Q: My stocks have decreased in value and I am in debt. I have an art collection that is worth about $10million. How do I leverage it to get a loan and pay off some of my debt?
HLAA: You are not alone. A lot less people today have the abundance of credit and liquidity in the global capital markets than they had in the past 5 years. Plus interest rates are rising. The major correction in the market has made selling art difficult, so art owners are looking for other ways to monetize. As a result, banks are experiencing an increase in demand for art loans from people who have built up the value of their art. Art as collateral is much easier today with many more companies offering loan services. Banks and asset-based lenders are more comfortable with the idea and believe that the market will just get bigger. It happened in real estate where people did 100% refinancing and we will probably see it in art too.
One institution that offers art loans is Citibank. They have been in art-lending business since 1979, and its loans are secured against art and tend to be long term, often for upwards of 7 years. The service if offered only to clients who have a net worth of at least $50m and whose art assets count as just a fraction of their overall financial strategy. The minimum value of the collection must be at least $10m and the loans are typically about 50% of the assessed value. The bank’s art advisory service uses in-house appraisers and allows borrowers to maintain their collections at home.
Another good option is Montage Finance founded by Jim Hedges. They offer a dedicated team that understands the machinations of the art world unlike more large banks and they demand less liquid assets as collateral reserving art loans for major clients in what one art lender calls “relationship banking.” They also do not charge the hefty “near-usury” interest rates of 20 to 22 percent that most asset-lending institutions require. (Montage will reap about 12 to 14 percent interest, at least a few points below competitors.)
The two dominant roles of art — object of desire and asset tool — can coexist harmoniously, he argues. “People who don’t get that,” Hedges says, “are naïve.”
Contact your financial advisor to recommend a lending institution that will best suit your needs.