Now you can rent blue-chip art for your walls

Dealers, collectors and financiers are trying to monetize art in ways that transcend merely buying or selling

By Bloomberg News

May 11, 2018 @ 11:58 am EST

For most of its history, New York's Peninsula Hotel had, in the words of general manager Jonathan Crook, "generic hotel art of no significance."

Starting in 2010, though, it began an ambitious program to exhibit a shifting array of contemporary artworks, sourced from a collector named Alvaro Leal and his Manhattan-based company, Circa 1881. "Since 2015, we've had four or five rotations" of new art, Mr. Crook said, "and it's been very well-received."

In honor of its 30th anniversary, the Peninsula wanted to celebrate art made by stars of the 1980s — works by such artists as Francesco Clemente, Andy Warhol and Jean-Michel Basquiat.

Mr. Crook was put in touch with Asher Edelman, a financier turned art dealer turned art financier, who had a suite of Warhol's Mao prints on consignment from a collector who was hoping to sell them for $850,000. Mr. Edelman had had the prints for about a year, and "we had some genuine interest" but no hard offers, he said.

The Maos' consignor "gave us his blessing to lease out the works in any kind of safe place where they could be shown well," Mr. Edelman says. So he spoke with the Peninsula, and an agreement was reached: The consignor would lease them to the hotel for a period of three months, and in exchange for brokering the deal, Mr. Edelman, through his company Artemus, would receive a percentage of the lease fee.

Mr. Edelman declined to say how much the Peninsula paid, but he says that "for major works of art, you're going to pay something like 8% to 10% a year" to lease it. Insurance and installation costs are extra, he says.

"They've only been up for a week, and they're creating a lot of interest," Mr. Crook said. "It's a bit of a 'wow' moment."

A growing effort

The deal is the most recent example of an increasing attempt by dealers, collectors, and financiers to monetize their art in ways that transcend merely buying or selling.

"I believe that an asset should be attached to a cash flow," Mr. Edelman said. "If you're going to be in the business of art, you want to be a lender or a leaser, and you probably don't want to simply be a speculator." In other words, by creating a business out of leasing his art rather than buying works purely with the intention to sell, Mr. Edelman isn't exposed (at least in theory) to the possibility of selling a work for less than he thinks it's worth. "I'd rather make money at 10% a year than risk the value of the art," he said.

Mr. Edelman's business, which combines art loans and art financing, selling, and leasing, is one of several variations of monetization to appear in the art world in recent years.

"That has become a dominant theme, mostly because there's a bunch of people trying to promote that idea," says Marion Maneker, founder of the Art Market Monitor. "And it's like anything else — it's marketing."

Proponents of the concept of art as an asset, he continues, "are softening people up to the point where they begin to think: Why should I have my money locked up in this artwork if I can finance it?"

Lenders such as Citibank, J.P. Morgan, and U.S. Trust have begun aggressively courting collectors with relatively straightforward propositions along the lines of lending against collections. Others, like Edelman, have started to get creative, with the leasing program being the most recent instance.

But will it work?

The question, though, is whether it will work. "The whole idea of renting out art makes some sense," Mr. Maneker said. "But I don't think that anyone is really generating real revenue or an income stream off it."

Surprisingly, Circa 1881 founder Mr. Leal agrees. After more than seven years of loaning out his art, he cautions that margins are razor-thin. "There's the cost of moving artworks and installing and protecting them properly," he said. "And the margin you can charge on top of that for the actual rental of the works isn't very big."

Mr. Leal's company, which uses art from his collection, including works by Cindy Sherman, Wolfgang Tillmans, and Basquiat, "is for profit," he said. "But not much."

After expenses, "you can get a return on the art you lend out, but it's 2% or 3%," he explains. "It's not really attractive."

But Mr. Leal believes the market has potential. The main hurdle, he said, is that people outside the art world need to learn how to appreciate high-value works.

"As the market develops, and people start valuing a work by Jeff Koons over an artist from the street," he said, "then the margins might increase."

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