Fine Art Collecting and Investing
FALL 2008 NEWSLETTER
Upcoming New York Auctions
The art market is not as healthy as it was six months ago. We believe that artworks will sell at approximately 20% less than the low estimates. Many of the artworks at auction this fall had been consigned as early as January and the reserves and estimates had been based on prevailing prices at that time.
Because of the recent economic instability, auction houses have asked cosigners to lower their reserves. So while the estimates may reflect market prices from several months ago, the minimum prices, at which auction houses will be able to sell the artworks will be significantly lower. As a result, it is a fantastic buying opportunity for many individuals.
As the economic turmoil spreads around the world it seems that no industry is unaffected. More people are turning to financial advisors to protect their investments, art collectors are following suit. Art advisors, like David Benrimon, have decades in the business and have seen the swings of the art market. Their knowledge and experience allows them to take advantage of the weak market by recognizing undervalued artworks with market potential. Just as Warren Buffet and other financial gurus make money in soft markets, art advisors thrive under what many consider a “soft” market. An art advisor can balance the market value of the artwork with the aesthetic pleasure of owning masterpieces.
While auctioneers are cautiously optimistic for the November auctions in New York, Sotheby’s is cutting price guarantees and a major Picasso painting was withdrawan from sale at the last minute. “There’s no question there’s a fair amount of uncertainty and fear worldwide, which makes a significant number of people cautious about using money for art,” said Sotheby’s Chief Executive Bill Ruprecht. “But hard assets such as art have a long history of holding their value.”
Art is a different type of asset than stocks, bonds or mutual funds because it is a tangible asset. There is a limited supply of Picassos and Van Goghs and with each year that supply becomes smaller. As important works of art leave the market, those still available become more valuable. Since fine art is such a limited and reliable commodity, collectors will always consider it a strong investment.
For example, New York collector Jose Mugrabi was the buyer of an important Warhol and he told Bloomberg News after the sale, “I feel safer with Warhol than with U.S. Treasury bonds.” Mugrabi is restating the point that important artworks are a safe investment.
Mid-season sales in London
This slowdown in the art market is an important process in the cycle. Over the last couple of years the market has had unprecedented growth; many artists achieving personal bests; each auction surpassed the previous in total spending; and it seemed that the exponential growth in prices for established artists was well-deserved. But the last six months of auctions have been softer. As a result of the decline in people’s fortunes the art market is becoming more refined and collectors are becoming more discriminating. Many collectors will lose money for buying artworks at overvalued prices. However, many collectors also stand to make a great deal of money by buying from seller’s desperate from their poor financial investments. While the last two years showed increasingly aggressive bidding, activity and purchases, the London sales did not follow this pattern. The results in London showed that important works are still commanding impressive prices, but the overpriced works are not selling at the inflated prices auction houses and dealers demand.
In the October auctions in London, Christie’s sold 55 percent of lots for a total of $55 million, well below its pre-sale estimate of $99 million. Sotheby’s sale unloaded 72 percent of its lots, but by bringing in $38 million they failed to reach their expectations. Phillips was by far the worst off, selling only 54 percent of lots for a total of $8.6 million, against a low- end estimate of $32 million. Of course, the timing of these sales--a month after financial markets took a drastic turn for the worse--was uniquely challenging for the auction houses, and might have led to misleadingly poor results. As stated before, many of the reserves were negotiated with the sellers before the stock market became so volatile. The sale estimates would also have been made well in advance of the sales in order for catalogues to be completed, meaning that prices had not yet adjusted to reflect market conditions.
What to expect in the coming months?
Sales for younger, unproven artists will most likely see declines. There are already cracks in the facade of the print market. Yet, not all signs are pessimistic. In fact, one possible sign that the market remains strong is US $200 million sale of the Damien Hirst collection in September. Also, demand for master works, whether they are old masters, modern, impressionist, or pop will remain high thanks especially to Russian, Middle Eastern and Asian buyers. These collectors are still cash-rich and could become more active as prices drop. Additionally, many expect the old money collectors to re-enter the market. Old money collectors were forced out of the market by the commanding and sometimes frivolous sums hedge fund and finance business people were paying for contemporary works.
If history is any lesson the art market should prove to be more resilient than the financial markets. The art market did not screech to a halt during the last economic slowdown. Furthermore, when the art prices declined in 1998, it was the first round of sales that was the worst and auction sales gradually increased instead of following the waning financial markets.
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www.benrimon.com