Art Basel Hong Kong Dealer Defections and More

The Financial Times has an interesting update on the art market, including some defections and booth reductions at Art Basel Hong Kong. The article notes three galleries have pulled out of the fair, and 15 percent of the dealers are taking smaller booths this year. Not a good sign.

The FT, in the same update states the Frieze now has a new CEO, Paris auction sales are up a strong 22% in 2019, and more info on the UK's anti-money laundering and terrorist financing regulation is, of course, causing confusion.

I can only post the first sentence of the FT update, follow the source link for the full article, it has some interesting and insightful content on multiple art market sectors.
Art Basel confirms that three galleries have pulled out of its Hong Kong fair — Luxembourg & Dayan (London and New York), Tyler Rollins Fine Art (New York) and SCAI The Bathhouse (Tokyo) — after organisers offered extra time for committed exhibitors to pay a reduced withdrawal fee (75 per cent of the booth cost rather than 100 per cent).
Source. The Financial Times 


New York Freeport Art Storage

The Art Newspaper has an interesting article on the first freeport art storage facility in New York. The Art Newspaper reports that Arcis, which has a 110,000 square foot storage facility with five viewing rooms in Harlem is the first tax free art storage option in New York. With the viewing rooms the facility doubles as not only a storage option, but also with opportunities to sell objects in the tax free environment.

The Art Newspaper reports
With the US imposing new tariffs on art and antiques, New York’s first freeport art storage facility is experiencing a surge in demand as dealers and collectors seek to do private, tax-free sales. In September, President Donald Trump imposed tariffs on Chinese art and antiquities and then the World Trade Organisation ruled that the US could introduce new tariffs on European goods (effective 18 October) including an extra 25% tax on lithographs and photographs imported from Germany and the UK.

Arcis, which opened its doors in Harlem in 2018, is a $50m, 110,000 sq. ft designated foreign trade zone (FTZ) or freeport, the first tax-free art storage facility in New York City. Like similar freeport options already in place in Singapore, Geneva and Delaware, the freeport designation allows for a work to go from a seller’s storage unit straight into a buyer’s storage unit (both within Arcis) without duties assessed.

There is no time limit on storage at the new facility, but for a work to be sold within the freeport, it must be viewed by a buyer, which can only happen by taking the work out of storage and bringing it into one of Arcis’s five viewing rooms.

Tom Sapienza, Arcis’s executive director, says: “If an international seller is uncertain that the sale will take place in the US, admitting the artwork into Arcis allows them to hang the piece in one of our viewing rooms so potential buyers from the US or Japan or Dubai can come for a private viewing, and only when they purchase the art will they need to determine where to ship it as it never had to enter US commerce.”

A warning posted on the outside of the strictly regulated Arcis
The facility’s largest viewing room is around 1,000 sq. ft and is considered one of the biggest unobstructed viewing spaces in the New York region. Roxanna Zarnegar, the director of operations, training and development at Arcis, says that these viewing rooms have been used for several kinds of events in the last year, including viewings for private sales and auctions.

But it is not just the top end of the global market finding the freeport handy. Middle-market dealers are also seeking relief from New York City’s 8.75% cumulative sales and use tax on art. Steve Pulimood, an art dealer who owns Room East in New York, says he thinks middle-market dealers like him and their clients may also see Arcis as a valuable sales platform. “We’re not talking about multimillion-dollar works, but about works that are of cumulative value in the hundreds of thousands,” he says.

“If a particular collector is buying 50 to 100 works a year in New York and has to deal with running the gamut of getting all 100 works out of the country to their home country in a given year, it gets very complicated,” he says.

While the facility may prove useful in the current tariff-ridden landscape, increased usage of it as a sales venue in the world’s largest art market has its drawbacks, especially when it comes to double dealing—a concern heightened by recent high-profile lawsuits like those pending against Inigo Philbrick. Moreover, as new anti-money laundering legistlation comes before the Senate, the appeal of the freeport will continue to grow. Judd Grossman, a Manhattan attorney specialising in art crime, says: “When you just add another layer of insulation between the participants and the market, I see the likelihood of more fraud, not less fraud.”
Source: The Art Newspaper 


Appraising Personal Property: Principles & Methodology 9th Edition

The newest edition (9th, for 2020-2021) of David Maloney's Appraising Personal Property: Principles & Methodology is now available for sale. I have most of the past editions of this important book on appraisal principles and methodology, and it just keeps improving ever year.

As in past editions and you immediately note the newest version is completely updated to be in compliance with the latest version of USPAP (2020-2022). The new edition is published along with the new USPAP cycles, so you are always current if you have the latest edition.

One of the first things you notice is how well thought out the format of the book is. It has an excellent and expanded table of contents covering over 8 pages. The next section is the important and rather detailed section on What's New. This includes summary sections for both new and expanded discussions, footnotes (over 600 many directing the reader to additional and related discussions or USPAP documentation) and content as well as detailed USPAP changes. The next section is on Chapter Synopses, which gives a brief overview of each chapter such as Appraisal Terminology (chapter 1), Appraisal Principles (chapters 2-6), USPAP (chapter 7), Ethical Standards of Professional Content (chapter 8), Research (chapter 9), Describing Property (chapter 10), Writing an Appraisal Report (chapter 11), The Professional Appraiser (chapter 12) and Legal Issues Affecting the Appraiser (chapter 13).

After the main chapter content there are over 30 appendices, which include content and topics on client data forms, letters of introduction, sample appraisals, IRS guidance and regulations, treasury regulations, deposition tips, oral appraisals, and contracts. Appendices are followed by a bibliography followed by an excellent appraisal glossary (this is in addition to chapter 1 on appraisal terminology and the last section is an extremely detailed index to find quickly and easily what you are looking for.

The content is detailed, easy to follow and very well explained by the author. Chapters include a badge to notify the reader on updated and new information and content, as well as many pages with easy to follow bullet points and footnotes for additional information. As many AW readers are aware from previous AW blog postings on Appraising Personal Property, I use the book on a regular basis. The book functions well as either a stand-alone reference guide, or in conjunction with appraisal association manuals, publications and course work as a secondary resource and supporting manual. Perhaps the most impressive aspect of the of the book beyond its sheer appraisal scope is how it seamlessly incorporates foundatonal appraisal theory, practices and methodology with the newest version of the Uniform Standards of Personal Property. Dave does an excellent job of combining and consolidating appraisal methodology with USPAP.

I have been using Appraising Personal Property: Principles & Methodology for many years and it always has provided me with answers and excellent guidance when I have methodology and terminology questions. It  is a go to guide on appraisal theory, principles, methodology and USPAP.

With personal property appraising constantly changing with new regulations, qualifications, research techniques, authentication issues, new technologies and increasing educational requirements and continuing education, the PP profession and the users of appraisers are now demanding more sophisticated, qualified and experienced appraisers. We are now seeing trends of more experienced art professionals joining appraisal associations with higher degrees, and years of object, museum, gallery and/or auction experience. To stay competitive, appraisers have to stay current with standards and methdology. Appraising Personal Property: Principles & Methodology is a resource that will keep appraisers updated to changes within the profession, and become more in-tune with progressive appraisal changes and credible work product.

There are only a few quality resources available to personal property in the form of appraisal books on theory, principles and methodology. Given the scarcity of quality books with accurate and in depth content on personal property appraising, every appraiser should have the newest edition of  Appraising Personal Property: Principles & Methodology in their library. It is an essential resource to have. The cost is nominal given the amount of important and useful content contained within the newest edition.

The 9th edition is now available to order for $94.95 plus shipping. Click HERE to order. For more information, click HERE.
This award-winning book is the only complete, up-to-date, well-organized, practical and fully-indexed course book and reference guide to personal property appraising—highly-acclaimed as the definitive book about appraising.
  • Fully-Updated
  • 2020-2021 USPAP Compliant
  • 100s of changes
  • Over 600 footnotes for added clarity
  • 726 pages
Each page has been fully edited to enhance clarity and understandability and to ensure compliance with USPAP and other best appraisal practices. No change in price! Now available for the straight-from-the-author price of only $94.95 plus shipping and tax. Go here for more information about the book!
  • Updated throughout to conform with the new 2020-2021 USPAP
  • Hundreds of new and expanded discussions
  • Loaded with over 600 footnotes
  • Built-in plain English guide to USPAP
  • Updated sample appraisals help ensure complete and USPAP-compliant reports

At the book’s core are the ethical and appraisal performance standards of the widely-accepted Uniform Standards of Professional Appraisal Practice as promulgated by The Appraisal Foundation of Washington, DC. The reader will become knowledgeable in the principles and methodology of professional personal property appraising including terminology, tasks of an appraiser, objectives and intended uses of appraisals, types of value, IRS regulations, the three approaches to value, Appraisal Process, Problem Identification, appraiser competency, Scope of Work, value enhancers and detractors, depreciation, market principles, ethics, identification and authentication, USPAP, market research, describing property, legal issues, sample appraisals and much, much more. The course also teaches the reader basic appraisal techniques to facilitate beginning a professional appraisal business or improving an existing one. In short, the reader will be taught the skills necessary to write a complete, clear, concise, well-developed appraisal report in conformance with today’s generally accepted standards.
Source: Appraisal Course Associates


UK Requires "Art Market Participants" to Register

The NY Times recently posted an article about new UK legislation which went into effect last Friday on requiring "art market participants" which I take from the article to be dealers and auction houses to register with the UK tax agency and they, when buying or selling objects over about $11,000 to establish the identity of those entering the transaction.  Photographic ID with a date of birth, plus proof of the client’s residential address, will be needed to complete transaction and the name should then be checked against relevant watch or sanction lists.

All of this is to combat money laundering and terrorism financing.

The article also notes many countries in the European Union are or will soon also be following these regulations.

The NY Times reports
LONDON — Britain’s embattled art trade, already rattled by the potential fallout from Brexit, is bracing for new rules intended to tackle money laundering and terrorism financing that some fear could further hamstring dealers in the country.

As of Friday, “art market participants” in Britain are subject to the regulations when conducting transactions worth more than 10,000 euros, or about $11,100. Under the rules, they have to register with the government’s tax agency, and dealers and auctioneers must establish the identity of the “ultimate beneficial owner” — meaning both seller and buyer — before entering into a transaction.

The legislation, ratified last month by the British Parliament, introduces largely without modification a European Union directive that is at various stages of implementation in other countries in the bloc.

“This is very serious. It could potentially change commonly accepted market practices,” said Kenneth Mullen, a partner at the London-based law firm Withers. “Due diligence is going to be fundamental. It does seem to mark a shift toward a more regulated industry.”

The international art market is generally an exclusive, often secretive business that has thrived in part thanks to the ability of buyers and sellers to maintain their anonymity.

According to Withers, legally certified photographic ID with a date of birth, as well as recent proof of the client’s residential address, will be required to conform with the British regulations, and the name should then be checked against relevant watch or sanction lists.

In 2018, the global art market turned over an estimated $67.4 billion in sales, according to last year’s Art Basel and UBS global report on the sector.

Britain, with London as its hub, is the second-biggest art trading nation after the United States, with 21 percent of global auction and dealer sales in 2018, according to the report. But will the new regulatory framework put British-based dealers and auction houses at a competitive disadvantage?

“It’s going to be difficult for the first year or two,” said Christopher Battiscombe, the director general of the Society of London Art Dealers. “But people will get used to being more open and supplying documents.”

“There are wild rumors about London being the money laundering capital of the world,” he added. “We have to be seen to be taking it seriously.”

Isabella Chase, a research analyst at the Center for Financial Crime and Security Studies at the Royal United Services Institute in London, said it was impossible to estimate how much criminal money was being spent on art in the British capital.

“But it’s well known London has a money laundering problem,” she said. “We’re an attractive jurisdiction for the proceeds of crime and corruption and we’re an attractive place to spend it.”

In the absence of a rigorous regulatory framework, money laundering has been difficult to detect in the British art market, with the exception of some high-profile cases. In 2018, for example, the Mayfair-based dealer Matthew Green was charged with helping to launder money through a $9.2 million Picasso painting.

Two years earlier, the flamboyant Malaysian businessman Jho Low was revealed to have spent as much as $200 million of looted public funds on big-ticket works by artists including van Gogh, Picasso and Basquiat at Christie’s and Sotheby’s auctions. Most of the pictures were bought in New York, but in 2014, Mr. Low spent $57.5 million on a Monet “Nympheas” canvas at a London auction.

Martin Wilson, the chief legal counsel at the auction house Phillips, said, “At the heart of the new legislation is a requirement that art market participants must carry out due diligence in relation to the identity of their customers and be able to answer the important question, ‘Who am I really dealing with?’”

Mr. Low (who is said to be in hiding) was a well-known figure, but hundreds of British dealers regularly do business with intermediaries whose livelihoods depend on not revealing the identity of an artwork’s “ultimate beneficial owner.” The legislation could make art advisers in the United States, who are currently not subject to such industrywide regulation, more reluctant to transact with British galleries.

Art traders in Britain have also expressed concern that a requirement to reveal the identity of a third party could affect smaller participants. “A dealer might represent one really good collector, and if the name has to be revealed, that collector could be could be taken by a bigger dealer,” said Nicholas Maclean, a partner at Eykyn Maclean, a dealership based in London and New York.

There are also practical implications for auction houses and dealers in administering the new legislation.

“It’s going to add 30 minutes to an hour of work every day,” said Alon Zakaim, a gallerist in modern and contemporary art based in Mayfair, central London. Mr. Zakaim added that he was nervous about having to comply with the legislation when he takes part in the European Fine Art Fair, or TEFAF, in the Netherlands in March.

“If I don’t know someone, I’m going to have to ask them all these questions,” he said. “They could well feel it’s an invasion of privacy,” he added. “I could lose a client.”
Source: The NY Times 


Investing in Fine Art

Forbes recently posted an interesting article on investing in fine art. The article briefly looks at the growth and amount of sales in the fine art market and also some basics of understanding for buying and investing in fine art.

The article looks at fine art investment 101, does investing in art payoff, tips for the beginner art investor, and is it the right alternative investment.

I found this paragraph toward the end of the article a positive for art advisory professionals, which certainly should include appraisers "To make money investing in art, you have to nail the basics. Treat your art purchases like alternative investments. As if you were purchasing stock or other securities, buy and sell high-value artwork through a reputable advisor who can facilitate research, bidding and maintenance."

Forbes reports
Investing in an artwork can feel more like a dice roll than an investment. Recently, painting and sculpture collectors have generated significant buzz around the fine art market thanks to big-ticket auction sales. This includes a record-breaking $91.1 million sculpture of a rabbit. Auctioned in May 2019, it is the most expensive work ever sold by a living artist.

The global art boom is no passing fad. The 2019 annual report by Art Basel and UBS Global Art estimates that worldwide art sales surpassed $67 billion last year. Evidently, beauty doesn’t exist solely in the eyes of the beholder — markets stake an objective claim to its value.

It’s true that you can net serious returns by investing in prized artwork. However, investing in art has its share of risks and drawbacks.

My company specializes in alternative asset investing, which includes artworks. We have years of experience in alternative asset markets, though our knowledge of art investing is mostly secondhand. In this article, I’ll look at a variety of art investing pros and cons to help you determine if artwork is worth adding to your portfolio.

Art Investing 101

As with any financial investment, extensive research is a must. Before getting started in the snares of the fine art market, dedicate several months to passive observation of art auction news and valuation trends. To get a better sense of high-value art pieces and artists, speak to a curator or art specialist who may be able to give you an inside scoop.

As a rule, the works of prolific living artists are appraised at a value lower than those of a deceased master artist with a finite number of works attributed to them. Therefore, art produced by deceased authors or artists generally sells for more and accrues value faster than art by contemporary artists.

Once you feel knowledgeable enough to jump into the market and attend an art sale, don’t let the curators and consultants intimidate you. Often, gallery curators go to great lengths to impart their vast art history knowledge on collectors. Sometimes the advice and insight proffered by gallery experts can contradict your gut instinct about the value of the work. For this reason, online art auctions present an easier, less-intimidating environment for new art buyers.

In sum, art investing is hard work. For an artwork to generate significant returns, the buyer must consider the overall influence of the artist beyond media praise and public recognition.

Does Art Investing Pay Off?

Purchasing art is a type of alternative investment strategy. For the savvy art buyer, it can be a massively profitable venture, as demonstrated by Artprice in its list of the best-performing art stock sales of 2017.

The Artprice list clearly demonstrates the potential for incredible returns via modern art investing. In the case of Jim Crow (1986), the buyer sold the item for over 125 times their original investment after holding the piece for 25 years.

Jaw-dropping returns such as these are why the global fine art market is saturated with buyers looking to capitalize on the next sleeper hit. While sales like these are rare, they aren’t a coincidence either. Successful art purchases are the product of diligent planning and thorough research of the art’s historical and cultural significance.

Tips For Investing In Art As A Beginner

• Be wary of the risks.

Art is a highly illiquid asset class. If you’re looking to flip an undervalued artwork to make a quick buck, think again. It can take years to have your art piece sold at auction. That’s why it’s always recommended to consider art investing a medium- to long-term addition to your portfolio.

To mitigate the risks inherent to art buying, diversify your collection by purchasing art from various artists, artistic traditions and historical periods.

• Join the community.

To bolster your chances of making a good art investment, start building a professional network in the fine art space, and regularly attend art fairs and art auctions.

If this sounds like hard work to you, then you might be better suited for other avenues of alternative investing. Those who do well investing in art often have a deep appreciation for art and enjoy spending time at fine art socials, galleries and exhibitions.

• Invest in a facilitator.

The fine art market can feel something like an impenetrable old boys’ club. To help your entry into the market, consider hiring an expert in the art world. An art investing consultant can help you place well-informed bids on pieces and prevent you from purchasing a dud.

Is Art Investing The Right Decision For You?

To make money investing in art, you have to nail the basics. Treat your art purchases like alternative investments. As if you were purchasing stock or other securities, buy and sell high-value artwork through a reputable advisor who can facilitate research, bidding and maintenance.

In short, art investing isn’t for those looking for a get-rich-quick scheme. It takes many years, or even decades, for an artwork to appreciate, and there are many responsibilities that fine art owners must commit themselves to. For this reason, art investing is usually reserved for art lovers and enthusiasts.

Investing in art holds the potential for significant financial rewards. Blue-chip names such as Warhol, Basquiat, Kusama and Picasso are serious moneymakers in the global art market. The trick is to find the next historically significant artist before they become one. This, however, is an art in itself.
Source: Forbes 


DAR Musuem Acquires Waln-Morris Desk and Bookcase

This morning I was invited for the delivery of a recent important acquisition to the Daughters of the American Revolution museum in Washington DC. This is a world class museum with an incredible collection of fine furniture, fine art and decorative arts. The collection is extremely diverse with many important objects, and they are constantly improving the experience and collection.

The museum has over 30 period rooms along with an exhibition hall sponsored by the DAR State Chapters. If in Washington DC I highly recommend visiting the museum along with their amazing genealogy library. The building is wonderful, the library room is amazing (once the DAR theater/auditorium before Constitution Hall), and a collection of over 30,000 objects.

I had the distinct pleasure of consulting and advising the museum acquisition committee on the rare and fine, Philadelphia Chippendale desk and bookcase from the Waln-Morris family. The desk and bookcase had been in the Waln-Morris family since it was made, Circa 1760-1780. It has wonderful proportions with a great vertical aesthetic for a large piece of furniture and the represents a tour de force of American rococo period carving.

As I mentioned, I did not inspect the desk and bookcase prior to purchase nor did I appraiser it. I reviewed provided information and researched important pieces of Philadelphia furniture with strong provenance in excellent condition and reviewed other important American secretary bookcases based on condition, design characteristics, quality and provenance and made recommendations. Consulting and advisory work can be an important part of the overall appraisal practice and should be an area for appraisers to expand their practice.

The Waln-Morris desk and bookcase will be on display in the DAR museum study room starting on Friday for several months before moving into one of the period rooms for permanent display. I highly recommend a visit, it is a wonderful museum and the Waln-Morris desk and bookcase is an outstanding example of Americana worthy of its placement at the DAR Musuem.

A few images (click on image to enlarge)

Having fun behind the DAR Bronze Eagle Lectern which has been used multiple times at presidential inaugural luncheons and other import events.


Tokenization of Fine Art and Luxury Goods

Here is an interesting article from the International Business Times on selling fractional shares of art and luxury goods while incorporating technology such as blockchain to track ownership. The tokenization of fine art which according to the IBT article enhances liquidity and trading, and will assist investors, wealth manager and developers across market sectors. This all becomes available to art investors because of the use of blockchain. We are seeing more and more uses of blockchain in fine art and luxury goods, and appraisers need to be aware of the impact of this technology.

The International Business Times reports
Investors the world over are constantly searching for alternatives to traditional assets such as stocks and bonds to diversify their portfolio. Real estate is a major target because investors can receive a future income stream from rent, and, over time, see the advantages of potentially higher returns, stability and inflation-hedging.

But traditionally there have been two major hurdles to investing in this appealing multi-trillion-dollar asset class -- entry and exit. First, access to real estate requires much more capital than entering the stock or bond market. Second, once you invest in real estate, it is usually years before you can cash out. Houses and buildings are the classic examples of an illiquid asset. Until now.

Technology now means it is possible to effectively divide real estate into fractions that can be bought and sold individually. Most investors who cannot afford a $100 million multi-family property in itself can nevertheless buy a piece of the same property for a relatively small sum. This process, known as fractional ownership or tokenization, opens up the real estate investment sector to millions of everyday investors.

Better still, once an investor has acquired a tokenized portion of a property, nowadays you can trade it -- in much the same way you trade a share in a company. Instead of buying and selling on a stock exchange, it is now possible to trade at a dedicated digital marketplace, where tokenization makes previously illiquid investments liquid.

In fact, it can be argued that tokenization is even more liquid. The technology -- blockchain -- that makes tokenization possible also helps to automate the trading process and cuts out the middleman. Whereas a standard settlement time of a stock trade might be days, with blockchain and tokenization, the ownership transfer is instantaneous.

This innovative investment model particularly benefits investors, wealth management advisers, and developers. And the tokenization of illiquid assets is a new trend opening opportunities for everyday investors across many sectors.

Take fine art investment as another example. Not too many people can afford a Rembrandt or a Monet. But tokenization suddenly makes owning a piece of a Picasso possible. Investors who see the benefit of fine art as an asset class, which long-term has produced powerful gains, can enter this “luxury” market by purchasing an ownership share in the masterpiece.

And the same applies to other tangible, luxury collectibles -- whether we are talking classic cars or rare jewelry watches. These so-called “alternative asset” groups have long been available to only the privileged, well-capitalized investors. But tokenization has changed all that and opened up access to multi-trillion dollar sectors.

And it is not only the investors who benefit. The original owners of the physical asset win too. They gain access to capital from the many investors who have bought fractions of their property or artwork or collectible and can use that to go on and fund further purchases. This means a developer does not have to seek costly bank loans to finance their next property development. They retain operational ownership of the property and get to use the raised capital to expand their business.

The same works for art museums. If a gallery wants to add a new Van Gogh painting to its exhibition displaying several of the Dutch master’s works, it can sell tokens in one of its existing Van Gogh masterpieces and take that money to buy an additional item to expand its show. All the while, the gallery can continue to exhibit the original piece that was partly sold to many investors.

The idea behind tokenization can be taken even further and extend to fractional ownership in other areas previously reserved for large capital investments. Here we can see possibilities in owning a fraction of a gold mine, for example, and receive the benefits of its gold production as a “dividend” or in high-risk/high-reward investments in startup companies.

Put simply, the new technology of blockchain is creating the mechanism for fractionalizing ownership in high-value illiquid assets so that everyday investors can buy into these alternative asset classes and instantaneously trade their tokens. Investors and owner-sellers win. It’s a win-win.
Source: International Business Times