The pigeons come home to roost

For those of you who’ve known me for more than a few years, also know that, for the first two decades of my working life, I worked for a bank, and during my banking tenure, basically did one job- commercial lending. Regardless of the type of entity, be it C-corp, LLC, LP- the business was always the alter ego of the principal owner, and it was with the owner that I sought to establish the relationship. And, too, relationship was key. We always sought to provide all the customer’s financing needs, not just because we wanted the business, which we did, but because so-called split financing situations, in the unfortunate circumstance of requiring legal means to collect a debt, inevitably resulted in a squabble amongst creditors. The technical term for this squabble was ‘pissing contest.’

While split financing was something the larger banks still seek to avoid, smaller banks and those new on the scene trying to build loan totals, always were the ones who, for lack of any other lending opportunities, would insert themselves into what is invariably a risky lending arena. However, one old aphorism, that no loan is ever bad when it is made, is true enough. They go bad, and for a few quarters, at least, loans that have inherent flaws, until there is actual payment default, are, for balance sheet purposes, good loans. And loan growth- what it is that actually earns money for a lender- is of paramount importance. After a year or two- and this happens to all new banks- the flawed loans default,  the bank scrambles for capital to cover losses, and the original management team is fired. This phenomenon is cumulatively known as the pigeons coming home to roost.

It is therefore interesting to see the growth in art market lending, carried on by non-traditional lenders including the major auction houses, making what amounts to loans based on the underlying value of the art collateral offered by clients. In one respect, the doing of this makes some sense for an auction house, as with the hypothecation of art collateral, a collector-borrower can then use the borrowed proceeds to make additional purchases from the auction house. Revenue enhancement, of course, realized not just through saleroom commissions, but interest earned on loans. So far, so good. But of course, this provides the classic opportunity for split financing, and it begs question, why did the collector-borrower not obtain his financing from his own bank? The answer must always be that the art market lender is willing to provide financing on more liberal terms, usually allowing a higher rate of advance against the pledged art collateral. And why would the art market lender be willing to do that? Ostensibly because art market lenders claim they know more about the value of the collateral, and if its liquidation becomes necessary, it has a greater ability to make itself whole. Sure. That’s why, over the past few years, the major auction houses have lost, and continue to lose, their tails on selling art objects that they have guaranteed or in which they otherwise have a financial stake.

The real reason for the growth in art market lending has been precisely for short term revenue enhancement- growth in assets, and growth in booked- but unrealized- revenue, in a competitive environment where more traditional sources of revenue, like sales commissions, are shrinking. All I can say is good luck, because these lenders will need it, not just to ensure the performance of their art market loans, but to make sure they have exited the premises prior to the pigeons coming home- and they will- to roost.

‘Cross-collecting’

Just a few days ago, I read this phrase used by a fair promoter to describe the rationale for including disparate types of dealers within their venue. An interesting concept, and by the fair promoters design, they said, to expose attendees to areas of collecting that might be outside their ordinary collecting ambit.

Clever, but, really, what the fair promoter was doing was putting a good face on a bad situation. The fact is, all fairs have such a difficult time attracting better quality dealers that all of them, perforce, become, as they say, ‘cross-collecting’ venues. Sad but true, the numbers of dealers of any stripe are pretty thin on the ground anywhere, and the cost of participating in any fair anywhere puts off very many of those who’ve survived.

Was a time, dealers within one area of collecting would absolutely only participate in fairs where the other dealers offered if not precisely similar material, then at least material that was in some way consonant. Grosvenor House, that fair of blessed memory, was the perfect example of a harmonious linkage- period European furniture of the best quality, together with European paintings of the best quality, and, porcelains, and clocks, and antiquities- well, you get the idea. The collector of one type of material, however, might make a purchase of a similar class of material within a fair that was, shall we say, sympathetically curated.

Sadly, the trade is now so bereft of quality dealers that ‘cross-collecting’ as a rationale for fielding a fair is what we seem to be left with.

Black, or should I say ‘bleak’, Friday

A recurrent conversational theme amongst the cognoscenti- by which I mean myself and my handful of loyal readers- is the displacement of traditional trade venues. While it is often argued that, for period materials, a lot of what’s gone on has to do with changing tastes, with a younger buying public more in tune with 20th and 21st century material, a private discussion with anyone who deals in what might ostensibly seem the mode of the present day would yield the same degree of weeping and gnashing of teeth.

And that degree of angst seems fairly well spread across the land, even up to and including that bastion of nouveau billionaires, the San Francisco bay area. We were surprised to find this past Friday that the local branch of an international auction house with whom we trade from time to time had shed a goodly number of senior staff, with the possibility floated it might close down that location entirely. While it had been reported in the fine art press this time last year it was considered as an acquisition by a saleroom partly owned by the Chinese government, nothing came of it.

While the purchasing opportunities for fine art and antiques have changed, they haven’t precisely shrunk overall. Although the retail venues like Bond Street, Madison Avenue, and even San Francisco’s own Jackson Square are shadows of their former selves, auction houses and online sales platforms, to say nothing of the websites of traditional dealers, provide a spoiled for choice opportunity for all and sundry. And these alternate venues, clearly, are struggling themselves.  And the why of this?

What hasn’t occurred is any concomitant expansion of the money that’s available to make purchases from whomever. Nothing has changed the simple fact that all buyers have a budget, by which I mean disposable monthly income, and that budget is finite. Our trade colleagues abroad are forever enquiring of our sales activity amongst the tech billionaires in the greater bay area, presuming that these folks have money to spend, and that as it is quickly and newly come upon will spend it profligately. Oh, that they would. The monthly budget limitation, in my experience, applies to all buyers of any stripe, established or, shall we say, parvenu. People spend what they happen to have on hand, and I have never, ever seen or heard of any punter encashing an investment to buy any piece of fine or decorative art. One irony, though, is the investment in and the floating of the plethora of on-line sales platforms.  With so many about, they do, like locusts, come and they go, but for the interim, the cost to develop and launch functions to siphon off a fair bit of cash from investors that might arguably otherwise go to purchase worthwhile items from the established trade.

Further, our competition for the monthly supply of the ready consists not just of erstwhile investment, or even of items of collector quality crowding in, but such like as Porsches and Maseratis. In this circumstance, we may level the playing field, or tip it in our favor, when we can figure out how to move a pair of Linnell salon chairs down the road with the buyer seated in them, and the price tag prominently displayed. A ridiculous notion, of course, but the alternative seems to be to wait until we experience a wave of connoisseurship. Until that time, the winnowing out amongst members of the trade that was this last week given evidence in the local saleroom will continue apace.

Judging with their feet

If you are interested in the business of the trade in art and antiques, Skate’s Market Research is nearly as handy as the pocket on a shirt. Although they do compile the statistics associated with blockbuster auction and private sales, they also provide stats on things less sexy but more germane to the everyday decisions a dealer must make, including whether or not to participate in art and antiques fairs.

With the bricks and mortar venues around the world in their death throes, the pop up venues that art and antiques fairs provide function as what would seem a logical, relatively low cost opportunity to get one’s gear in front of the buying public. With the show organizer and frequently a worthy benefit charity performing the ostensible heavy lifting of promoting the venue and purchasing opportunity, the dealer then only, it would seem, has to show up and sell to the raft of people massed at the front door waiting to make a longed for purchase.

What’s not apparent is the dealer’s cost associated with the fair. The rental of the booth, decorating the booth, lighting, electrical outlets, phone outlets, and many times, assessments for advertising in the show catalog and promoting the fair through local and national media. Oh, yes- and the cost of transport. For us, the least expensive transport bill is $15,000. On the whole, the least expensive fair we participate in costs us, before we sell anything, $52,000.

I suppose if one were guaranteed sales into the six or seven figures, the significant investment for what often functions as a pop up store that exists for no longer than a long weekend might seem paltry. But the fact is, fair attendance and at-show purchases have been on the wane. And this is where Skate’s becomes an invaluable tool- they report fair performance with a degree of accuracy that is, shall we say, somewhat illusory when one questions fair promoters. Mind you, fair promoters, whether those who operate for profit or those who are an arm of a not for profit worthy cause, seek to put the best face on their face to induce art and antiques dealers to participate. One would suppose with the numbers of dealers becoming thinner and thinner on the ground, the word about the relative performance of a fair would quickly make its way around. Our experience, though, is that dealers most generally have attended the same school of obfuscation as most fair promoters.  With this in mind, what we do, long after the fact, is assess the number of individual dealers returning to the same fair and assume that, if they are returning, it must constitute a successful venue. We track this over years and have determined some surprising facts. One of the more vaunted fairs that promotes itself as a major international venue has had a dealer turnover of nearly 130% in the last four years. Clearly, the dealers are judging the success of this fair with their feet.

Keith and I are just returned from a fair we felt might be a fit for us, but expensive so wanted to check it out thoroughly before we even put numbers together precedent to giving it serious consideration. Frankly, one could as they say have shot a cannon through the venue on the Saturday afternoon we visited. Skate’s recent report on the success of this fair, and ‘success’ is the word used by the fair organizer, indicated that attendance was in the mid five figures. However, divisible by the number of dealers exhibiting, the per booth attendance was in the- wait for it- low three figures.  We determined, based on our lowest estimated cost to participate, this resulted in a cost of $300 for each visitor to our booth. That is on a par with handing out a couple of bottles of Dom Perignon to each gallery visitor just for darkening our door. For those of you with a profound thirst, please don’t get the idea we are planning on doing either the fair or offering free champers any time soon.

Provenance

A letter floated in to the galleries the other day from another dealer, who by way of representing the quality of her inventory, cited its ‘provenance’. Within the context of the letter, it appeared that she didn’t really understand the meaning of the word. But then it occurred to me that this term, so often used in the trade, and on ‘Antiques Roadshow’, is probably not completely understood. Perhaps, then, a brief discussion and the implications when applied to a piece of furniture might be of some use to all ten of my readers.

As a working definition, ‘provenance’ simply means who owned the piece before. Clearly, with a number of pieces in our inventory as much as 300 years old, everything has been owned by very many people before, but we don’t often cite provenance. Mostly, the prior ownership is either unknown or insufficiently significant to be worth noting. When provenance is cited, it is for several different reasons. Firstly, provenance when it can assist in attributing the piece to a known workshop. In the 18th century heyday of stately homebuilding in England, Thomas Chippendale, Mayhew and Ince, Thomas Cobb, William Vile, and a number of prominent craftsmen completed vast suites of movables to furnish these massive new piles. Chances are, if the piece has remained in the home and with the family for whom it was originally commissioned, the original invoice, prepared and issued by Chippendale or the like, survives. With English furniture in particular, rarely labelled or marked by its maker, provenance often plays a critial role in attribution.

More recent provenance, absent knowing its original owner, might not be helpful in attribution, but can argue for the quality of the piece. For instance, a mid 18th century serving table in our inventory was part of a collection assembled in the early part of the 20th century by the furniture historian R.W.Symonds, one of the leading intellectual lights in the English furniture field. We always include this when citing the piece’s provenance. Although of a Chippendale design in the Chinese taste, it is unlikely that Symonds chose this piece for that reason. Rather, it is more likely that the selection was based on timber quality and color, and the fact that the blind fret carving to the legs and the frieze is original. Since very many pieces of this basic design were ‘enhanced’ by recarving in the Chippendale revival period of the late 19th century, original carving was, and still is, an extremely desirable feature.

Finally, provenance can sometimes be a value-added feature on its own, regardless of the quality of the piece, if the prior owner was or is a person of particular celebrity. Immediately I think of the collection of the late Bill Blass, auctioned off at Sotheby’s a few years ago. Some of the Regency furniture was of excellent quality, some was not, but everything sold for a lot of money. Interestingly, although very much a factor in the trade in America in the early part of the last century, aristocratic provenance seems lately to be more of a selling feature in Europe. Although nearly all European countries are long since republics, presumably buyers there still encounter enough aristos wandering around that it makes the notion of aristocratic provenance more meaningful.