return,  getting started, primary vs secondary markets, risks,making a return, and Australian artists to watch.

In The Black reports
Looking for an alternative form of investment? Fine art can bring great rewards, but you need to do your homework and seek advice.

When Grace Cossington Smith’s modernist painting The Window sold for double its pre-sale estimate at a Sotheby’s Australia auction in November 2014, the local art world was aghast. Not only did this mark a record price for the late artist’s work, it also signalled a long-awaited lift in the Australian art market.

While the A$671,000 final bid for The Window may be out of reach for most budding art investors, it suggests that art can indeed stack up as an alternative form of investment. But identifying up-and-coming artists takes more than scanning local auction records. You need a good knowledge of the art market and you must enjoy the thrill of a chase.

Marking a return

Art investment has an emotional quality that few can ascribe to the stock market. It can also make good financial sense.

Researchers from Griffith University investigated the financial returns for the works of 45 well-known Australian artists sold at auction between 1973 and 2003. They found the average annual returns across all artists ranged between 4 and 15 per cent, with a mean of 8 per cent. The highest returns were for works by Brett Whiteley, Jeffrey Smart, Cecil Brack and Margaret Olley.

Much has happened in the art world since this time. Like all investments, art is subject to changing market conditions. The global financial crisis had a significant impact on auction sales.

The average art returns in Australia declined in nominal terms by close to 6 per cent from 2008–2009. Today, the market is creeping back. Auction houses made A$94 million in combined takings in 2014, up A$10 million from the year before.

Getting started

While any budding art investor should start with a solid understanding of the market, David Hulme, director at Banziger Hulme Fine Art Consultants and president of the Art Consulting Association of Australia, says many investors jump the gun.

“You need to consider things [like] the condition of the artwork and whether it’s a good representation of the artist’s work,” he says.

“You need to get down to the nitty-gritty. It’s not just about saying ‘Oh, this is fabulous’. Emotion is critical, but you need the other things to back it up or it can fall apart very quickly.”

Hulme suggests visiting galleries and art fairs and engaging an independent art consultant for advice. He stresses that art will not bring financial returns overnight.

“You need to keep it for as long as possible – 10 or 20 years is not a bad idea,” he says.

“It’s very different to other types of investment. My view is that if art is valued at at least 80 per cent of its purchase price, it’s liquid.”

Primary versus secondary markets

An artwork’s first sale through a gallery is considered its primary market; however, it is in the auction room – the secondary market – where a work’s true value is usually determined.

“In the secondary market, the estimates are usually below gallery levels, especially for young artists, because they’re having to be tested on the art market,” explains Sophie Ullin, head of art at Leonard Joel auction house.

Ullin says art is subject to the cycles of fashion, which can influence its value.

“Taste is a hard thing to harness and define, but you do get trends,” she says.

“Gum tree art, like the landscapes of the turn of the century with a swagman, are no longer popular. A 35-year-old is not going to relate to that idea of Australia or the world.”

Ullin suggests considering future trends when buying art for investment. “You’ve got to think about what drives younger people,” she says. “I’d be looking at urban street art for the future.

“The majority of collectors in the next 20 years aren’t going to be looking at Jeffrey Smart or Charles Blackman. They’ll like the work, but it’s already too high and it’s not the art that they will necessarily relate to.”

The bigger picture

Tom Lowenstein FCPA is the director of Lowenstein’s Arts Management, which specialises in providing taxation and business services to clients in the field of visual arts. Although his personal art collection includes works by some of Australia’s most revered artists, he had very little interest in art before his wife developed a love of it several decades ago.

“Not everybody is born with the ability to look at something and say ‘this is great’. It’s more about education and exposure,” he says.

Lowenstein says well-established galleries usually represent artists with investment potential. Major international solo exhibitions and high-profile commissions are also a good indication of future value.

“Artists such as Michael Zavros or Ben Quilty are coming to the fore in great demand,” he notes. “[Artists like Quilty have] done stints as war artists, and that’s recognition of their importance.”

Looking at the risks

Art for investment is most commonly bought in the traditional primary or secondary markets but there is a growing popularity for online purchases through galleries such as Saatchi Art or through websites such as Artsy, which allows artists to sell their work direct to the public.

“It’s certainly empowering for artists,” says Hulme, “but it’s also a complete needle in a haystack. Whether you’re going to discover the next big artist is unknown.”

Lowenstein agrees that art investment comes with financial risks.

“You may have 100 starters and only two of them will make a name for themselves, and I think generally you’ve got to live with that,” he says.

“Provided you get proper advice and you have some sort of investment strategy that is developed in conjunction with an art consultant, you can build up a major collection. There are a number of people who have made much better returns on their art than they have on the stock exchange.”

Artists to watch

For less than A$10,000, Hulme suggests a painting by Paul Ryan could be a wise investment. A regular Archibald Prize finalist, Ryan’s work is divided between portraiture and landscapes as well as subversive explorations of Australia’s colonial history.

If you have a spare A$10,000 to invest in art, Hulme recommends looking at the work of Guy Maestri, who won the Archibald Prize in 2009 for this portrait of Geoffrey Gurrumul Yunupingu.

For the same price, Ullin would put her money on Hiromi Tango.

“She creates three-dimensional work that would appeal to younger collectors. Her works are wild.”

For a more significant investment of A$50,000, Ullin would back Brook Andrew, an Indigenous artist working with neon, installation and mixed media. Hulme says the work of Ben Quilty would be a wise investment for a similar amount.

“We’re going to see more great things from this artist.”
Source: In the Black 


More on Sotheyb's Taubman Sales

The NY Times is reporting on another Sotheby's sales installment of the Alfred Taubman collection.  If you recall, Sotheby's guaranteed the former Sotheby's previous owner $515 million. Thursday evenings sale brought in an additional $13.04 million, while 8 lots failed to sell.

According to the NY Times so far the total of the Taubman sales at Sotheby's is $433 million with over $80 million still needed to balance out the guarantee, Sotheby's needs the January Taubman Old Master sale to be strong, as well as privately placing any unsold works from the earlier sales.

As we have seen in the past, auction house guarantees can be a very risky strategy.

The NY Times reports
The Alfred A. Taubman collection again brought disappointing results for Sotheby’s, which guaranteed the sales for $515 million.

Thursday night’s sale of 31 works from the American art collection of its former chairman, Alfred A. Taubman, totaled $13.04 million (including the buyer’s premium), below the low estimate of $15.1 million. Eight lots failed to sell.

Sotheby’s did better with its regular sale of American art Thursday night, which brought $26.6 million; all but 10 of the 56 lots sold.

The auction house raised $420 million from its previous two Taubman sales, leaving it some distance to go before making back the guarantee. (The total stands at $433 million). The next and last Taubman sale is of old masters on Jan. 27. And Sotheby’s may be able to sell the unsold Taubman works privately.

Thursday night’s Taubman sale did have one big winner — Martin Johnson Heade, a  Luminist often referred to as “the Vermeer of American painting.”   His  “Great Florida Sunset” sold for $5.9 million, more than double the previous auction record for the artist — but less than the estimate of $7 million to $10 million.
Source: The NY Times


Transformation of the Art Market?

Business Insider reports on the transformation of the art market from collectors to investors.  The article references a CNBC interview of billionaire hedge fund manager and collector Ken Griffin.  The article reference the Mei Moses Art Indexes and their important 2002 paper  "Art as an Investment and the Underperformance of Masterpieces". One interesting comment was over the past year sales were moving from the big auction houses to smaller galleries and dealers.  It was also noted the top tier artists where selling well and in demand, while below the top group of artists and recognized works, sales are soft.

Business Insider reports
Ken Griffin, the billionaire founder of the hedge fund Citadel, was collecting art before it was cool on Wall Street.

Now he's concerned that his peers who have jumped into the art market are doing it for the wrong reasons — they consider it an investment.

"The art market is now viewed as a market," he said Thursday in an interview with CNBC's Kate Kelly. "When I started collecting art 20 years ago, it was really a market dominated by collectors. Today we're seeing far more people pursuing art as an investment. I would have some cause for concern around that."

The problem with seeing art as an investment is that it is an opaque market. There's not enough information out in the public to really understand the future value of an asset.

Two professors at New York University's Stern School of Business, Jianping Mei and Michael Moses, developed their own valuation method — the Mei Moses Art Indexes — after writing a paper called "Art as an Investment and the Underperformance of Masterpieces" in 2002.

The idea behind the indexes was to bring more clarity to price discovery by putting sales data in one place.

"Two major obstacles in analyzing the art market are heterogeneity of artworks and infrequency of trading," the paper said. "The present paper overcomes these problems by constructing a new repeated-sales data set based on auction art price records at the New York Public Library as well as the Watson Library at the Metropolitan Museum of Art."

Mei and Moses will tell you that even with the information they have the art market is still super secretive. Their data sets are not close to complete, and they never will be.

What's more, in the past few years sales have been moving away from big auction houses — where there's some transparency —and toward smaller art dealers. That will only make the market more difficult to track.

So what the newbies are doing, according to Griffin, is buying art based on the value of an artist's name, not based on what the buyer loves. That's adding even more price dislocation to the market.

"We're seeing the tier-one artists with their best works setting all-time record highs," Griffin said. "The Modigliani sold last week for $170 million. But we're seeing second-tier artists and second-tier works by the best artists starting to slide down in price.

"I think people should be very hesitant in thinking about art as an investment."
Source: Business Insider