Like corporations and consumers, many top-end art collectors have stepped up their borrowing given this era’s ultra-low interest rates. Art-secured loans jumped 40% since 2016, to at least $21 billion globally, according to a 2019 Art & Finance Report by Deloitte
DESPARDES — During the last two weeks there has been an approximate two-fold increase in inquiries for art-financing in the West, a luxury art collectors in most countries (such as Pakistan, India) south of the Tropic of Cancer don’t enjoy for lack of institutional financing on “movable assets of high value”.
Art financing has been attractive to Western banks and clients because the valuations don’t necessarily correlate with equities.
Lending institutions use the client’s total assets to determine the credit line and typically lend as much as 50% of the collateral value. They also allow ultra-high-net worth customers to keep their art and offer rates as low as 1%. For others, boutique lenders offer quicker turnaround but charge higher rates.
Last Monday, as oil prices dropped 30% and equities plummeted, a New York client of Fine Art Group requested financing against a $10 million painting by Jean-Michel Basquiat, reports Bloomberg.
Days later, with equities tumbling to the largest single-day decline since 1987, a major London gallery called for fast capital to opportunistically buy a contemporary art collection. A Swiss client asked for a loan against $30 million worth of rare diamonds.
A collector, who recently bought about 15 million pounds ($18 million) worth of art during the London auctions, asked Fine Art Group to help settle upcoming payment obligations on some works through art financing.
“We were already having a busy first quarter, but the last two weeks have seen an approximate two-fold increase in inquiries,” Bloomberg quotes Freya Stewart, who heads the art-financing division at Fine Art Group.
The desire, or need, for loans comes as the spread of coronavirus creates the wildest market swings since the financial crisis and the art market known for high value investment and return grinds to a halt.
Several major galleries in New York, including Gagosian, Pace, Zwirner and Hauser & Wirth, said they are closing, and fairs have been canceled in Europe and Asia, including Art Basel Hong Kong, but the business of providing credit against Picassos and Warhols is said to be expanding.
Fine Art Group has been contacted by wealth managers, credit brokers and art collectors based in New York, U.K. and Hong Kong.
“There are likely lots of collectors out there looking for liquidity in these and other regions who are just not aware that art-based financing can be a fast route to capital,” Stewart said.
With no end in sight for the spread of #coronavirus, some clients want the safety of readily available capital, even if they don’t need it right now, Stewart said. Galleries and dealers are also preparing to be sufficiently capitalized for a period of potentially reduced trading activity, she added.
But lenders are appraising art at lower values. Asher Edelman, whose New York-based company Artemus currently offers maximum 40% loan-to-value ratio on art financing and takes possession of the works, estimates a decline of 20% to 30% on initial and final appraisals from a month ago. Clients are seeking loans of $1 million to $4 million, he said.
“The world’s collapsing,” he said. “Don’t you think art has gone down?”
That’s true in Pakistan artworld also — unrelated to #coronavirus though — the high value investment and return fringe business has generally seen a downturn for couple of years now. And for individuals in Pakistan who own a Sadequain (probably worth more than 10 million rupees at the lowest end) may not have the facility to borrow against it.
On Monday, Dow dropped nearly 3,000 points after a massive emergency move by the Federal Reserve failed to calm fears among investors about the rapidly escalating economic hit from the virus.