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A story from Bloomberg News got us thinking about creative finance. According to the story, billionaire Peter Brant has taken out loans to buy back his family's old newsprint business. What got our attention was how he got those loans. Everyone knows loans require collateral. You don't pay your mortgage, the bank takes your house. You don't keep up your car payments, there goes your car.
Well, Bloomberg reports that Brant's collateral included dozens of iconic pieces from his personal art collection, including works by Warhol and Basquiat. He pays off the loans, the paintings never leave his house or houses. For more, we're joined by Marion Maneker, the publisher of Art Market Monitor. Welcome, Marion.
MARION MANEKER: Thank you for having me.
CORNISH: So help us understand how this works. Peter Brant picks up the phone and calls who?
MANEKER: Well, Peter Brant would either talk to his private banker or he would be speaking to someone at one of the auction houses and want to raise some money, and know that he has very valuable art that is very saleable, and that there are plenty of people willing to lend him money against that which would be no different from if you wanted to take out a second mortgage on his house - or houses, as you said.
CORNISH: This practice isn't new, but is it becoming more popular?
MANEKER: Yes, much more popular and we're seeing more significant people use it. Michael Steinhard took out a loan for a real estate development project in downtown Manhattan based on a large group of his art holdings. And what's happening there, in the same way that most likely is happening with Brant, is that the loan is against their ability to repay from many of their businesses, not from the art itself. The art is just held as a security and the expectation is that you will pay it off from what you generate from your businesses. So the art itself is just a way of getting a better deal on a loan in the same way that you take out a second mortgage, not because you're planning to sell the house, but because they know you have a good income and need some short-term cash for something that you want to do.
CORNISH: We've heard a lot over the last few years about banks not doing as much lending as they used to, and I wonder if that has something to do with this rise of art financing?
MANEKER: Absolutely. We know that banks want to make loans but need more collateral or more assurance. And so providing the art as extra collateral helps get a better rate for the person borrowing money. But even more importantly, the art itself has risen in such value it is easier now to turn it into an asset, and for that asset value to be realized. So if you are a collector sitting with tens, sometimes hundreds of millions of dollars in your homes on the walls, and there are other things you want to do, you now have access to that because there are people who will loan you the money short-term without making you sell the art.
CORNISH: What's the danger here, if any here, or concerns that people in the art world may have about the growth of this kind of financing?
MANEKER: The art world would prefer that works of art not buy and sell so much. The thing that a dealer and an artist most want to see is that a collector will buy a work and then donate it to a prestigious museum, or keep it in a prestigious collector's own home. If you begin to do a lot of this collateralization, you run the danger of a lot of work being sold at the wrong time. Ideally, in the art market, works are sold at a high price when there's lots of demand. When things are sold that no one wants, it doesn't work out well for all the rest of the people who own those works, and the people who own a lot of them are often dealers who have a stock of a particular artists' work.
CORNISH: So you're saying it could, in effect, devalue the art?
MANEKER: Yes, the art market is a funny place. The more things sell, the less many times people want to see things sell, and some of the most valuable artists, someone like Gerhard Richter, are not interested in seeing their works sell for a lot of money. They want to see their works appreciated as works of art, not as financial instruments, and it's an important point. The banking world can create an asset value for a work of art and make a loan off of it. But that's not why Gerhard Richter paints paintings. And that's not what he wants you to think of his art in terms of. And the more we do these kinds of art-as-an-asset financial moves the less art stays in its own special realm.
CORNISH: Marion Maneker, thank you so much for speaking with us.
MANEKER: Thank you for having me.
CORNISH: Marion Maneker is publisher of Art Market Monitor.
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