Art Financing Companies See Growth in Art Borrowing
For many, a Matisse is a Matisse and nothing else. Most likely (depending on your taste) you would also consider any work by this renowned French artist to be an exemplary work of art. For those with the means, one of his vibrant Fauvist paintings 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 buy something even more extravagant, a Matisse could become a way of paying the bills – all the while. leaving hanging in its precious place on the wall.
More and more, art owners are willing to use items from their collection as collateral for loans to pay for something else. The acquisition, announced on January 25, of a UK-based art lending company, Falcon Fine Art (formerly a division of business management consultancy, Falcon Group) by London Fine Art Group, which similarly organizes loans secured by works of art. “We now control almost 100 percent of UK specialty art lending,” Freya Stewart, managing director of Fine Art Group art lending department, told Observer. Fine Art Group also offers an art advisory service and investment opportunities in private equity art funds.
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But the Fine Art Group loan program is fairly new, dating only to early 2017, when they began lending between $ 500,000 and $ 150 million to a first group of clients. Several of these collectors have since taken out more than one loan guaranteed exclusively by works of art in their possession. Most of the loans Fine Art Group distributes are for two years, with annual interest rates between five and eight percent, and the few defaults since the start of its program have resulted in no loss of capital. , because “the subscribed art has been put on the market and sold, never at a loss.
She noted that Falcon Fine Art’s client volume and business model is similar enough to Fine Art Group that the transition appears to be going smoothly.
Stewart said his growing staff were “busier than ever,” with inquiries coming every week from art owners seeking to turn their “illiquid assets” (art) into “liquid assets” (cash) without “Permanently abandon their precious art assets. . These art owners are ‘increasingly sophisticated, looking at their art the same way they look at their other assets, doing due diligence when acquiring or selling items and using those assets as leverage in case of need ”.
Others have seen the same trend. New York attorney Judd Grossman, who has helped many clients secure loans based on their artwork as collateral, compared collectors who take out loans secured by their art to second mortgages and home equity loans, which are well-established ways of raising money for one or another purpose. He “feels that there is an increase” in this type of borrowing and lending, as “high-end and sophisticated collectors have become more comfortable treating their art as an asset like anyone else. what other asset, and financial institutions have become more comfortable making loans secured by art.
And it’s not just private art collectors who are leveraging their works for real money. Paul Cossu, partner at Pryor Cashman LLP, assists art dealers who use artwork in their inventory as collateral for loans. “More often than not, dealers are looking to buy a work that has just been put on the market, other times they may need the funds to cover the costs of running their galleries,” he said. declared. Sometimes lending to merchants can get tricky, as the merchant’s goal is always to sell that guaranteed work of art. The gallery owner may need to arrange with the authorization of the lender to take art out of the gallery, for example, for an international art fair. “Things can get complicated because lenders usually like to control the collateral, but anything can be negotiated,” Cossu said.
There are other independent finance companies that offer loans against art, such as Art Capital Group of New York 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 appeal of pawn shops is that they rarely have a minimum loan amount and their approval process can take hours rather than days or weeks. But then, in all of these cases, you can’t keep the art on your wall.
Sotheby’s Financial Services, a division of the auction house for 30 years, also makes cash advances on shipments (typically at 50% of low estimate) and direct loans of at least $ 1 million with two-year renewable terms.
And some banks make art-backed loans (like Citibank, Goldman Sachs, JP Morgan, and US Trust), but they usually don’t make loans under $ 1 million, and they usually require a personal guarantee. borrowers guaranteeing their loans with works of art, according to Thomas C. Danziger, a Manhattan lawyer who represents several banks that make these types of loans. “Loan agreements are written in a way that lets banks pursue other assets in the event of default,” rather than just taking art, he said.
He added that banks would rather lend against the value of a group of objects – the Picasso, the Matisse, the Keith Haring, for example – than against a single coin whose value may drop. But that’s not the case for companies that combine market expertise with financial acumen. It may be an invaluable art to you, but for them, your solid investment is potentially theirs too.