Art Loans and Art as Collateral

Allen Salkin of the NY Times recently published a story on the art loan business entitled That Old Master? It's at the Pawnshop. We have posted on this specialty segment of the financial sector in the past on the AW Blog, with some reactions to the practice being more positive than others. Some are bank divisions using art and collectibles as collateral, while others are more in the mode of pawn brokers, actually taking possession of the property before lending.

To review some of the previous AW Blog posts on art loans follow the links.

• Citi Banks Art lending click HERE
• Banks Tighten Art Loan Credit click HERE
• On Fine Art Loans, click HERE
• Fine Art as Loan collateral, click HERE
  

As economic issues impact the availability of more standard lending practices and collateral (such as real estate which has typically seen a loss in value) more and more collectors with large equity stakes in fine art and who have cash flow issues are looking to their collections as an options to monetize. According to the article, in the current economic climate, the art loan business is showing some very strong sings of growth.

The article is very interesting, and as appraisers, especially those in and around large metropolitan banking and financial centers may wish to start cultivating business with some of these specialty lenders. Although the article does not state specifically what the loan process is, I would think an appraisal would be helpful in determining a value and loan to value ratio for the art pledged as collateral.

Salkin states Art Capital’s headquarters in the former Sotheby’s building on Madison Avenue looks at first glance like an art gallery. Two Warhols, a pair of Rubens portraits of Roman emperors and a pink nude by the contemporary Mexican painter Victor Rodriguez hang on the cool white walls. A sculpture of a faun by Rembrandt Bugatti sits on a windowsill in a conference room where transactions are discussed.

But it would be more accurate to describe the airy space as something far less genteel: a pawnshop.

Art Capital issues loans of $500,000 or more at interest rates from 6 percent to 16 percent. Fail to pay and you lose your Rubens; several of the works on display in Art Capital’s office on Madison became subject to sale after their owners defaulted.

The company expects to make about $120 million in art-related loans in 2009, up from $80 million in 2008. At a Manhattan-based competitor, Art Finance Partners, “we are up 40 percent in originations in the last six months,” said Meghan Carleton, a partner.

ArtLoan (see above link On Fine Art Loans), a similar company in San Francisco, is actually regulated by California’s pawn laws. It opened in 2004 and has seen “exponential” growth in the last year even though it charges interest rates of 18 percent to 24 percent, said Ray Parker Gaylord, an owner.

To read the full NY Times article, click HERE.