NY TIMES February 24, 2009
That Old Master? It’s at the Pawnshop
By ALLEN SALKIN
Last fall, Annie Leibovitz, the photographer, borrowed $5 million from a company called Art Capital Group. In December, she borrowed $10.5 million more from the same firm. As collateral, among other items, she used town houses she owns in Greenwich Village, a country house, and something else: the rights to all of her photographs.
In other words, according to loan documents filed with the city, one of the world’s most successful photographers essentially pawned every snap of the shutter she had made or will make until the loans are paid off.
Those who know Ms. Leibovitz said she used the money to pay off mortgages and deal with other financial stresses. But whatever her reasons, she is not alone in doing business with Art Capital and similar lenders. At a time when stock portfolios are plunging and many homes, even grand ones, have no equity left to borrow against, an increasing number of art owners are realizing that an Old Master or a prime photograph, when used as collateral, can bring in much-needed cash.
“It’s very discreet,” said Ian Peck, a co-owner of Art Capital.
This little-known corner of the art business is lightly regulated and highly litigious. But this has not dissuaded clients who have included rich collectors like Veronica Hearst, art galleries and prominent artists themselves, including Ms. Leibovitz and Julian Schnabel.
Art Capital’s headquarters in the former Sotheby’s building on Madison Avenue looks at first glance like an art gallery. Two Warhols, a pair of Rubens portraits of Roman emperors and a pink nude by the contemporary Mexican painter Victor Rodriguez hang on the cool white walls. A sculpture of a faun by Rembrandt Bugatti sits on a windowsill in a conference room where transactions are discussed.
But it would be more accurate to describe the airy space as something far less genteel: a pawnshop.
Art Capital issues loans of $500,000 or more at interest rates from 6 percent to 16 percent. Fail to pay and you lose your Rubens; several of the works on display in Art Capital’s office on Madison became subject to sale after their owners defaulted.
The company expects to make about $120 million in art-related loans in 2009, up from $80 million in 2008. At a Manhattan-based competitor, Art Finance Partners, “we are up 40 percent in originations in the last six months,” said Meghan Carleton, a partner.
ArtLoan, a similar company in San Francisco, is actually regulated by California’s pawn laws. It opened in 2004 and has seen “exponential” growth in the last year even though it charges interest rates of 18 percent to 24 percent, said Ray Parker Gaylord, an owner.
“It’s a very rough-and-tumble corner of the business,” said Marc Porter, who heads the American operations of Christie’s auction house. Christie’s and Sotheby’s also offer loans against fine art but focus on bridge loans to customers who have pledged their art for planned auctions.
“For years, one of the reasons this wasn’t an especially big business is that everyone was getting money for something else,” Mr. Porter said. “It was easy money everywhere. But now people are looking to every asset they have to unlock cash.”
ArtLoan prefers to make loans on items that are physically small and thus easy to store or to ship to auction houses and dealers in case of a default. A recent loan was for $115,000 against a collection that included an early 20th-century bronze sculpture, a 19th-century Persian carpet and a Swiss music box.
Art lenders typically lend up to 40 percent of what they appraise the artworks to be worth, and usually take possession of the works.
A former investment banker in New York, who spoke anonymously because he did not want friends to know his financial situation, is sending six modern paintings to ArtLoan, hoping to borrow $50,000 against them to finance a business venture. His former company’s stock, which he was given as part of his annual bonuses, has gone from the high $70s a share to $22, he said.
“At this point, I’ve been not working for a year and a half,” he said. “I have a choice, which is sell part of my art collection, which when I first left my job in 2007 was an option because the art market was strong, but like all markets it has gone south. Now I can take a loan without having to sell at a discount.”
For her $5 million loan, Ms. Leibovitz put up as collateral a country house in Rhinebeck, N.Y., three town houses in Greenwich Village and all “copyrights ... photographic negatives ... contract rights” existing or to be created in the future, according to a loan document filed with the City Register’s Office in December. That month, Art Capital granted her an additional $10.5 million loan, which was to consolidate the existing mortgages on her homes, according to loan documents.
Ms. Leibovitz appears to have experienced financial challenges in recent years, facing a lengthy, costly and litigious renovation on the three adjoining town houses, federal and state tax liens of more than $1.4 million — which appear to have been paid back — and lawsuits from a lighting company and a stylist she had hired, asking for a total of more than $700,000.
Ms. Leibovitz, one of the most successful editorial and commercial photographers in the business, declined to comment on the reasons for the loans. In a brief e-mail message, she said her financial health was “fine.”
Robert Pledge, the founder of Contact Press Images, which represents Ms. Leibovitz’s editorial work, said she had faced many stresses in the last eight years, including runaway expenses at her Chelsea studio, which she has since closed; the renovations; the deaths of her lover Susan Sontag and her parents; and the birth of three children.
The Warhols hanging at Art Capital, one an acrylic and silkscreen image of a hamburger called “Hamburger,” the other called “Mineola Motorcycle,” once hung in the collection of Evan Tawil, a manufacturer of children’s clothing. Mr. Tawil said he had seen a small advertisement for Art Capital posted outside the Madison Avenue entrance of the Carlyle hotel (“Private Banking for the Art World”) and thought he could leverage his collection to buy more art.
“I knew I had money coming in,” said Mr. Tawil, who said he borrowed about $250,000 from Art Capital in 2007. “I had receivables, but the buys I wanted to make were time-sensitive.”
Mr. Tawil’s lawyer, John Cahill, said that when Mr. Tawil’s loan term ended with his having made his interest payments in a timely fashion, he asked if Art Capital would release his paintings so he could auction them to pay off the principal, but the company refused.
The Rubens once belonged to Veronica Hearst, the widow of Randolph Apperson Hearst. As detailed in an article in Vanity Fair in December, Ms. Hearst had mortgaged her artworks in an effort to hold on to a 52-room mansion in Manalapan, Fla., which she eventually lost in foreclosure.
Mr. Schnabel, the artist and film director, turned to Art Capital for an $8 million loan in 2006, when he was constructing Palazzo Chupi, an ornate apartment project on West 11th Street. He used only the real estate and not his own art collection as collateral. (To pay down that debt, Mr. Schnabel later took out a loan with Commerce Bank, for which he did pledge his personal art collection, documents filed with New York State show.)
Mr. Schnabel is now suing Art Capital, claiming that he paid back his loan in a timely fashion but that Art Capital tried to add exorbitant fees. Art Capital counterclaims that it is entitled to millions of dollars in additional interest and fees because Mr. Schnabel did not reveal there was an existing mortgage on the property.
Citing client confidentiality, Art Capital declined to discuss specific loans, but Baird Ryan, a co-owner, explained that because his firm understands the art market better than regular banks, artists can make attractive borrowers. “We say, ‘Hey, you’re a bankable asset,’ ” Mr. Ryan said. “So we encumber their own art.”
None of the legal messiness is surprising given the nature of the business, said Gerald Peters, an art dealer in Santa Fe, N.M., who said he had bought paintings from Art Capital. “The game they have to play is rough,” he said. “But the service they are providing is real, and there’s demand for it.”
Mr. Peck said the vast majority of Art Capital’s customers repaid their loans and were satisfied with the company’s services.
“The nature of this business is you find yourself having to enforce your rights in court from time to time,” he said.
Mr. Baird, who met Mr. Peck when they were children spending their summers in Southampton, N.Y., said he expected business to get better. In an interview in the company’s office, Mr. Baird held up his BlackBerry, showing that he had just gotten two e-mail messages with queries about how much Art Capital could lend on collections of modern art.
“The town house, there’s no equity behind it, the house at the beach is at half or a third of what they had it valued at last year,” he said. “All of a sudden, the art becomes a very important asset.”