Art financing businesses

In 1932, Pablo Picasso painted an oil on canvas depicting his mistress. In 1941, this painting, known as La Rêve, was bought by a New York couple for $7,000. By 1997, it sold at auction for nearly $50 million. In 2001, casino owner Steve Wynn acquired it from the auction buyer for approximately $60 million.

Wynn’s purchase turned into a wise investment, allowing him to potentially double his money in five years. In 2006, he planned to sell La Rêve for $139 million to another businessman. Unfortunately, an accident shortly before the sale caused a six-inch tear in the painting, which cost Wynn $90,000 to repair.

Following this incident, experts revalued the painting at $85 million, and the sale fell through. Wynn, whose painting was insured, filed a claim to recover a $54 million perceived loss resulting from the damage. When the insurer denied the claim, Wynn sued, and the case eventually settled out of court.

Wynn kept La Rêve for another seven years, which retained its value from 2006. In 2013, he successfully sold it for $155 million. Further leveraging his art collection, Wynn consigned 59 artworks as collateral for a loan from Bank of America in 2015. Financing from art works reportedly enjoys favorable interest rates ranging from 1% to 3%.

Seven years later, Wynn continued investing in art. He purchased two Picasso paintings, Femme au béret et à la collerette (Woman with Beret and Collar, 1937) and Femme assise (Jacqueline, 1962), for about $115 million. These works depicted another of Picasso’s mistresses and his wife, respectively.

Banks and specialized lenders typically lend up to 60% of an artwork’s appraised value. The accuracy and reputation of the appraisal, therefore, significantly affect loan terms. Because art generally maintains or appreciates in value over time, you can potentially benefit twice — once from profits generated by businesses financed through art-backed loans, and again from the appreciation of the artwork itself.

Additionally, art-backed loans often serve as courtesy loans extended by banks to ultra-high-net-worth individuals, particularly those with strong existing relationships. In Wynn’s case, despite consigning artwork to Bank of America, he retained physical possession of the collection, which allowed him to occasionally sell select pieces at auction.

Steve Cohen, a hedge fund manager who bought Wynn’s Picasso in 2013, also leveraged his art collection. Cohen secured loans from Morgan Stanley’s Private Bank, Deutsche Bank, and other Wall Street banks to finance his significant art acquisitions.

Thus, it is not unusual for the family behind Hong Kong’s prominent property developer, Parkview Group, to seek financing from international auction house Sotheby’s by offering more than 200 artworks as collateral. The Wong family’s prestigious collection includes artists such as Andy Warhol, Pablo Picasso, Salvador Dalí, and prominent Chinese artists.

However, Parkview’s art-lending effort faced logistical hurdles: notably, transporting the artworks into Sotheby’s storage facilities. Unlike Wynn and Cohen, who borrowed against their collections while retaining possession, logistical considerations posed a unique challenge for Parkview.

Bloomberg reported that Sotheby’s entered the art financing market in Hong Kong late last year. HSBC Holdings Plc and Citigroup, Inc.’s private banking arm also provide loans backed by alternative assets, including art. Additionally, in 2024, Sotheby’s successfully raised $700 million through its first art-backed debt security by repackaging personal loans provided to art collectors.

You might wonder if art lending could work similarly in local markets, particularly involving Filipino artworks. Undoubtedly, local lenders exist who would willingly extend financing to ultra-high-net-worth individuals backed by valuable art collections. Major local conglomerates and institutions, including entities such as the Bangko Sentral, maintain extensive art portfolios.

As an ultra-high-net-worth individual, blue-chip corporation, or major conglomerate, leveraging your art collection to obtain loans or credit lines becomes increasingly feasible. However, whether major international lenders such as Sotheby’s Financial Services (SFS), JP Morgan, or Bank of America currently provide art lending in the local market remains uncertain. Specialized art lenders such as Athena Art Finance and Falcon Fine Art could potentially bridge this gap.

Art lending offers the unique advantage of converting artwork displayed in your home or office into immediate working capital. Interest rates for high-value art-backed loans are typically favorable, often significantly lower compared to conventional financing options. That is, if you have an existing banking relationship that accords you special privileges.

Nevertheless, several concerns accompany art lending. Art appraisals are subjective, volatile, and influenced heavily by market sentiment, potentially complicating the loan process. Appraisal can also be corrupted. More important, will the appraisal be credible to the lender?

Also, in the event of borrower default, lenders may encounter difficulties liquidating the collateral promptly and profitably. Quickly unloading has the unintended consequence of depressing the market. And this does not augur well for collectors and those taking art as collateral.

Furthermore, your publicly leveraging an art collection could unintentionally signal to the market that you or your business is in financial distress, impacting your reputation and perceived financial stability. After all, for a profitable business, or a wealthy family, the art collection will usually be the last to go.

Despite these risks, however, I believe art lending remains a viable and potentially beneficial financial strategy, especially given the substantial art portfolios held by wealthy individuals and corporate entities. I also believe lenders have the appetite to undertake art lending.

Ultimately, the successful adoption of art lending will depend on your willingness, as an art collector or corporate entity, to borrow against your art assets, the capacity of local artworks to retain or appreciate in value, and the effective management of risks by both borrowers and lenders.