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Collectors increasingly turning art into collateral

Among the famous people turning to their art, photographer Annie Leibovitz, here in front of her Monument Valley, Arizona 1993, borrowed $15 million against her collection of images.

Associated Press

Among the famous people turning to their art, photographer Annie Leibovitz, here in front of her Monument Valley, Arizona 1993, borrowed $15 million against her collection of images.

NEW YORK — With stock portfolios plummeting and the economy sinking, owners of expensive art are increasingly using their collections as collateral to obtain much-needed cash.

Works by Pablo Picasso, Henri Matisse, Willem de Kooning, Andy Warhol are among the pieces collectors have leveraged in recent months. The Metropolitan Opera put up two famed Marc Chagall murals in its lobby as collateral, and renowned photographer Annie Leibovitz recently borrowed $15 million against her entire collection of images.

A New York company that issues loans against fine and decorative arts and real estate says it has seen a 40 to 50 percent increase in business over the last six months. Leibovitz obtained her loan from the company, Art Capital. Other celebrities who reportedly have secured funds with their own works include film director Julian Schnabel.

Art Capital co-owner Ian Peck said the company has "taken in important modern masters, important old masters and very important decorative arts," among other valuable pieces. The company said it expects to make about $120 million in loans in 2009, up from $80 million last year.

Art collections can be lifesavers for people looking for extra cash. The artworks are appraised and treated as collateral, just like a car or home would be. Art brokers say that people offering up their collections are doing it for a number of reasons, including dealing with financial issues, raising money for businesses or buying more art. Some of the cash-strapped art owners have been burned by Ponzi schemes, Peck said.

Art Capital and Art Finance Partners, another New York lending company, have also started to hear from small museums and other institutions whose endowments have been cut by a severe drop in private donations.

"With the stock market down 40 to 50 percent, people's liquidity is really drying up," said Andrew Rose of Art Finance. "If you're unfortunate to have a lot of stock at Citibank or Lehman Brothers, you may have been wiped out substantially."

Art owners are turning to established banks, too. Citigroup and Bank of America, two of a very small number of large banks involved in art lending, have seen a huge growth in the past several months in the number of clients putting art up as collateral. The banking crisis has not had any significant effect on their art lending.

Bank of America's U.S. Trust had a 50 percent increase in clients who leveraged their art between the first quarter of 2008 and the same period this year, said art lending head John Arena.

Citigroup's Citi Private Bank employs a group of eight art professionals who advise wealthy collectors on everything from building, appraising and managing their art to securing loans.

How it works

Art Capital issues loans at interest rates ranging from 6 to 16 percent and in most cases takes possession of the art, similar to how a pawnbroker would claim an item, keeping the pieces in secured storage vaults until the loan is repaid. "We're looking at very large deals now, $40 million to $60 million each," said Art Capital co-owner Ian Peck. "The trend is toward larger deals with more assets in them."

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How it works

Art Capital issues loans at interest rates ranging from 6 to 16 percent and in most cases takes possession of the art, similar to how a pawnbroker would claim an item, keeping the pieces in secured storage vaults until the loan is repaid. "We're looking at very large deals now, $40 million to $60 million each," said Art Capital co-owner Ian Peck. "The trend is toward larger deals with more assets in them."

Collectors increasingly turning art into collateral 03/07/09 [Last modified: Monday, November 7, 2011 4:49pm]

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