Art market

Economically tough times lead to backroom deals and distress selling

Now that auction houses are no longer offering guarantees, an increasing number of purchases are likely to take placeas discreet transactions brokered by art dealers

Since the stock market began its nosedive in September and Bernard Madoff’s Ponzi scheme was exposed in December, art market insiders have been predicting “distress selling”. A few collectors are said to be making sales to meet financial obligations, but no one seems yet to be involved in desperate measures like accepting 30 cents on the dollar. In general, volume behind the scenes is low. When one senior dealer was asked: Are you experiencing much distress selling? He replied: “Not as much as I’d like!” Or as Victoria Gelfand, a Gagosian Gallery director, said: “I’ve never had so many deals on the table where the buyer has made an aggressively low offer and the seller is in la-la land expecting last year’s prices.”

Discretion is at a premium during a recession, but people talk nevertheless. One persistent thread is that Thomas Lee, a private equity investor and trustee of both MoMA and the Whitney, has sold key pieces from his contemporary art collection, including Jeff Koons’ Jim Beam JB Turner Train from the artist’s 1986 “Luxury and Degradation” series. Mr Lee bought the stainless steel sculpture, which contains the brand name bourbon, at Christie’s in May 2004 for $5.5m. The work is in an edition of three with one artist’s proof; Stefan Edlis, Eli Broad, and Dakis Joannou own the others. The Koons is thought to be part of a package deal, which included other works of art, brokered by dealers Giraud Pissarro Segalot, who declined to comment. Despite the economy, Mr Lee is said to have sold the Jim Beam train for substantially more than he paid.

The amount of private trading is always difficult to gauge. London dealer Ivor Braka, who works primarily with post-war and contemporary British art, has been very active. “For me, business has been better since November than it has been in the past couple of years,” he said. “The art market is a mess but, with a bit of luck and judgment, it is still possible to do interesting things—sometimes with just a few phone calls.” New York dealer Jeffrey Deitch, whose gallery roster leans towards emerging artists but who trades in established artists on the secondary market, said: “The market doesn’t have a lot of momentum and it can be hard to determine the right price, but business has picked up in the past month, perhaps due to the confidence boost of the Yves Saint Laurent sale.”

Wisdom has it that vendors retreat from public sales during a recession for several reasons. First, the auction houses are no longer giving guarantees so private negotiations give the seller a better sense of control. Second, at least in theory, a work needs two prospective buyers at auction whereas, behind the scenes, one will do. Third, no one wants to appear desperate for cash and few care to be positioned as either trophy vultures or wealth flaunters.

Just because someone is selling in a downmarket, one must not assume that they’re in acute financial distress. Harry Blain, director of Haunch of Venison, a subsidiary of Christie’s, said: “If last year you were worth a billion and all of a sudden you’re worth $400m, do you want to have $300m worth of art on your wall? It’s not distress selling as much as…discomfort selling.” Or as Mr Braka elucidates: “Some people want to readjust the composition of their collection and if the art is good enough, it can still command top prices.”

Indeed, it’s the mantra of the times that quality and rarity mitigate against deflation. New York-based dealer Alberto Mugrabi, whose family holds large inventories of Warhol, Basquiat, Wesselmann and Hirst, explained that they adopt the “same strategy” for bull and bear markets, but that quality is even more important in a recession: “Not everything that has wings, flies.”

Artists in a recession

Which contemporary artists’ markets will suffer the least during this downturn? Bona Montagu, a contemporary art specialist at Simon Dickinson, suggests that it is “artists whose markets were well controlled by their dealers during the boom, because they understood that an artist’s reputation is based on one excellent exhibition following another, rather than auction results.” When pressed to name names, Ms Montagu cites Anish Kapoor and Gerhard Richter “whose work is not only important but beautiful, and therefore has broad appeal” or Charles Ray and Cy Twombly “who produce little work, which is carefully placed in private collections and museums”.

Overproduction during a boom tends to be punished during a bust. Several London dealers, who don’t usually trade in the works of Damien Hirst, report being offered spot and butterfly paintings by collectors willing to sell them for less than they paid. However, Hirst is an extreme case insofar as he has been quoted as saying: “The first time you sell something is when it should cost the most; I’ve definitely had the goal to make the primary market more expensive.” Hirst’s views on the secondary market may be rebounding on his primary market as all three butterfly paintings that he put up for sale at Sotheby’s sales in Doha in March failed to find buyers.

Whatever the individual fates of particular artists, the happiest collectors will be those in a position to do some strategic acquiring. While Eli Broad, the Los Angeles property developer and philanthropist, won works by Koons, Judd, Rauschenberg and Ruscha at Sotheby’s last November, word has it that Mitchell Rales, the billionaire director of Danaher Corporation, a manufacturing conglomerate, has recently bought some “masterpieces” for Glenstone, his private museum in Potomac, Maryland. At a time when banks appear to be casinos and houses are immovable investments, it must feel good to act on one’s love of art, particularly at prices considerably lower than a year ago.

Originally appeared in The Art Newspaper as 'Tough times lead to backroom deals'

Appeared in The Art Newspaper Archive, 202 May 2009