Personal Inspections during a National Health Emergency from the Appraisal Foundation
Question: Do  personal  property  appraisers  need  to  perform  personal  inspections  during  a  national health or other emergency?

Response:Appraisers and users of appraisal services should remember that USPAP does not require an  inspection  unless  necessary  to  produce  credible  assignment  results. (Please  refer  to USPAP Standards Rules 7-2 and 8-2 and Advisory Opinion 2 for further guidance.) When a personal inspection would customarily be part of the scope of work, a health or other emergency condition may require an appraiser to make an extraordinary assumption about the identification, relative quality, etc. of the subject property. This is permitted by USPAP as long as the appraiser has a reasonable basis for the extraordinary assumption, as long as its use still results in a credible analysis, and as long as the appraiser complies with the reporting requirements in Standards Rule 8-2(a)(xiii) or (b)(xv).Thus, if appraisers rely on photographs, purchase receipts, inventories, maintenance logs, etc. to identify the subject property, they must reasonably believe the sources are reliable.

Appraisers must also reasonably believe the sources areadequate for identifying the other characteristics  of  the  property  that  are  relevant  to  the  type  and  definition  of  value  and intended use of the appraisal, as specified in Standards Rule 7-2(e)(i-vi).

Personal property appraisers are cautioned to use great care in the use of an extraordinary assumption  in  lieu  of  a  personal  inspection.  It  may  not  be  possible  to  identify  relevant characteristics   of   some   assets   or   to   perform   certain   assignments   without   actually performing a personal inspection of the subject property. Some examples include, but are not limited to, when the scope of work makes it necessary for the appraiser to: determine whether the subject is a painting or a giclée print on canvas; obtain technical information about a diamond; ascertain a property’s current condition; or confirm its very existence. In these cases, the appraiser cannot provide a credible appraisal without conducting a personal inspection.
Source: The Appraisal Foundation 



If you are like me, you are probably getting all sorts of notices of auction house restrictions and closings. Christis's and  Phillips have announced closing and postponements.

Many other businesses are now having employees work remotely, and many school systems have temporarily closed. I would assume it will have an impact on our appraisal practices as well. ISA Annual conference is scheduled for late April, and ISA leadership, from what I understand is working with partners to weigh all available options, which of course could include cancellation. AAA has suspened all of its in-person programs and is looking to add more online options.

The Artnewspaper reports
Auction house has closed New York saleroom along with other offices—Sotheby's has not as yet announced any closures while Phillips has postponed all events and sales until mid-May

14 March: Phillips announced that it will postpone all sales and events globally until mid-May

Christie's is shutting almost all of its locations in the US and Europe, including New York, until further notice and postponing March and April sales due to the spread of coronavirus (Covid-19).

Phillips has also postponed all sales and events internationally until mid-May and closed its offices across the US and Europe.

In a statement released last night, Christie's says the decision is to protect the "health and well-being of our employees and our clients". Guillaume Cerutti, Christie's chief executive officer, says: “In the days ahead, we will be communicating a number of necessary changes to our usual course of business, including further changes to our sale calendar. These decisions are undertaken with a great degree of care and in close consultation with our clients.”

As of Monday, 16 March, as a precautionary measure Christie's flagship New York premises will be closed along with its offices in Brussels, Buenos Aires, Chicago, Dallas, Dubai, Düsseldorf, Hamburg, Houston, Los Angeles, Madrid, Mexico City, Miami, Milan, Monaco, Moscow, Munich, Rome, San Francisco, Santiago, Sao Paulo, Stuttgart, Tel Aviv, Toronto, Vienna and Zurich.

Christie’s King Street in London will, however, remain open, although the business is "reviewing the situation on a daily basis." The Amsterdam, Geneva and Paris offices remain open but with a reduced number of staff.

All but two sales—Prints & Multiples (18 March) and Chieveley House, Berkshire and Five Private Collections (19 March) in London—in March and April will be postponed for now (new dates will be released in the coming days, the firm says).

However, with the major May New York sales looming, the statement hints that more sales might be affected as Christie’s is "working through a restructuring of its forthcoming auctions, including significant changes to the sales calendar in the Americas and Europe."

The following auctions will be postponed—no new dates are announced as yet, the original sale dates are shown in brackets.

In New York: A Lasting Engagement: The Jane and Kito de Boer Collection (18 March); South Asian Modern and Contemporary Art (18 March); Contemporary Art Asia Online (19-26 March); Photographs (31 March); Dalva Brothers: Parisian Taste In New York (2 April) and Prints and Multiples (15-16 April).

In Paris: Dessins Anciens et du XIXème siècle (25 March); Oeuvres Modernes sur Papier (26 March); Hommage à Arp – La collection Greta Stroeh (26 March); Art Impressionniste et Moderne (27 March); Livres Rares et Manuscrits (7 April); Art Précolombien (7 April); Arts D’afrique, D’océanie et D’Amérique Du Nord (8 April); Collection Delanoue (28 April) and The Collector: Le Goût Français (29 April).

Meanwhile, Sotheby's also released a coronavirus statement from its chief executive Charles F. Stewart last night as a reassurance to clients, but did not announce any closures as yet. Stewart says: "So far, we have been able to conduct auctions and offer the full range services to our clients, despite modifications as appropriate in certain instances. While we cannot predict the future, we wanted to let you, our valued clients, know how we are addressing the epidemic and what you can expect from us in the near future."

Stewart says that the firm will follow "the advice of local government officials and health authorities and, where appropriate, have colleagues working remotely" and adds that Sotheby's "galleries in New York and London are open this weekend" with sale views open to the public.
Source: The Art Newspaper 


Strength Reported in the Dec Arts

The Financial Times recently posted an interesting article on strength in the decorative arts market. I have only posted a small portion of it here, as the FT limits what I can post. If interested in the full article, follow the source link below. The article does a good job at defining the differences between collecting fine art vs the decorative art, and the barriers to entry on quality pieces are lower.

The FT reports
And it is not just new design; the antique and collectibles market is stronger than ever. Estimate-busting 20th-century pieces by Jean-Michel Frank, Charlotte Perriand and René Lalique achieved world-record prices at Sotheby’s auctions last year. Its design auctions fetched more than $190m globally. Bonhams tells a similar story, with strong sales in North America.

Collecting design is nothing like collecting paintings or sculpture, or even conceptual art. For a start, taking a chance on a new designer or two is unlikely to make a patron rich.

But the fact that it is cheaper to start a collection makes design less risky and, in turn, more accessible — and fun. As New York gallerist Zesty Meyers puts it: “Compared to the fine art world, design is like a penny candy store.”

Compared to the fine art world, design is like a penny candy store

New York gallerist Zesty Meyers
He is right: there are many more actual things in the world to collect. Furniture and functional objects — particularly when manufactured rather than crafted — are easier to come by than paintings.
Source: The Financial Times 


Working with Millennials

I just posted an article sent to me by Rosalie Wardell on how rug dealers are developing sales strategies on selling rugs to millennials. Now, an article from Wealth Management on millennial growth and interesting in passion investments and collecting. The article notes that more tan previous generations, millennial collectors are interested in more than just the passion of collecting, they too wish to see a return on their collecting. With that, appraisers and art advisors should soon start to see more business coming from the millennial generation.

Wealth Management reports
The millennial demographic is finally starting to pay off student loans, buy houses and save money. They’re accumulating wealth and depending on advisors to help them invest, but in typical millennial fashion, their interest goes beyond the standard stocks, bonds and other investment instruments that advisors generally recommend. Fine art is a commodity that appeals to the demographic, so advisors need to be able to help explain how it can be a financial asset and wealth-building strategy—and not just something to decorate the walls of the homes they’re finally able to buy!

Art has never been more accessible. Social apps like Instagram allow millennials to interact and communicate with artists and galleries, providing access like never before. Millennials were also introduced to art from an early age through brand partnerships. Famously, sneaker companies have collaborated with artists to produce custom shoes and unique colorways inspired by the artist’s style. In 2019, renowned British artist Damien Hirst worked with Vans to apply his favorite motifs to some of their most popular styles, while Nike’s collaboration with Netherlands-born Piet Parra led to one of their most popular sneaker releases to date. Brand collaboration goes beyond sneakers, as the world-famous Jean-Michel Basquiat’s art-inspired makeup line is among the most popular for well-known brand Urban Decay. For advisors working with millennial clients, it’s important to realize that art was an entrenched part of their culture growing up, and not necessarily some highfalutin collectable for the rich and famous.

More than ever, art is permeating consumer goods and pop culture, which created a low barrier of entry for the millennial demographic to gain interest. Now that they’ve started to accumulate wealth, they’re seeking out advisors who can help them conduct due diligence and learn about investing in art. There are reasons for advisors to take this sector very seriously, as millennials often identify the following as selling points:

Time—Generally, millennials are the youngest demographic to be able to accumulate the means to invest in art, which makes it an attractive asset class because they have the opportunity to let it appreciate over time. When advising, it's crucial for them to understand that art is a commodity whose value grows slowly, taking years or even decades. Because millennials are so young, they have the ability to see the complete cycle when it comes to an artist's rise in reputation over time. They don’t need to be investing in the Monets or Picassos of the world but, instead, can look for burgeoning artists that pique their interest and appeal to their taste. As their advisor, it’s important they realize that because of their youth, they’re uniquely positioned to let the artwork and artist appreciate over time.

Unparalleled access—Beyond visually focused social media like Instagram, the internet has made the art world more accessible than ever. Aside from being able to connect directly with galleries and artists, online marketplaces have also seen a rise in popularity, providing the “Google everything” generation with means to purchase fine art in a familiar, comfortable way—using the mobile devices they love so much. The art industry has been slow to adopt the e-commerce revolution, but millennials are more likely to buy fine art online than any other demographic, and the industry is starting to appeal to their state of mind. The internet can be a modern-day Wild West, so if clients are considering purchasing art online, investors need to do their part and help them vet the opportunity. Are they buying directly from a gallery? What is the overall earning potential for the piece? The internet provides access to art from across the world, but it’s the investor's job to ensure that clients are purchasing art that will actually accrue value over time.

Beyond just an investment—Unlike stocks and bonds, art also doubles as a hobby for millennials, and advisors can help young investors most in their research phase. Introduce them to the Sotheby's Mei Moses Indices and help them understand why it's the preeminent measure for the art market. Make sure they know how art is valued and what qualities drive value. While previous generations may have been more willing to allow advisors to handle their wealth as they see fit, millennials want to be involved. They want to be active and have a full understanding of how they’re diversifying their money, and the art world allows them to have a more hands-on approach. Whether it's communicating with an artist through an online art buying platform or arranging to see artwork in person through a gallery, investing in art allows millennials to be more involved with their investments.

More than with previous generations, art represents an investable asset class to millennials. Still scarred from the 2008 recession, they believe this physical asset will let them accrue wealth over time, while also giving them something nice to look at—and share on Instagram! The internet's ability to make almost everything feel accessible, combined with the art world introducing itself to millennials from an early age through brand partnerships and pop culture references, has made it an ideal market for the demographic. As this generation and the ones following it accrue wealth, advisors must know how to answer their questions and counsel them.
Source: Wealth Management


The Antique Rug Market

Fellow appraiser Rosalie Wardell send me an interesting article from Architectural Digest on the antique rug market and how the current generation of rug dealers are marketing their rugs to millennials and other collectors. The article also interestingly notes current rugs being sold have classical elements, some patina which brings softness to a room yet will also blend into contemporary interior designs.

Architectural Digest reports
Zach Zaman is a second-generation rug dealer. He grew up tagging along with his father all over New York state to visit auction houses, eccentric dealers, and the homes of collectors. "Looking back on my earliest and most vivid memories, I don't recall individual rugs as much I remember the people I met," says Zaman, 32. He remembers how his father would share backstories about the antiques as well as the families who had owned them, a trait that Zaman values to this day. It's also one that he has carried over to his own business, Heirloom Rugs.

Still, Heirloom Rugs is worlds away from the stuffy rug shops and old-fashioned dealers Zaman grew up with. His light-filled showroom in Williamsburg, Brooklyn, is replete with vibrant 100-year-old carpets from western Asia and northern Europe, artfully draped among hanging plants and global furnishings. The photos Zaman posts in his Instagram feed (tagline:#rugsarearttoo) are lovingly curated and include chatty, emoji-filled captions. A recent post showcasing a sunburst-patterned Scandinavian rug read, “Swipe for a bit more info about this piece + a peek into Viking influence on global trade.”

Considering that for many years information and access to rugs were safeguarded and controlled by a tight-knit network of ultra-competitive businesses, this open and casual approach feels fresh. Indeed, for decades, beautiful antique rugs were mostly viewed as a rich person's game. The hand-knotted and ornately detailed wares came with six-figure and higher price tags, becoming synonymous with posh Upper East Side apartments and giant houses in the Hamptons. However, much has changed within the past few years. The world of antique rug dealing has moved from specialty boutiques and estate sales onto the Internet. It's become more colorful and more accessible, and now skews to a younger, more visually driven crowd. The majority of the rugs that Heirloom Rugs sells, for instance, falls within the $500 to $3,000 price range.

“For many, this category is an enigma,” Zaman observes. “Everything we do is to try to be inviting, inclusive, and make our rugs approachable.”

According to Jacqueline Coulter, a senior specialist consultant at Sotheby's rug department, where she has worked since 1985, "We've started to see these types of traditional rugs come back into fashion because they soften the space and are nice to live with." New methods for selling antique rugs have only boosted their popularity, especially as a return to traditionalism has fueled a renewed appreciation for all things timeworn. Patina is no longer seen as a flaw.

And while previous decades were dominated by the Persian rug, the gold standard of antique carpets, more affordable styles have risen to the fore. Moroccan, Navajo, Turkish, or Tibetan styles offer similar aesthetics at a fraction of the price. “People are using very traditional rugs in a sort of ironic way,” says Coulter, referring to the juxtaposition of older floor coverings with sleek modern furnishings. Many of the rugs sold by younger dealers seem to fall within this space: classic pieces that will still appeal to a contemporary-minded crowd.

"I think minimalism is really boring," adds Mikael Kennedy, a 40-year-old Los Angeles–based photographer who started dealing rugs on Instagram in 2013. Kennedy's personal affinity for maximalist-bent decor style is plain to see: He artfully arranges and layers rugs in his home and studio, pairing patterns and colors with little restraint. For him, it was a passion that grew into a hobby that eventually turned into a business. He tells me he first fell in love with vintage Persian rugs on set when working as a photographer for Ralph Lauren in New York. Today, Kennedy’s customer base includes streetwear designers, fashion insiders, and other creatives. "I sometimes feel like I'm just the bridge to a younger generation of appreciators," he says. "They're mostly fashion-and-art-driven because that is my world."

Smaller, new-wave dealers inlcuding Zaman, Kennedy, and fellow e-tailers like Frances Loom, Kaya Kilims, and the online startup Revival Rugs rely on a more fluid, nimble business model than the old guard. Kennedy sells exclusively online and relies heavily on Instagram to drive sales. While Heirloom Rugs has its Brooklyn brick-and-mortar location, Zaman says that he’s seen a noticeable spike in online sales compared to previous years. He also augments his business with rentals and commercial supply. Heirloom Rugs have been featured on television shows such as Netflix’s Russian Doll and are used almost exclusively in the fashion label Rag & Bone’s flagship stores.

Digitally savvy businesses such as Zaman’s and Kennedy’s are uniquely suited to the evolving needs of the design profession. "It's a much faster-paced service than traditional trade outlets. The savvier the dealer, the quicker the product moves, which means that I see more new things," says Darren Jett of the AD100 interior design firm Ash NYC.

But just as customers are turning to these new dealers for visual impact, price, and convenience, they’re going for a good story too. "I want to know what eras and styles influenced this rug and what styles this rug later influenced,” Jett continues. “I find that clients love knowing design history."

Recently Kennedy flooded Instagram with photos from a recent trip to Morocco, giving customers an unfiltered look at how he searches for rugs. Zaman posts “weekly picks” on the Heirloom website and Instagram like clockwork, highlighting the most compelling pieces that he and his team have just picked up. It’s a refreshing counterpoint to the old way of doing business. To Kennedy, stumbling upon a unique find is akin to an encounter with a work of modern art: “They are essentially paintings that you walk on."
Source: Architectural Digest 


Marron Collection Update

artnet news is reporting that the trio of art galleries selling the Marron collection have, in about a week have hit $300 million in sales. The artnet news reports notes that auction house estimates were in the $300-$330 million for the collection. It looks like, in a more controlled retail setting the collection is doing very well. This might mean more opportunities for gallery sales in liquidating collections. As noted in a previous post, but with that comes less transparency.

artnet news reports
Sales from the storied collection of late philanthropist and finance titan Donald Marron were expected to be robust, following last week’s announcement that a trio of powerhouse New York galleries—Pace, Gagosian, and Acquavella—are handling the collection privately, rather than it being sent to the auction block. But the rate of sales in less than a week has already been nothing short of astonishing.

While a marquee auction would have brought its own fanfare and extreme marketing efforts, the family and consulting fiduciaries went with an unprecedented joint-gallery option, and secured a guarantee that sources said was above Christie’s and Sotheby’s pitches. (Numbers of between $300 million and $330 million were floated by the auction houses, according to sources.)

The unconventional choice seems to have paid off. Sales appear to be happening at a fast and furious pace ahead of a May exhibition planned across Pace and Gagosian’s gallery spaces in Chelsea. Earlier this week, on February 24, the Wall Street Journal‘s Kelly Crow reported that casino mogul (and accused sexual harasser) Steve Wynn had shelled out $105 million for two Picasso works from the Marron collection. Woman with Beret and Collar (1937), a portrait of the artist’s mistress Dora Maar, and a later, 1962 portrait of his wife Jacqueline, Seated Woman (Jacqueline), were considered “gems” of the collection, according to the WSJ.

Meanwhile, new reporting today from Katya Kazakina in Bloomberg brings the total reported sales from the collection to $300 million. (All of the galleries declined to comment.) Among sales to date are Mark Rothko’s No. 22 (reds) (1957), which sold for $70 million; paintings by Cy Twombly, Mark Bradford, and Gerhard Richter also found buyers.

An Asian buyer acquired a Bradford painting for $6 million, while a Richter abstract bearing a price tag of $14 million reportedly sold as well.

Last week when the news was announced, a Pace Gallery representative told Artnet News that all of the roughly 300 works are expected to be sold by the time the May exhibition in Chelsea opens.
Source: artnet news 


Fine Art and Borrowing

The definition of Financial Leverage from Investopedia Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment.

Bloomberg ran an interesting article a few weeks back on building art collections using debt, and focuses on the growing collection of hedge fund manager Daniel Sundheim using leverage as a technique to acquire important works. With low interest rates, and loan to value ratios typicaly at 50% the risk appears minimal to both lender and borrower.

Bloomberg reports
A $28 million Warhol. A $35 million Basquiat. A $70 million Twombly.

Hedge-fund manager Daniel Sundheim has acquired all these works — and more — while wielding one of the most powerful tools in finance: leverage.

Time was, art aficionados rarely talked openly about borrowing money against their paintings to build collections, make investments or just pay the bills.

But Sundheim, 42, is part of a new breed of collectors who are eagerly pledging artworks in exchange for lines of credit and, in the process, leveraging the $67 billion art market as never before.

In a few short years, Sundheim has emerged as a major trophy hunter, gaining entry to the board of the Museum of Modern Art alongside New York’s elite. As he built his collection, he pledged the top works against a credit line from JPMorgan Chase & Co., according to regulatory filings with the New York Department of State.

As of April, his collateral pool included 29 artworks, valued at an estimated $300 million based mainly on public prices paid, according to Beverly Schreiber Jacoby, president of BSJ Fine Art, a New York-based consulting firm with 30 years of experience with borrowers and lenders.

Like corporations and consumers, many top-end art collectors have been borrowing like crazy given this era’s ultra-low interest rates. Art-secured loans have jumped 40% since 2016, to at least $21 billion globally, according to Art & Finance Report 2019 by Deloitte.

Sundheim is hardly the only Wall Streeter to get in on the action. Money managers Steve Cohen and Michael Steinhardt also have pledged art as collateral against cheap credit lines, according to the regulatory filings.

“The collector base tends to come from credit-savvy, market-driven industries: private equity, hedge funds, tech, big data,” said Evan Beard, art-services executive at Bank of America Corp. “They built their companies using debt, and now they apply the same methodology to building art collections.”

Art bankers are happy to oblige. Often these specialists are part of broader wealth-management teams that target the very rich. Banks 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 billionaires to keep their art and offer 1% interest loans to a select few. For the rest, boutique lenders offer quicker turnaround and charge higher rates.

Some collectors are looking for arbitrage opportunities: They use art-backed loans to make other types of investments, including real estate, hoping to generate fatter returns. And some want access to dry powder on short notice to purchase another artwork or even a stake in a sports team.

“It’s exactly the same as why people have a mortgage against their house,” said Freya Stewart, who heads financial services at The Fine Art Group, an art adviser and boutique lender. “They are not necessarily buying another house. They are using the money to do something else.”

A spokesman for Sundheim declined to discuss the size of the credit facility backed by his art or how he uses the funds, but a person familiar with his thinking said he keeps the collateral as a working-capital line.

His collateral pool has grown 10-fold from about $30 million in 2013, according to appraisers who reviewed the list of art that backs his line. The pieces include Cy Twombly’s signature blackboard canvas “Untitled (New York City)” and “Leda and the Swan” as well as Andy Warhol’s “Most Wanted Men No. 11, John Joseph H, Jr.,” which fetched a total of more than $150 million at Christie’s and Sotheby’s auctions.

Sundheim started buying art around 2010 and opened his credit line with JPMorgan in 2013. He works with art adviser Sandy Heller, whose other clients have included Cohen and the Russian tycoons Roman Abramovich and Dmitry Rybolovlev.

The filings suggest Sundheim has become an active player at the top end of the art market, trading out of lesser works to make more significant blue-chip purchases. He owns a 1977 Willem de Kooning “Untitled XXXI,” which he bought for $21.2 million at Christie’s in 2014. The following year, he pledged a group of seven works to Sotheby’s to pay for Twombly’s “Untitled (New York City),” which sold for $70.5 million.

His Basquiats include “Dustheads” (1982), which he bought in 2016 at a steep discount from the price paid by Malaysian fugitive Jho Low three years earlier. Sundheim also owns a 1981 Basquiat self-portrait as a warrior king, brandishing a sword. That piece fetched $34.9 million in 2014, and Sundheim later purchased it in a private transaction.

The money manager has slowed his acquisitions since the launch of his hedge fund, D1 Capital Partners, in July 2018, according to a person familiar with his activities. The fund more than tripled in size since the launch to $9.3 billion in November, a rare blockbuster debut at a challenging time for the industry.

Still, Sundheim has jumped on some opportunities. In the fall of 2018, he picked up a drawing by Basquiat for $4.6 million at Phillips and a new Mark Grotjahn canvas from the artist’s solo show at Gagosian Gallery, where prices ranged from $3 million to $5 million. The two works were among 11 new pieces of collateral backing Sundheim’s credit line with JPMorgan, according to the latest filing in April.

Getting access to cheap money has become so popular that even old-school collectors are jumping into the fray.

Suzanne Gyorgy, head of art advisory and finance at Citi Private Bank, said a client who long opposed using art for collateral recently raised the subject.

“Why now?” Gyorgy recalled asking.

The client’s answer: “I’m at a dinner party with my friends — everyone has it but me.”
Source: Bloomberg