Leslie Rankow Fine Arts

INTERNATIONAL ART ADVISORY SERVICE

Tag: collectors

The importance of the new technology in the art market as analyzed in the Bank of America Private Bank survey

THE DIGITAL REVOLUTION HAS DRASTICALLY AFFECTED MANY INDUSTRIES, CHANGING THE WAY WE COMMUNICATE, ACQUIRE AND SELL PRODUCT. ONE OF THE INDUSTRIES THAT HAS, SURPRISINGLY, BEEN IMPACTED LESS THAN ONE WOULD THINK, GIVEN ITS BASICALLY VISUAl NATURE, IS THE ART MARKET AS SEEN IN THE RECENT PIERCINGLY INFORMATIVE AND COMPREHENSIVE BANK OF AMERICA PRIVATE BANK REPORT.

  • ART AND TECHNOLOGY
  • The art market remains one of the few industries still largely undisrupted by technology. We’re seeing innovation, but it’s still at the fringes. While online transactions are increasing, the growth of online sales has slowed, growing at 9.8% in 2018 versus 12% in 2017.
  • Internet-native art companies are trying to help. In June, private equity firm Cove Hill made an investment in online marketplace LiveAuctioneers, aiming to accelerate online sales growth for their auction house partners, while Invaluable has made it easier to source and buy lower value items. Major galleries like Gagosian and David Zwirner launched digital sales channels, but the digital revolution still eludes the art world.
  • On the transparency front, Christie’s became the first major auction house to record sales via Blockchain with the sale of the Ebsworth collection in November. At the request of the seller, Christie’s partnered with Blockchain-secured registry Artory to record its transactions. It’s an interesting development, but we’re a long way from Blockchain becoming industry standard.
  • The most significant art world technology has been the rise of Instagram. Artists market themselves, museums announce exhibits, dealers initiate sales, and collectors tout their purchases through the platform. In 2017, when the “Untitled” Basquiat sold at Sotheby’s for over $110 million, Yusaku Maezawa posted his photo on Instagram to let the world know of his acquisition. Younger collectors, artists, dealers and auction specialists are increasingly using Instagram to enhance their personal and professional brands. Expect the new status loop to fuel a herd mentality for some artists and more price volatility. So collector beware.

 

  • AS AN ASIDE, ARTISTS ARE CREATING WORKS THAT REPRODUCE EFFECTIVELY ON INSTAGRAM IN TERMS OF COLOR, DIMENSIONALITY AND SURFACE WITH THEIR AESTHETIC PRESENCE IN PERSON SOMETIMES TAKING A BACK SEAT.

 

  • ART LENDING

    Our art lending business grew by 20% year-over-year, as you all continue to unlock capital from your art to build hotels, buy sports franchises, expand companies and even buy more art, just to name a few. The four most common situations we’re seeing are:

    1. The balance sheet arbitrage: With historically low interest rates, more of you are unlocking capital from your art to redeploy into higher-return areas of your financial life, like private equity.

    2. Working capital line: During the current economic expansion, more of you are using art loans to fund the growth of your privately held companies.

    3. Monetizing a collection: The passage of the 2017 Tax Cuts and Jobs Act eliminated the 1031 Like-Kind Exchange, making it more expensive to sell art. Instead of selling art and dealing with paying the 28% federal tax + 3% health care surtax + state taxes + sales commission, many of you have chosen to leverage your art via an art line to generate liquidity.

    4. Guarantees: We’re seeing more of you using art facilities to back guarantees at auction (but we advise caution).

    We estimate that total U.S. art loan commitments stand at $16 billion. We’re proud to have a significant portion of those loans, and we remain staunchly committed to the space. Given our forecast of continued low interest rates, stratified wealth creation, and expansion of the collector base, we expect continued growth in the space.

    Top five artists we lend against, by value:

    1. Willem de Kooning

    2. Andy Warhol
    3. Constantin Brancusi

    4. Paul Cezanne

    5. Roy Lichtenstein

    AT THE CLOSE OF THE SURVEY, BANK OF AMERICA PRIVATE BANK TARGETS THE OPPORTUNITY ZONES AND THE EFFECT OF CAPITAL GAINS TAX INCREASES AND THE REPEAL OF THE SECTION 1031 LIKE-KIND EXCHANGES PROVISION. THIS IS INVALUABLE INFORMATION FOR ANY ONE INTERESTED IN THE ART MARKET: DEALERS, GALLERISTS, AUCTION SPECIALISTS, AND MOST OF ALL COLLECTORS.

    PLEASE JOIN US!

     

A comprehensive report on the current art market from the Art Lending Services division at U.S. Trust

U.S. TRUST, AS DO MANY OF THE MOST HIGHLY REGARDED BANKING AND FINANCIAL ADVISORY INSTITUTIONS, OFFERS EXTENSIVE ART SERVICES. AS ART IS NOW CONSIDERED TO BE AN ALTERNATIVE INVESTMENT, AND NOT SIMPLY AN AESTHETIC PLEASURE, BANKING HAS ENTERED VERY FORCEFULLY IN THE COMPETITION TO PROVIDE ART LENDING SERVICES TO HELP BOTH COLLECTORS AND INSTITUTIONS HELP NAVIGATE THE COMPLEX ART WORLD.

RECENTLY U.S. TRUST, THE PRIVATE BANKING ARM OF BANK OF AMERICA,  PUBLISHED AN EXTREMELY COMPREHENSIVE ANALYSIS ON THE STATE OF THE CURRENT ART MARKET. IN A TIME OF TURMOIL AND CHANGE, GENERAL REEVALUATION AND A GLOBAL SHIFT IN THE ART MARKET, IT IS PARTICULARLY RELEVANT AND THE LRFA BLOG IS PLEASED TO SHARE IT WITH YOU. WE ARE DELIGHTED, AS WELL, TO REPORT THAT DANA PRUSSIAN, VICE PRESIDENT AT U.S. TRUST ART LENDING SERVICES, WILL BE CONTRIBUTING TO THE LRFA BLOG IN THE MONTHS AHEAD.

PART ONE

“We feel that you should not buy art purely as an investment. Buy it for love, desire, legacy, culture, pleasure, addiction,

status, and community.”

Art Services Market Update

At Bank of America Private Bank, we maintain a sharp focus on the art market and on the collectors, dealers, auctions specialists and institutions that make it function. We work closely with many of you across four pillars: art lending, art planning, consignment services and institutional arts endowment management. This update features our observations on the current state of the art market from a business perspective.

The Market

  • Current low interest rates, solid equity markets and more stratified wealth creation worldwide continues to drive capital toward art. The maturation and globalization of the art market has expanded the collector base and transformed the art market from a niche lifestyle into a $60 billion global industry.1 Still, overall art market growth in terms of total art sales has stalled since 2012, even as the S&P 500has currently more than doubled since that time.
  • If the Federal Reserve (Fed) continues its dovish policy, we expect collectors’ continued allocation of capital to art. When interest rates fall, the opportunity cost of holding non-interest-bearing assets like art goes down. The art market is driven by sentiment, so the greatest risk we see is a geopolitical event that impedes the global flow of capital and credit prompting collectors to pause.

• We anticipate that financial returns for contemporary art will be lower in the next decade than some may expect. The market has absorbed a lot of art since the turn of the century. An exceedingly large percentage of those works may be worth close to zero in a generation or so. And because we’re in a more mature and efficient art market, there may be fewer upside surprises than in decades past. We feel that you should not buy art purely as an investment. Buy it for your passion, enjoyment, legacy, culture, status or community.

The Auctions

• During the New York Spring Auctions, the market absorbed over $2 billion of art at Christie’s, Sotheby’s and Phillips, handily above the $1.6 billion pre-sale estimate. It was the first auction season defined by large estates of postwar
and contemporary art. Eye-catching results such as the $91 million Koons “Rabbit”, the $110 million Monet “Haystack” and the rapidly growing market for KAWS belie a more modest 5.1% annualized return2 achieved for repeat sales during the season. Given the recent performance of London auctions and the lack of clarity around a Brexit deal, New York will continue to be the premiere sale site for high-end postwar and contemporary art for the foreseeable future. Fresh-to- market works, typical of the artist’s oeuvre, in good condition, with strong provenance, continue to perform strongest at auction. Works by female and black artists also continue their rise.

• You likely saw that in June, Sotheby’s accepted a $3.7 billion buyout offer from French media entrepreneur Patrick Drahi. Interestingly, Bonhams was also bought out earlier this year. Going private will allow Sotheby’s more flexibility to compete for top lots, which will benefit major collectors, and will provide time and space to evolve its business model, which, like Christie’s, is challenged. Competition for top pictures has become a race-to-the-bottom: China isn’t the growth engine everyone hoped it would be, and online sales have yet to deliver meaningful scale or margin expansion. With business margins at around 10% for the industry, auction houses are officially on the hunt for new revenue streams.

• Look for the auction houses to continue to expand into art advisory, financial services, brand licensing and even investment research as they look beyond their supply-constrained auction business. As a collector, you may see better terms when consigning top works at auction, but expect higher commissions for lower- value works. Buyer premiums will continue to expand at all levels. Finally, get ready for more convenience. Virtual reality will change how you view upcoming sales, and artificial intelligence will soon be sending you an endless array of Netflix-style lot recommendations across all categories based on what you’ve perused across the internet.