From CNBC:
The Wealthy Are Borrowing Billions Against Their Art Collections And Lenders Are Reselling The Debt
- While the big banks dominate art lending because of lower rates, more and more art finance firms and auction houses are expanding their loan business to attract more clients.
- The value of privately held art is estimated at more than $2 trillion, and the potential market for art loans could easily top $400 billion, one expert said.
- Lenders say the big opportunity — and the new risk — is in the business of reselling art loans to investors.
More and more wealthy art collectors are cashing in on low interest rates to borrow against their Picassos and Basquiats, adding to risks of a leveraged boom and bust in the art market.
The Fine Art Group, an art advisory and finance firm, said loan requests surged by 30% in 2020 compared with 2019 as collectors sought to borrow against their collections to invest in more art or other businesses. Bank of America, a leading art lender, saw its art loan business surge 30% last year, while JPMorgan and Goldman Sachs also saw strong growth, according to industry executives.
“A lot of our clients are entrepreneurs, and they use leverage across their businesses and personally,” said Freya Stewart, CEO of art finance at The Fine Art Group. “They have a lot of valuable capital tied up in their art collections and they want to release that capital for other uses.”
While the big banks dominate art lending because of lower rates, art finance firms and auction houses are increasingly expanding their loan business to attract more clients.
Banks typically charge 2% to 5% on art loans, depending on the client’s other assets and businesses, while art lending firms and auction houses often charge 6% to 9%. The term of an art-backed loan is typically a year, and owners can usually borrow as much as half of the appraised value of an artwork. This means an owner of a $10 million work by Pablo Picasso, for instance, could typically get a loan for as much as $5 million.
A $400 billion market
Sotheby’s is making the biggest push among non-banks. The auction house recently formed a partnership with former hedge fund manager Alex Klabin to grow its lending business and develop alternative financing structures....
....MUCH MORE
See also, December 13, 2008:
