Monday, January 05, 2009

Art slumps along with other asset classes

But Old Masters fared well, and inflation could prompt a recovery By Charles Paikert January 4, 2009
As the art world's next major round of auctions begins this month, buyers and sellers will encounter a market as depressed as that for stocks and real estate. Auction and art fair sales in November and December were "dismal failures," said Michael Mendelsohn, founder and president of The Bridge Group LLC of Rye Brook, N.Y., an art advisory and succession-planning firm. "Thirty percent to 50% of works that were offered didn't sell," he said.
The value of impressionist, modern and contemporary art sold at auction in November in New York by Sotheby's and Christie's International PLC fell by more than 50% — to approximately $729 million, from $1.6 billion for the same categories in November 2007.
In an interview published after the November auctions, Edward Dolman, chief executive of London-based Christie's, said the firm is cutting its estimated prices for the upcoming auctions by at least 10%.
BloombergEdward Dolman: Christie's to cut its estimated prices on upcoming auctions. Although valuations for art and collectibles "will continue to suffer in the near term, they will enjoy faster recoveries [than other assets] if inflation is identified as a future problem," according to a report released last month by Celent Communications LLC, a Boston-based financial research and consulting firm.
Currently, Old Masters and collectibles appear to be withstanding the downturn best, according to art experts. And demand for many well-known artists has held firm — so far. Popular contemporary Chinese artist Zhang Peng, for example, sold 70% of his pieces in less than a week at a recent show in New York.
Donn Zaretsky, an attorney for John Silberman Associates PC in New York, who represents a number of leading artists, said he hasn't seen heavy discounting at the high end of the market.
"Some dealers have allowed for up to a 10% discount at the top end. But I haven't seen much more than that," Mr. Zaretsky said.
Savvy investors may be able to use current market conditions to their advantage, art experts said.
"This is the first time in many, many years you can acquire a significant collection at good values," said Debra Diamond, president of the Baltimore-based Contemporary Art Fund, a group she co-founded last year as an investment partnership to invest in contemporary art.
Buyers should target works by "the right artist at the right price," she said. Ms. Diamond cited the abstract impressionist Philip Guston as an example of a "well-regarded" but not famous modern artist whose paintings may be more affordable as a result of the market downturn.
Works by Marlene Dumas, as well as Latin American modernists, also should be considered, she added.
Savvy buyers should also wait for the last day of an art fair, when dealers are more likely to sell off their remaining inventory at a discount, Ms. Diamond suggested. They should be on the lookout for museums that have overspent and may be forced to sell off assets quickly and cheaply.
Kathleen Doyle: Buyers looking for bargains should look outside New York. Buyers looking for bargains should not confine themselves to the New York market, said Kathleen Doyle, chairman and chief executive of Doyle New York, an auction house. They should also consult with art market specialists before buying and research prices of works sold by artists who interest them on sites such as artnet.com and artfact.com, she advised.
Collectors forced to sell in today's market probably should consult an independent art consultant and sell anonymously at a private sale, said Peter May, vice president of Pitcairn, a multifamily office based in Jenkintown, Pa.
"If you are one of these [Bernard] Madoff clients, you don't want the world to know you have to sell your artwork. You don't want to go to a dealer or to an auction house," Mr. May said.
AVOIDING A TAX BITE
Despite the slump, many collectors will find that their art has appreciated, which means a steep 28% federal capital gains tax if they sell. One way to lessen the pain is by creating a charitable remainder trust, Mr. Mendelsohn said. Collectors can donate their appreciated artwork to the trust and write off the purchase price on their taxes, he said. The charitable re-mainder trust has tax-exempt status, which allows the donor to take a deduction and avoid paying state and federal capital gains taxes. The trust can then sell the donated artwork and invest the proceeds.
Those forced to sell also should look for dealers who represent the artist whose piece they are selling, Ms. Diamond suggested. "They may have collectors who are looking for works by that artist," she said.
Sellers also should look for exhibits by the artist they own and ask if their piece can be included, according to Ms. Diamond. "It's a great way to promote the painting and maximize its value," she said.
Ms. Doyle urges sellers to obtain an appraisal of an artwork's fair market value before going to an auction or a dealer. "You need to be realistic," she said.
E-mail Charles Paikert at -cpaikert@investmentnews.com.
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