Friday, August 17, 2007

Juicy Gossip Friday

ONE : Know Your Landlord

In an interesting twist to the perpetually problematic art+real estate relationship, the owners of Sotheby's New York office are putting it on the market.
Lisa Sandler of Bloomberg reports that the owners, RFR Holding LLC, bought the building back in 2003 from Sotheby's who at the time was facing anti-trust fines (they then leased the space back). The price RFR bought it for 4 years ago? $175 million. According to RFR, though, they've received offers as high as $500 million for it today.

That increase is a reflection of just how insane the NYC real estate market is, but there's much more to this story than record-breaking prices. Sotheby's is objecting to RFR's marketing of their building on the grounds that their lease agreement requires their landlord to offer them the building first:

"The company is pursuing its rights with respect to the right of first offer,'" Sotheby's said in a quarterly filing with the U.S. Securities and Exchange Commission on Aug. 9. If successful, "this could result in a material benefit to the company.'"
I haven't run out and received a degree in real estate law since we last talked, but I'm not entirely sure how doing so is going to help Sotheby's buy the building for a better price. If RFR knows the building could fetch half a billion dollars, they might as well price it up in that range, no? (Lawyers, feel free to educate me here). Of course, as the article points out, Sotheby's hasn't come out and said they want to buy their building. They may simply be pursuing this alleged breach of contract to see what they can get out of it.

But hang on, there's more. The real juice in this property game gossip is this little tidbit:

RFR's president, Aby Rosen, became a kingpin of New York real estate with the $375 million purchase of the Seagram Building on Park Avenue in 2000. He is an art collector and sits on the board of auction house Phillips de Pury & Co.

TWO : From A to B and Back Again

In case you missed it when Tyler posted on it, Modern Art Notes super-guest blogger (and all around brilliant art world insider) Todd Gibson
reframes the growing grumbling about "the direction that the initially promising Warhol Foundation Art Writers Grant Program has gone."
So think on this: if Andy Warhol were alive today, and if he were personally giving his foundation's money to arts writers, who would he bankroll?
But let me back up. Here's Tyler on what's spurring this discontent (with a link to Andrew Berardini with the details):
Meanwhile, at The Expanded Field, Andrew Berardini finds some of the many flaws with the Warhol Foundation's art-writers grant program, including cronyism and a lack of younger grantees. He's right. (Though specific examples -- they're there -- would make his case even stronger.) Last year the foundation asked me to encourage writers who blog to apply. This year? I'd say don't bother. After seeing who the grantees (and the panelists) were last year, I'm not.
OK, so to be fair I should quote Andrew, who pointed out:
Though nearly every project given in the last round of this grant project
is legitimate and deserving
, the grantees are hardly an undistinguished bunch. [emphasis mine]
Disclosure: I applied for one of those grants last year, after considerable encouragement, and thought I would at least blog about the experience, but not getting one didn't end up being as interesting as I thought it might.

THREE : Bubble, bubble, art world trouble?

The death watch for the contemporary art market has begun in earnest.
Charlie Finch notes:
Those that believe the sky is the limit for contemporary art prices need only look at the current hedge-fund problems roiling the markets for a caution sign.

Even more ominous sounding is this tidbit:
The unseen leverage factor in contemporary art lies in the way many galleries do business: using the rising value of inventory as the basis for bank credit to pay day-to-day expenses, top-of-the-line rents and expansions to hot new neighborhoods like Loisaida. As art prices rise, debt becomes easier to acquire, gallery wall space increases to showcase the hot art for day-tripping collectors who write more checks, increasing the base value of all present and future works by in-demand artists, whose inventory valuations allow galleries to gain more credit. Reduce surplus collector cash and these equations unravel quickly, the way the inability of middle-class home owners to pay their mortgages is unraveling hedge funds managed by Wall Street's most prestigious firms, who should know better, but never seem to.
Todd Gibson is also concerned:

During the first two weeks of August, while everyone in the art world was away doing what art world people do during the summer, this long-awaited correction may have started.
Over at Art World Salon, Ian Charles Stewart is looking for some concrete indications of whether that pin is about to prick the spherical canopy around art prices, asking "does anyone know if auction houses are still offering sales guarantees this year?"
In a financial market turning south it is a common strategy to buy “put options” before everyone else notices; i.e. contracts to lock in now, a right to sell something in the future, to someone else at a price fixed now, when you think the market as a whole is falling. An Art market equivalent would be to agree with an auction house now to sell a collection later in the year, on condition of sale price guarantees, set now, at current pricing. Always a risk for the auction house (ask Phillips de Pury), in a real down market it can be a disaster. The smart auction houses understand this, of course. If they are nervous about market values, they stop giving guarantees. Perhaps only in some markets. Perhaps in all.
You'll have to head over there to find the answer to Ian's question.

Have a juicy weekend folks.



Anonymous Anonymous said...

WAY WAY WAY to early to panic. August is ALWAYS a slow market month. Everyone is away! Noone's at the office. You'll have to see how things pan out in the fall before you can tell if the sky is falling.

8/17/2007 11:17:00 AM  
Blogger Edward_ said...

come on Anonymous...what fun is there in that?

folks have been salivating for some sort of corrections for so long, it's almost cruel not to let them at least lick the market's current fluctuations to see if they can taste the tell tale salt of blood.

8/17/2007 11:27:00 AM  
Blogger George said...

August is ALWAYS a slow market month.

Unfortunately, this is just the start of it, I expect the decline to continue into October. It doesn't bode well for the art acution market.

8/17/2007 12:16:00 PM  
Blogger Joanne Mattera said...

The yin and yang of the universe is such that over time highs will fall and lows will rise. If you've lived in NY long enough, you've seen it with rents, with apartment prices, with interest rates, with galleries opening and closing. (True, it's an upward spiral, so that while the highs are higher, the lows are higher, too. About 25 years ago, NY Magazine did a cover story on rents; it showed a studio apartment with the cover line: "This apartment is going to rent for $1000 a month." Ha, now that G would be a bargain.)

With art prices so high and the art fair frenzy even higher, I have been wondering when prices, personal interest in the arts, financial interest rates and real estate prices will all hit the ceiling--only to bounce back down to the floor (before starting their bounce back up). Did the Dow's drop down from 14,000 signal a change? Or was the drop just a the ripple in the space-time continuum?

I may be an artist, not an investor, but I do know things can't keep rising forever.

If you make your living in art--as a maker, seller or organizer, or as one of the many suppliers of goods and services--you really do have to watch and gauge.

I'm going back into the studio now, because painting is what I do, but things don't feel quite right in our universe....

8/17/2007 12:25:00 PM  
Blogger mbuitron said...

I would go out on a limb and say that quality art by dead people can rise forever. As the economy grows, the amount of money thrown at work by Warhol to Watteau will increase while the number of objects remain constant. In the long run, prices will continue to go up.

As far as work by "young MFAs," the amount of money being spent on paintings has increased faster than the quantity of quality flat (i.e., easy to ship, hang and sell) artwork being produced. If there's a market correction, would a few galleries going under and a few more mving to smaller digs be such a terrible thing? I would expect that the best work would still be able to find buyers.

More at


8/17/2007 01:50:00 PM  
Anonymous Anonymous said...

WAY too early. The housing market collapse (which will be an adjustment, not a catastrophe) will affect middle-class people- a.k.a. people who don't buy art. The stock market will only slightly reflect the housing market. People were crying wolf 3 years ago. Noone really knows. But I don't predict a major nosedive until roughly 2011. The supposed quality or lack of quality of "art" has really very little to do with it.

8/17/2007 02:27:00 PM  
Anonymous Anonymous said...

As an aside, Aby Rosen has bad taste in art (having worked in his house).

8/17/2007 02:41:00 PM  
Blogger Henry said...

As the economy grows, the amount of money thrown at work by Warhol to Watteau will increase while the number of objects remain constant. In the long run, prices will continue to go up.

The effect is sharper than you stated. The number of objects in fact decreases over time every time a museum makes an acquisition. Art goes in, but it never comes out. An inferior Picasso sells for $100m nowadays because the better ones are unavailable. I'm curious to know whether collectors like Saatchi will take advantage of a market lull to buy up a bunch of art he might not have bought at today's prices.

8/17/2007 02:44:00 PM  
Blogger George said...

Picasso sells for $100m nowadays because, well because it's a bubble.

Looks like a bubble, smells like a bubble and will pop like a bubble.

Prices do NOT have to continue going up, that assumption is what makes it a bubble.

8/17/2007 03:30:00 PM  
Anonymous Ben said...

An economy driven by debt MUST continue to grow for that debt to be serviced. optimists believe that the economy can continue to grow indefinitely, (finding new markets in the outer galaxies perhaps).on the other hand those who see the finite nature of the world's resources probably also see bubble.

8/17/2007 09:06:00 PM  
Blogger George said...

An economy driven by debt MUST continue to grow or monetize that debt.

8/17/2007 09:34:00 PM  

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