Artist Donated Works

Fellow appraiser Cindy Charleston Rosenberg sent me an interesting article recently posted on Artsy about tax incentives for artist when donating works.

Artsy reports

The founders of Miss Porter’s School, an all-girls high school located in Farmington, Connecticut, believed a stellar education can open a new world of opportunity for girls. To support this mission, a group of collectors and female artists came together to back what is being billed as the first-ever benefit auction of works exclusively by women, which is taking place March 1st at Sotheby’s in New York. Sale proceeds will go towards providing financial aid so that an even more diverse student body can attend Miss Porter’s School.

The generosity of these artists and others who have contributed works to the sale is inspiring under any circumstances. It is particularly notable because of the negligible tax benefits they will receive for their gifts. Contrary to public perception, donors who contribute works to charity auctions are driven by passion, not tax relief. This is especially true for artists who donate their own work.

A benefit for tomorrow’s women
Established in 1843, Miss Porter’s School was founded with the radical aim of providing young women with the same high-school education as their male peers. The school’s curriculum included a full panoply of science, language, and mathematics courses, in addition to various athletic opportunities. Today, the school has 312 students, most of whom live on campus as boarders. Around one-third of the students receive some form of financial aid to help them attend the school.

The idea for a benefit auction started in the summer of 2016, as planning began to honor the 175th anniversary of the school’s founding. A small leadership team came together to brainstorm auction concepts. The team was initially comprised of Dr. Anna Swinbourne, a former Museum of Modern Art curator who now teaches at Miss Porter’s, and Dr. Sunnie Evers, a school alumnus and trustee; they were then joined by Agnes Gund, the noted philanthropist, MoMA trustee, and Miss Porter’s alumnus.

The team quickly coalesced around two ideas: The auction should only include work by women artists, and all sale proceeds should go towards financial aid. They then invited artists, collectors, gallerists, and others to turn the concept into a reality. Most of the artworks and support have come from contributors who believe in the power of single-sex education for women, even if they are not alumni of Miss Porter’s: Oprah Winfrey, a longtime supporter of single-sex education, is an honorary co-chair of the auction, alongside Gund.

Titled “By Women, for Tomorrow’s Women,” the live and online auctions have 40 works by 38 artists. The objects range in value from approximately $1,000 to $1.5 million, including pieces by Alice Aycock, Cecily Brown, Carmen Herrera, Jenny Holzer, Roni Horn, Louise Lawler, Beatriz Milhazes, Catherine Opie, Dorothea Rockburne, Ursula von Rydingsvard, Cindy Sherman, Kiki Smith, and Carrie Mae Weems. The most valuable work in the sale is an early painting by Herrera, exhibited as part of her 2016 retrospective at the Whitney Museum of American Art, which was donated by Gund. Around two-thirds of the works in the sale were donated by artists themselves.

The generosity of artists
These artists are generous in the extreme: None of them will receive meaningful tax benefits from their donations, due to two U.S. tax code provisions.

When a taxpayer donates an artwork to a charitable organization, she can receive a charitable deduction equal to the fair market value of the object only if the organization receiving it passes what is called the “related use” test. Put simply, the organization must use the donated artwork in pursuit of its mission. Art that is accepted into the permanent collection of a museum passes this test, as does art donated to a school where it will be displayed and used in art history classes. But if the intent of the charity is to sell the work, then the donation fails the “related use” test. In these circumstances, the taxpayer will only be able to receive a charitable deduction equal to what the Internal Revenue Service (IRS) calls their “basis” in the object, which is typically much lower than its fair market value. Because all of the artworks donated to the Miss Porter’s auction do not meet the “related use” test, it’s essential to understand how the IRS defines “basis.”

The IRS defines “basis” very differently for artists and collectors. Artists can only deduct what it cost them to make the artwork. For example, if an artist donated a drawing with a $100,000 fair market value to a benefit auction, they would likely receive a tax deduction of around $100 for it—the cost of the pencils and paper that went into making it. This is true even if the work sells for $100,000 or more in the auction.

So all the artists donating their works to the Miss Porter’s auction are receiving essentially no tax benefits for their generosity. Collectors are marginally better off than the artists, because the IRS deems their basis to be what they originally spent to buy the artwork. For the kinds of works that show up at auction, that is still likely to be far less than a work’s current fair market value. With that in mind, hats off to the great collectors, gallerists, and especially artists whose substantial generosity will bring more opportunities to a new, diverse generation of Miss Porter’s students.
Source: Artsy


Collecting/Investing in Fine Art

The NY Times recently ran an article where they discussed collecting art, for love or for financial returns, or perhaps a some of both. The NY Times spoke with collectors and art advisors about fine art collecting and investing. The advice is to combine the passion of collecting with due diligence, informed decision making and connoisseurship.

The NY Times reports
Collecting fine art is as much about beauty and desirability as it about the investment value. Given how strong the art market has been over the past few years, many collectors may not be prepared if the economy slows and the appetite for art cools.

Roy Sebag, a hedge fund analyst turned entrepreneur, has a collection that includes a drawing by Pablo Picasso and works by 17th-century Dutch masters. He said he took an objective view of his collection’s value: looking at both the art’s intrinsic value — how an artist’s work has appreciated — and its social currency.

“It’s subjective,” but it still allows for analysis on historical pricing, said Mr. Sebag, founder of Goldmoney, a site for buying and selling precious metals, and co-founder of Mené, a jewelry line. “It isn’t a coincidence that Picasso is viewed by every high-net-worth individual as an asset they want to own.” There are supposedly 5,000 works by Picasso, he said, a stock large enough to build a network of interested parties.

By his analysis, avoiding emerging artists and buying works of a well-known artist like Picasso, despite having to pay millions of dollars to do so, is like buying a hedge against recession. “We know trends change quickly,” he said.

Such beliefs could be tested in the next few years.

In 2018, works by the 100 top-selling artists, as measured by the market research firm Artprice, rose 4.3 percent in value, but the art market as a whole lost 1.9 percent. The company explained that buyers were becoming more demanding.

“While happy to pay big money for rare and high-quality works with irreproachable provenance, they often ‘pass’ on other works,” its report said.

In 2008, the art market was not immune to huge swings in value. Sales of postwar and contemporary art fell by more than two-thirds from 2008 to 2009, according to data collected by Athena Art Finance, which lends against art portfolios. It took until 2012 for sales to surpass pre-recession levels.

To guard against seeing the value of an art collection plummet, dealers advise prudence and, not surprisingly, connoisseurship.

If there is a lesson to be drawn from the recession, it is that buyers become more discerning in both the artists they favor and the price they will pay, said B. J. Topol, co-president of Topol Childs Art Advisory, which works on behalf of wealthy clients.

“There’s a reshuffling in a recession,” she said. “The trendy artist of the time, people aren’t looking at him. People want to make sure they’re buying a known commodity and not taking risk.”

Ms. Topol said she saw signs of a slowdown in the art market at the Art Basel international art fair in Miami Beach in December. Art wasn’t being snapped up in the first few minutes. Instead, buyers had a chance to digest what they were seeing and negotiate on price.

Regardless of the climate, she advises not to buy on trends, yet she stops short of the adage to buy what you love. That could be financially disastrous.

“If you combine your passion with an informed decision,” she said, “you’ll have something you love every day and maybe it goes up one day.”

Other collectors amass idiosyncratic collections whose value is greater together than apart. Peeling off several pieces in a downturn could depress the value of the collection as a whole, said Jean Pigozzi, a venture capitalist and art collector.

“I’m not at all like all the other hedge fund collectors,” said Mr. Pigozzi, who has amassed a significant collection of contemporary African art. “I’ve never collected thinking what I collect would be a good investment.”

He said most of his pieces were not worth more than $100,000. Compare that with a work by Jean-Michel Basquiat, among the best-selling contemporary artists today. Mr. Pigozzi paid $1,000 for an artwork by Basquiat in 1982 and sold it last year for $3.2 million.

What he has is a unique collection that is often included in museum shows and sought after by auction houses. In its totality, it offers a window into sub-Saharan art of the past 30 years.

But Mr. Pigozzi knows selling it would be difficult without breaking it apart. Instead, he hopes to create a museum for it.

Approaching art as a pure investment can be difficult, because values of an artist’s work can change substantially in ways not associated with typical capital markets investing.

The value of works by Wifredo Lam, for instance, has doubled or even tripled in the last decade because of a reappraisal of his place in art history, said Isabelle Bscher, the third-generation owner of Galerie Gmurzynska, which has represented artists including Yves Klein, Joan Miró and Picasso.

Lam, who died in 1982, was Cuban by birth and grouped with other Latin American artists at auctions, which drew a specific collector. But he was later seen as a modern artist, because he was a friend of Jackson Pollock, Willem de Kooning and other midcentury artists. As his artworks moved to more popular auctions, their value has doubled or tripled in a decade, Ms. Bscher said.

A similar shift happened with Picasso about 15 years ago, she said. Collectors did not want to buy his work created after 1965, when the artist was in his 80s and seen as past his prime. At the time, the artworks were inexpensive, but they have since risen in value.

Her advice: “If you buy the period of an artist that is not in fashion, you can make a great investment.”

There are of course plenty of collectors with enough wealth to not really care about the short-term hit in value that the work on their walls may take. Hilary Geary Ross, an art collector and the wife of Commerce Secretary Wilbur Ross, said she had always loved the work of René Magritte, the Belgian surrealist, and began buying his work when she and Mr. Ross married in 2004.

She has 36 pieces by Magritte, worth in excess of $100 million. They include famous works like “La Clairvoyance.” The billionaire couple have rarely sold any of their works, but Mrs. Ross said they did take advantage of the 2008 downturn to buy paintings.

“People come to us with them, because they know we like them,” she said.

In distressed markets, social concerns may keep some people from working with auction houses. They can try private sales — as happened with the Ross’s acquisitions in 2008 — to sell something quietly.

But Ms. Topol said that even then, discerning collectors were going to drive a hard bargain. If that happens, she said, dealers and auction houses can step in to help. But her advice echoes that of others: Don’t sell art in a downturn unless other sources of liquidity have dried up.

Mr. Sebag said that the art he owned had increased in value far more than other investments he had made, but that he would sell it only if he ceased to enjoy it.

“I think art is something you purchase without an exit strategy,” Mr. Sebag said. “My idea of liquidity is in other investments.”

Having those other buckets to draw from is important — otherwise, you could be forced to sell a prized work for less than you would want to when the economy sours.
Source: The NY Times 


The Growing Los Angeles Art Market

The Wall Street Journal recently posted an article on the growing art market in Los Angeles. The article notes art related jobs had increased by 32% between 2010 and 2017. Auction and art fairs in the area are also showing continued growth and all are paying more attention to the region.

The Wall Street Journal reports
Is Los Angeles ready for its art market close-up?

A new contemporary-art fair, Frieze Los Angeles, kicks off Thursday on a movie studio’s back lot, and its arrival is stirring up the city’s ambitions to become a global art-market hub like New York, London and Hong Kong.

Los Angeles has been building a thriving art scene for decades, yet it lacks elements that tend to define the world’s blue-chip marketplaces—like a centralized gallery district and a clearly defined art season with high-profile, internationally followed auctions.

Nevertheless, Los Angeles’s art scene continues to mushroom: Between 2010 and 2017, art-related jobs in Los Angeles County grew 32%, outpacing New York, according to a newly published study on the creative economy commissioned by the Otis College of Art and Design.

The purchasing clout of Los Angeles’s collectors is also climbing. Marc Porter, chairman of Christie’s Americas, said the West Coast and particularly Los Angeles has been the house’s third-biggest source of new clients—after mainland China—for the past three years running. Sotheby’s West Coast chairman Thomas Bompard said twice as many $5 million-plus artworks were sold to Los Angeles collectors last year compared with the previous one. Buyers there, he said, are getting more comfortable competing in the “big game.”

The addition of a well-known franchise like Frieze is the latest sign of the city’s ascent, market watchers said. “Los Angeles has never had that choke-point week where the auction houses and galleries get the art world’s undivided attention, and we sell big,” said Muys Snijders, U.S. head of postwar and contemporary art for Bonhams, which does hold auctions in the city. “We’re clearly looking to see if Frieze L.A. could become that pinnacle.”

Victoria Siddall, director of Frieze Fairs, said Los Angeles is overdue to claim its own slot in the event-driven, international art calendar, and when she and her team started thinking of expanding to the city a few years ago, they saw that this week in mid-February was relatively clear.

“We’re not pioneers,” Ms. Siddall said. “L.A. has an extremely strong art scene—we just need to create a moment to get everyone there at the same time.”

Other fairs like Paris Photo Los Angeles have come and gone from the city over the years, unable to gain enough traction to continue. Local dealer Sarah Watson with the Kayne Griffin Corcoran Gallery said she thinks other fairs, in Goldilocks fashion, opened with too many or too few galleries.

With 70 galleries and a four-day sales window, she said, “Frieze feels just right.”

Nearly half of the galleries in the inaugural edition are from Greater Los Angeles. Local dealer David Kordansky plans to show paintings and wry sculptures that Kathryn Andrews created after she bought several film props, including a long, mercurial finger wielded by the villain in the “Terminator” movies. Parker Gallery, which opened two years ago in a Tudor-style house in the Los Feliz neighborhood, plans to show several brightly colored paintings by Sacramento artist Irving Marcus, who is 89 years old.

Several international galleries with local outposts like Hauser & Wirth are bringing pieces by Los Angeles’s hometown icons like Mike Kelley, whose $1.8 million bed installation, “Unisex Love Nest,” has been tucked away in a European collection since it was created 20 years ago, said Marc Payot, gallery partner and vice president.

The Frieze tent, designed by Thai architect Kulapat Yantrasast, will be set up beside the back lot of Paramount Pictures Studios. Visitors will be invited to wander a few blocks of New York street sets on the back lot nearby, encountering artworks along the way. The artist Lisa Anne Auerbach has tasked an artist-actor with the role of “Psychic Art Advisor,” doling out collecting advice from one of the mock brownstones, said fair curator Ali Subotnick, previously at the Hammer Museum.

Karon Davis, co-founder of the city’s hip Underground Museum, plans to place her white sculptures of children around the set of a school. Some of the figures in her installation, “Game,” sport antlers, a nod to the way school shootings have left some children feeling hunted, Ms, Subotnick said. The fair runs through Sunday.

Museums around town are showing support by holding cocktail events for VIPs and walk-throughs of their new exhibits, some of which just opened. These include the Hammer’s retrospective of Los Angeles conceptual artist Allen Ruppersberg and the Marciano Art Foundation’s show of Glenn Ligon’s searing wordplay work. At least two additional fairs are also opening in tandem with Frieze—a local mainstay that shifted its dates to open in step, Art Los Angeles Contemporary, and a smaller, new fair called Felix LA, co-created by the collector Dean Valentine.

For all the talk of wrangling the broader art world’s attention, Austrian dealer Thaddaeus Ropac, who is showing at Frieze, cautioned that the fair’s long-term success won’t likely hinge on convincing the same set of international collectors to keep flying back year over year.

“The Europeans will come at the beginning, but they won’t always come,” he said.

Hamza Walker, executive director of the nonprofit art space LAXART who is overseeing a series of artist talks at Frieze, said the true test will be if Frieze can cultivate more collectors from the industry that is this city’s lifeblood.

“When museums have galas, Hollywood is in the house,” Mr. Walker said. “But we need the fleet of producers, directors and lawyers buying contemporary art—they’re the real money in this town.”
Source: The Wall Street Journal 


Native American Art Fraud

Fellow appraiser Kathi Jablonsky sent me an interesting article on a large Native American art fraud case working its way through the courts. The case involves 300 shipments of Native American jewelry between 2010 and 2015 with a value of nearly $12 million.

Hyperallergic reports
History’s largest Native American art fraud case will come through the courts this year after multiple family businesses manufactured, imported, and falsely distributed Native American-style jewelry as genuine between 2010 and 2015. The trade value reached nearly $12 million across 300 shipments in five years — now, five men and two businesses are charged with violating the Indian Arts and Crafts Act, importation by false or fraudulent practice, and failure to mark goods with their country of origin as required by customs law.

One supply chain involved Albuquerque importer Sterling Islands Inc, which purchases jewelry from its Philippines-based manufacturer Fashion Accessories 4 U. Both entities were owned and operated by the Khalaf family.

Nashat Khalaf, brother to Jawad Khalaf (the owner of Fashion Accessories 4 U and Sterling), owns large jewelry wholesaler Al Zuni Global Jewelry, which is based in Gallup, New Mexico. 18 search warrants executed in October of 2015 allege several members of the Khalaf family participated in the fraudulent selling of counterfeit Native American jewelry, but none of the Khalafs have been charged to date.

Simultaneously, a different alleged scheme was operated by the Aysheh family, which assembled their counterfeit jewelry through its Philippines-registered business, Imad’s Jewelry, owned and operated by Imad Aysheh. Delivering the goods through their family-owned and operated importer, IJ Wholesale Inc, the Aysheh family used a California-based jewelry store owned and operated by Raed Aysheh called Golden Bear as a distribution hub and public retail store. Four members of the Aysheh family — Imad, Nedal, Iyad, and Raed — were charged in 2017. Their hearings have been continually postponed.

Nael Ali owned and operated Gallery 8 (Albuquerque, NM) and Gallery Azul (Albuquerque and formerly of Scottsdale, AZ). He also served as a significant retailer for both Sterling and IJW-imported counterfeit jewelry at these locations. On at least one occasion he sold 166 pieces for $13,000  to a Virginia jewelry store, Turquoise Canyon. Federal agents determined at least 69 pieces were imported by Sterling and Filipino-made. Nael Ali pled guilty for fraudulently selling, offering and displaying imported jewelry as genuine Native American jewelry.

On August 27, 1935, Congress created the Indian Arts and Crafts Board (IACB) to improve the economic status of Native Americans through the development and promotion of authentic Native American arts and crafts. The 1935 Act adopted criminal penalties for selling items misrepresented as Native American made. In response to growing sales of counterfeit products, Congress passed the Indian Arts and Crafts Act (IACA) of 1990, to include the importation of knock-offs which undercut Native American economies and cultural heritage. This Act is designed as a truth-in-advertising law meant to prevent products falsely marketed as “Indian made.”

While the maximum penalty for violating the Indian Arts and Crafts Act is a fine of $250,000 and or imprisonment of five years, the US attorney recommended to the judge a sentence of 18 months.

Instead, this August Ali was sentenced to six months in federal prison, becoming the first person to go to jail for violating the Indian Arts and Crafts Act. He was ordered to pay $9,048.78 in restitution. His co-defendant, wholesaler Mohammad Manasra, was sentenced to two days in jail, a $500 fine, and a year of supervised release.

During the court hearing, Native American artist Liz Wallace said, “I don’t think calling this cultural appropriation is adequate. It’s economic colonization.”

According to search warrants executed in 2015 in the Sterling Islands case, the Department of the Interior, U.S. Fish and Wildlife Service, and the Indian Arts and Crafts Board have been conducting a nationwide investigation of the sale of counterfeit Native American jewelry. Paul Elmore, gallery director at Shiprock Santa Fe, which deals antique Native American jewelry and crafts in New Mexico asserts that enforcement is increasing, not the violations.

A veteran jewelry dealer in Albuquerque, Skip Maisel notes he is aware of the fakes in neighboring businesses but doesn’t see it often himself. “We never buy blocks or imports,” he told Hyperallergic in a phone call. “We acquire individual pieces that are Indian handmade or commission pieces. I seldom see [fakes] because they are run out when they bring it in my store.”

Undercover federal agents posed as customers at various retailers distributing Sterling Islands’ jewelry, and say they were repeatedly presented with Philippine-made jewelry labeled as Navajo or Hopi.

In one 2015 search warrant, federal agents detailed that jewelry was fabricated to have initials stamped on the reverse side of the object, a common maker mark denoting the artisan’s name.  For example, in 2014, Gallery 8 in Albuquerque made representations to an undercover federal agent that rings marked “CK” were made by Navajo artist “Calvin Klee.” Researching Navajo Tribal affiliations revealed no such person existed. Later that same year, Galleria Azul in Albuquerque falsely informed an undercover federal agent that a cloud symbol stamped on a Native American style ring made in the Philippines was a signifier that it was a product of the Navajo Tribe.

Candice Hopkins, a curator and writer based in Albuquerque, notes the signatures are a primary identifier for jewelry experts in the Southwest, along with how the piece is made. According to Hopkins, both casual buyers and connoisseurs would look for a maker’s mark.

The US government attorney supports 18-month sentences and fines for the accused, but in many ways the damage is done, casting both real and fake Native American artworks into doubt. Skip Maisel, who is retiring from the industry after operating his business for half a century, notes, “it hurts the whole industry, people mistrust it.”
Source: Hyperallergic 


Artprice 2018 Contemporary Art Market Report

Fellow appraiser Marcus Wardell sent me the link to the new Artprice Contemporary Art Market Report 2018.

All indicators in the report are positive. Below is portion of the synopsis, follow the source link below for the full report complete with analytics, charts and graphs, all very usable if you are working on market reports for contemporary art.

Artprice reports
All indicators are positive
For the first time since the 2008 financial crisis, the Contemporary art Market’s four main health indicators are all positive for the last 12 months (end-June 2017 to end-June 2018):

  • The global auction turnover rose +19%, reaching $1.9 billion
  • The volume of transactions grew +17% with 66,850 Contemporary lots sold
  • The global unsold rate remained stable at 39%
  • The price index of Contemporary art increased by +18.5%

The almost identical increase in the Market’s three main indicators – all three very close to +18% – suggests a rapid, but perfectly balanced, growth of Contemporary art auction sales. Thus, in the past year we have witnessed an almost uniform progression of the market in terms of prices, lots sold and auction turnover.

Much more stable growth
The 66,850 transactions recorded over the 12-month period around the world reflect an unprecedented level of activity on the global Contemporary art Market. The number of auction transactions has increased 5.5x since 2000/2001 while the segment’s total auction turnover has risen +1,744% from $103 million to $1.9 billion. The average price of a successfully auctioned Contemporary artwork has risen from $8,400 at the turn of the 21st century to $28,000 today, after peaking at $38,800 in 2013/2014.
Five years ago the Contemporary art Market was in overheat mode. Collectors were paying unprecedented amounts for works by a whole new generation of artists, including Oscar MURILLO, Lucien SMITH, Christian ROSA, Tauba AUERBACH and Parker ITO. However, since then, all these artists have struggled to maintain the price levels they reached so quickly. Many of Contemporary art’s established stars also enjoyed spectacular auction records in 2013/2014 (especially in New York and Hong Kong) that are substantially higher than the prices they have generated since then: Jeff Koons ($58.4 million), Zheng Fanzhi ($23.3 million), Zhang Xiaogang ($12 million), Wade GUYTON ($6 million), Rosemarie TROCKEL ($5 million), etc.

The subsequent restructuring of the Contemporary art Market lasted roughly three years and has given the market a much stronger foundation. Prices are definitely rising again, but so too is supply, providing a more relevant choice of works. At 39%, the perfectly stable unsold rate guarantees a balanced market. The fact that Jeff Koons posted his best result since 2014 (and the 3rd best of year) is a clear sign that the Market has returned to growth and that collectors’ confidence is at an optimum level.

Contemporary Art’s new place in the Art Market
Contemporary art represents 14% of the total number of Fine Art auction transactions around the world, generating 12% of the world’s Fine Art auction turnover. Its share is now larger than both the Old Masters and the 19th Century art segments, both in terms of turnover and transactions. However, Contemporary art is still a long way behind Post-war art and Modern art, which together account for 68% of the overall value of the Art Market.

The Contemporary art Market also enjoys an increasingly diversified offer with 20,335 artists born after 1945 having registered at least one auction result over the last 12 months. This is almost five times more than in 2000/2001 (4,100 Contemporary artists) and 18% more than in 2013/2014.

The majority of artists (53%) have only one transaction in the 2017/2018 period, like the Indonesian Saputra HANDIWIRMAN, represented by the ARNDT gallery, who sold only one painting this year at auction, although it reached the excellent price of $318,600. On the other hand, several Contemporary artists post a particularly high number of auction results for the last 12 months:

  • 92 paintings by Robert COMBAS
  • 187 sculptures by KAWS
  • 158 drawings by Peter HOWSON
  • 106 photographs by Robert MAPPLETHORPE
  • 626 prints by Shepard FAIREY

The markets of the most auctioned artists usually include a large number of affordable works. Every year a number of small paintings by Robert Combas are offered for under $5,000 and polaroids by Nobuyoshi ARAKI are still sold for less than $1,000.

Overall, the price structure of the Contemporary art segment is increasingly resembling that of the rest of the Art Market. Ninety percent of Contemporary artworks sold below $22,400 (including buyer’s fees) and works sold above the $100,000 threshold represent just 3% of transactions.
Source: Artprice


Last Call for Articles

I am pleased to announce the new Digital Journal of Advanced Appraisal Practice is on schedule publication in April, 2019.  Our plan is to have the new digital edition of the Journal available for free downloads during the ISA Annual Conference, Assets 2019 April 12-15.

As I mentioned this past fall, the new journal is different from the old print edition as we are going completely digital with an online publication, along with a new name and sponsoring organization.

The new name is the Digital Journal of Advanced Appraisal Practice and will be sponsored by (not published by) the new International Society of Appraisers Private Client Services. The new ISA Private Client Services program was developed to work with "High-Net-Worth Individuals (HNWIs) who are considered to be those whose financial investments that are in excess of 1 million dollars. In 2016 there were over 4 million of these individuals in the US alone. Their collections of antiques, fine and decorative art, and collectibles may comprise a significant part of their assets. Procuring, investing, protecting, and maintaining their collections requires a team of highly trained of professionals who work exclusively with this group to help meet their specialized needs."

Given the goals and objectives of the Digital Journal of Advanced Appraisal Practice, The ISA Private Client Services is a perfect fit as a sponsoring organization and promotional supporter with similar objectives in advancing appraisal education, professionalism and promoting qualified appraisers.

My plan is to publish at least twice a year, have between 6-8 articles (and if possible, perhaps as many as 10) in each edition and to include a past selected article at the end of the new publication from the previous Journal of Advanced Appraisal Studies. Should all article contribution commitments develop and are delivered on schedule we should have 7 articles for the April inaugural edition, perhaps more.

If you have an article that meets our content expectations and can have it completed within the next 4-6 weeks please let me know.

The ISA Private Client Services will host the new Digital Journal of Advanced Appraisal Practice on its website, and initially, the journal will be available to download and/or view without charge. In doing so, we will avoid the past problems of getting the journal and its appraisal and valuation related articles in front of fellow appraisers, allied professionals and users of appraisers, such as private, bankers, attorneys, estate planners,art advisors, insurance professionals, conservators, financial planners, wealth mangers, the IRS, museums, family offices, auction specialists, etc.

With this new online digital delivery, we can now envision the Digital Journal of Advanced Appraisal Practice reaching thousands of appraisers and allied professionals rather than the few hundred from limited edition print publications. This will increase the credibility and standing of the journal and its contributors. This publication will now have outstanding marketing reach and will be actively promoted to various fine and decorative art groups, users of appraisals and allied professionals.

If you are interested in contributing an article to the new journal, please let me know and send along a topic. As in the past journal, we are looking for substantial articles, with a minimum of 3,000 words. Articles should be geared toward higher and more complex appraisal theory, methodology, and connoisseurship. We are not looking for general or introductory articles as we wish to promote appraising at the middle to upper end of the market.

I am excited about the potential of the new journal, its potential reach and I look forward to an amazing new appraisal journal to promote our profession and qualified appraisers.


Fine Art as Collateral

The Observer takes a look at the growing market for fine art as collateral. Art lending is a growing and more and more financial firms are looking at art finance as a profitable lending strategy. The Observer article looks at  some of the many players in the art lending and mentions more traditional art lending to newer forms and auction house finance divisions.

 The growth in art lending and other fine art associated/allied areas are a main reason the International Society of Appraisers developed its Private Client Services division to train professional and qualified appraisers for this types of sophisticated valuations and advisory services. Articles like this one in the Observer certainly shows that ISA training is on the right track in developing a sophisticated appraisal and art advisory practice.

The Observer reports
For many, a Matisse is a Matisse and nothing else. Most likely (depending on taste) you’d also consider any work by this lauded French artist to be an exemplary piece of art. For some with the means, one of his vibrant Fauvist canvases also represents the opportunity for a good investment. And for those who once had the money but now face a financial emergency or the sudden opportunity to purchase something even more extravagant, a Matisse could become a way to pay the bills—and still leave it hanging in its prized place on the wall.

Increasingly, art owners have become willing to use items from their collection as collateral for loans to pay for something else. Perhaps a sign of how rapidly the field of art lending has been growing is the acquisition announced January 25, of a U.K.-based art loan company, Falcon Fine Art (formerly a division of the business management consulting company, Falcon Group) by the London-based Fine Art Group, which similarly arranges art-secured loans. “We now control virtually 100 percent of specialty art lending in the U.K.,” Freya Stewart, chief executive officer of the Fine Art Group’s art lending service, told Observer. Fine Art Group also offers an art advisory service and investment opportunities in private equity art funds.

But The Fine Art Group’s lending program is fairly new, dating back only to early 2017, when they began making loans of between $500,000 and $150 million to an initial group of clients. A number of those collectors have since taken out more than one loan secured exclusively by artworks in their possession. Most of the loans Fine Art Group disperses have two-year terms, with annual interest rates of between five and eight percent, and the few defaults that have occurred since its program began have not resulted in any capital losses, as “the underwritten art was taken to market and sold, never at a loss.”

She noted that Falcon Fine Art’s volume of clients and business model are similar enough to that of the Fine Art Group’s that the transition looks to be smooth.

Stewart said that her growing staff has been “busier than ever,” with inquiries coming every week by art owners seeking to turn their “illiquid assets” (art) into “liquid assets” (cash) without “giving up their prized art possessions permanently.” These art owners are “increasingly sophisticated, looking at their art in the same way that they look at their other assets, using due diligence when they acquire or sell objects and using these assets as leverage when needed.”

Others have seen the same trend. New York lawyer Judd Grossman, who has helped numerous clients arrange loans based on their artwork as collateral, likened collectors taking out loans backed up by their art to second mortgages and home equity loans, which are long-established ways to raise money for one or another purpose. He has “the sense that there is an increase” in this kind of borrowing and lending, as “high-end, sophisticated collectors have become more comfortable treating their art as an asset like any other asset, and financial institutions have become more comfortable making loans collateralized by art.”

And it isn’t just private art collectors who leverage their artwork for cash. Paul Cossu, a partner at Pryor Cashman LLP, assists art dealers who use art in their inventory as collateral for loans. “Most often, dealers are looking to buy a work that just came onto the market, other times they may need the funds to cover the operating costs of their galleries,” he said. At times, lending to dealers may get tricky, since the dealer’s goal is still to sell that collateralized artwork. The gallery owner may need to work out with the lender permission to take the art out of the gallery, for instance, to an international art fair. “Things can get complicated as lenders usually like to have control over the collateral, but it can all be negotiated,” Cossu said.

There are some other independent finance companies that offer loans against art, like New York’s Art Capital Group and Athena Art Finance and Denver’s Loans on Fine Art, LL. And high-end pawn shops like Borro, Sutton’s & Robertson’s, and The Dina Collection also accept art as collateral. The pawn shops’ appeal is that they rarely have a minimum loan amount and their approval process may take just hours rather than days or weeks. But then, in these all these instances, you don’t get to keep the art on your wall.

Sotheby’s Financial Services, a division of the auction house for the past 30 years, also makes both cash advances against consignments (generally, at 50 percent of the low estimate) and direct loans of no less than $1 million with renewable two-year terms.

And there are some banks that make art-secured loans (such as Citibank, Goldman Sachs, J.P. Morgan and U.S. Trust), but they generally will not make loans of less than $1 million, and they usually require a personal guarantee from borrowers collateralizing their loans with works of art, according to Thomas C. Danziger, a Manhattan lawyer who represents several banks that make these types of loans. “The loan agreements are written in such a way as to let the banks pursue other assets if there is a default,” rather than just taking the art, he said.

He added that banks prefer to lend against the value of a group of objects—the Picasso, the Matisse, the Keith Haring, for instance—than against just one piece whose value may shift downward. But not so for firms that combine an expertise in the market with financial savvy. It may be priceless art in your eyes, but for them, your solid investment is potentially theirs as well.
Source: The Observer