Collection Collateral
February 2007
A few years ago, an art collector approached Bank of America asking for a loan—a big loan. “He
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Andy Augenblick, an art collector himself, started |
Increasingly, lending institutions are considering art and antiques as equity, which opens avenues for collectors who want to increase cash flow without selling their artwork. Auction houses, private banks and independent lenders provide several options that allow you to keep artworks in your possession and still secure a loan. However, the terms and the amount loaned depend on the entity you approach and on the type of artwork or antiques you are borrowing against. The following is a guide to three types of lenders that will consider your collection as collateral.
AUCTION HOUSES
For decades, major auction houses have quietly arranged advances for sellers. Their typical offer is an advance on the sale’s proceeds, which is a type of bridge loan. “Most often that happens with an estate that has cash-flow issues, such as estate taxes due before the sale,” says Paul Provost, director of trusts, estates and appraisals at Christie’s New York.
Christie’s and Sotheby’s will also arrange loans against art the borrower doesn’t plan to sell immediately, for up to 50 percent of the value. Interest rates vary but average about 3 percent above prime, depending on the length of the loan and the value of the art.
“More and more people are considering art as an asset, so they’re thinking about leveraging those assets as they would any other,” Provost says. However, he cautions, “We’re always delighted to talk to collectors about what they’re trying to achieve, but our primary business is offering for sale works of art on behalf of the client, not lending money.”
Sotheby’s, on the other hand, has taken a more aggressive approach to art financing since the 1980s, when Mitchell Zuckerman founded Sotheby’s Financial Services, which solicits art-based loans worldwide. “It’s one-stop shopping,” says Zuckerman, who still runs the department as president. “We have the intellectual capital of in-house art experts who can value art as collateral and physical plants around the world that can hold it and sell it if necessary. You don’t even have to write checks toward the interest payments. Many of our clients just send things in for us to sell.”
Sotheby’s lends mainly to individual collectors at 50 to 60 percent of the value of their property, and is quite broad with regard to what it will lend against. “We’ve had loans secured by wine collections, Egyptian antiquities, Old Master drawings, jewelry—anything we can sell at auction,” says Zuckerman. “There are about 70 categories we will consider as collateral, but we’re quality-oriented.” Loans are re-evaluated every one to three years to keep up with fluctuating market value.PRIVATE BANKS
At Citibank’s Private Bank, a group of in-house specialists in the Art Advisory department valuate and even help build art collections. “We look for art that has major market value at auction internationally,” says Suzanne Gyorgy, director of art finance for Citibank. “Primarily we lend against fine art—painting and sculpture—not collectibles.”
The Private Bank of Bank of America is even more conservative, rarely loaning against sculpture, which is harder to sell at auction than paintings, and only against paintings from the most sought-after periods of major artists. “Even certain pieces by Picasso don’t have the worldwide interest level we require,” says Hess. Still, his department has approved “more than a few” art-based loans of $200 million or more, relying on Sotheby’s and Christie’s for appraisals.
If you qualify as a client for either Bank of America or Citibank, you can secure a loan for 50 percent of the value of your collection, as long as it’s worth at least $10 million. The minimum loan at Citibank is $5 million, and individual works must be worth at least $100,000. Bank interest rates are somewhat lower than what the auction houses can offer and are tailored to their clients net worth. Citibank, for example, will lend at prime rates to their wealthiest clients. Getting an art loan at a bank is a lot like taking out a mortgage, with similar paperwork and credit and income checks. “Sotheby’s has the ability to take immediate possession of the art, so they’re less interested in income and more in the value of the art,” Gyrogy says. “We’re interested in a relationship. We want the long-term private banking client.”
Typically, Citibank’s art finance clients are entrepreneurs. “We deal a lot with real estate developers and hedge fund managers who also are art collectors,” says Gyorgy. “They use their art as collateral for loans, then put the funds back into their businesses or other investments. Then there are serious collectors who like to keep their collecting separate from their other businesses by setting up a lien on their art and using it to buy more art.”
Fine Art Capital, started two years ago in Manhattan by Andy Augenblick, an art collector and former co-owner of a real estate investment company, is affiliated with Emigrant Bank but offers lower-minimum, longer-term loans than other banks. Augenblick says the minimum loan is a million dollars, though he has gone as low as $500,00 and as high as $100 million, for up to 20 years. His company employs nine experts in art and/or banking and loans against not only paintings, but drawings, musical instruments, furniture, coins, stamps, jewelry and other collectibles. Rates at Fine Art Capital start at levels similar to Citibank’s but go up according to the length of the loan and the liquidity of the collateral.
Unlike Citibank, Fine Art Capital does not provide advisory services or collections management. “We just lend funds against art and antiques, that’s all we do,” says Augenblick. “For example, a widow from Palm Beach who needs $200,000 a year to support her lifestyle and doesn’t want to burden her children or sell her art and antiques, can borrow against them. When she dies, her executor sells the art to pay off the loan. That way, she gets to enjoy her art while using it to create liquidity.”
INDEPENDENT LENDERS
Those who lack the means to qualify as private banking clients can turn to independent lending institutions such as Art Capital Group and Art Finance Partners, which offer a variety of art-related loans, often at higher rates. These companies make loans not only against fine art but also collectibles such as furniture, porcelain, silver, rare coins, jewelry and even exotic cars—often without consideration of income.
Art Capital Group, also known as ACG Credit, has been described as a “high-end pawn shop.” Clients can qualify quickly for a loan—even via cell phone an hour before bidding on a painting—but they may have to leave their art in the firm’s 7,000-square-foot Madison Avenue warehouse/showroom. “If you buy a Picasso, go to a private bank and say, ‘Can I borrow $5 million today?’ they will ask to see other assets and try to qualify you as a client,” says CEO Ian Peck. “We will do a credit check and make sure the title for the artwork is clean. If that checks out, we make the loan.”
Peck founded ACG in 1999 after working at Sotheby’s New York, then opening Ian Peck Fine Paintings gallery in 1992. He claims that ACG lends about $200 million a year and controls roughly $700 million worth of fine and decorative art. The firm also provides consulting services and brokers art sales for clients.ACG will loan against collateral worth as little as $200,000. Liquidity is a crucial factor. “A Picasso has a very large market, so we might advance 50 to 60 percent against it,” Peck explains. “Something esoteric like a rare musical instrument has a very limited market, so we might advance only 40 percent.”
Rates vary widely but can go into the mid- to upper teens, appealing more to clients who plan to sell the art quickly than to long-term borrowers. Clients are private collectors and professional art dealers. “Our highest rates are for deals where we go further on the advance rate, maybe 80 percent, for example,” Peck says. “We consider those venture deals and would probably have an exit strategy built in where we would sell the piece at auction.”
Typically, the art is stored in a warehouse for the length of the loan, but exceptions are made. “If a client says there’s a tour of Warhol paintings and he would like his to be included, we say fine,” says Peck. After all, inclusion in a major exhibition increases the value of the collateral—and that’s good for lender and borrower.
A contributor to Art & Antiques for 10 years, Philadelphia writer Cathleen McCarthy profiled ceramic artist Cliff Lee in December 2006.
FOR MORE INFORMATION
►Christie’s Trusts, Estates and Appraisals
New York. 212.636.2400
www.christies.com
►Sotheby’s Financial Services
New York. 212.894.1144
www.sothebys.com
►Citigroup Private Bank
New York. 212.559.5466
www.citibank.com/privatebank
►Bank of America Private Bank
Los Angeles. 213.621.7487
www.bankofamerica.com/privatebank
►Art Capital Group Inc.
New York. 212.585.3939
www.artcapitalgroup.com