Falcon Fine Art: “We have the money and we are ambitious.”
Falcon Group has launched Falcon Fine Art, a new division focused on art finance. The fast growing specialist finance company believes the market is under served and that it can compete with private banks by not requiring banking relationships or a commitment to keep assets under management. Borrowers in England and Wales will also be able to keep possession of art they have financed.
“It is crazy when someone has a £10 million house in London which they have mortgaged but also have £20 million of art which is completely unleveraged and inefficient,” says Kamel Alzarka, chairman of Falcon Group. “We can help them free up that capital so they can keep enjoying their art without needing to sell it.”
Falcon Fine Art is headed by Dr. Tim Hunter. Hunter, a Fellow of the Society of Antiquaries, joined Falcon earlier this year after launching his own art advisory business. Before that he worked at advisory firm Gurr Johns for five years and at Christies for 16 years. His roles at Christies included being senior director in the Old Master and British Picture Department, head of 19th Century European Art, and director of Impressionist and Modern Art. His doctorate focused on Medieval Art and he still regularly publishes in this area.
Hunter had been involved in art loans before but this is the first time he has been completely focused on finance. “Having spent my entire working life in St James or Pall Mall it is really exciting to be in the City at the top of the Gherkin and launching a new art finance business with Falcon,” he says.
Structuring art loans
Falcon Fine Art is initially focusing on flat art –paintings, watercolours and drawings. Hunter says they expect most works to be Old Masters, 19th Century or up to post war. Whilst it will happily finance modern art work by established artists, such as Jackson Pollock or Mark Rothko, it will be cautious about newer works. “We are not looking to finance anything particularly cutting edge,” says Hunter, “but we may expand to other art works later on.”
Its typical transaction will be for between $2 million and $15 million. Alzarka says they prefer mid-size transactions as it allows them to grow but still keep some diversification. Hunter also says that there are less financiers targeting this market.
Hunter says that they are keen to allow borrowers to keep possession of art, but this will only be available to customers in England and Wales to start with. Loans are based on where the art is held, rather than the borrower’s nationality, so a French or Russian collector could move their art to their London home. Borrowers could also place art into free-zone storage in Geneva or Luxembourg.
“We have got 2.5 year’s of brain damage from working art out.”
Falcon Fine Art is launching in Western Europe and the US but plans to expand the offering to other countries. “We have got 2.5 year’s of brain damage from working art out,” says Alzarka, “So we are starting in easier countries first. We will become more global as we get more experience.”
The typical loan term is expected to be for three years, usually with an option to extend it. Owners will only make interest payments and then repay the loan’s principal in full.
It will typically offer between 40% and 50% of the picture’s value (so an owner could borrow $4 million against a $10 million work or art) with this depending on several factors including a piece’s condition and how easy it would be to re-market.
Because transactions will be relatively complicated it will take around six weeks to structure a loan and Alzarka says that they would encourage borrowers to have their own legal advisers. It is prepared to offer non-recourse financing where borrowers do not guarantee loans personally or through their businesses.
Although they will be targeting a different market, he says that they will be able to compete with private banks both on the interest rate they charge and by not requiring owners to commit assets that the private bank will manage.
Hunter adds that private banks could also be a good source of referrals: “Many of them do a great job, but do not want to do exotic or luxury asset finance, smaller transactions or work with people who aren’t already their customers.” They would also be keen to collaborate on transactions with banks.
Alzarka launched Falcon Group in 1994 as an alternative source of finance to banks. It grew rapidly during the 2007 financial crisis when many banks were unable to lend, particularly for trade finance. Falcon has provided $8 billion in funding over the past five years and is expected to turnover more than $3 billion this year. As well as its Dubai head office, Falcon has offices in London, Jakarta, Singapore, Jeddah, Riyadh and Abu Dhabi.
Alzarka says that he likes buying art (although he does not consider himself to be an expert) but he says that Falcon is entering art purely because they see it as an under served market.
“Art is a real asset class and we believe there is a room for a real asset lender.”
“Art is a real asset class and we believe there is a room for a real asset lender. We can’t just do plain vanilla transactions so we have to focus on more difficult and more sophisticated asset classes where there is an angle,” says Alzarka. “We are only interested in more interesting assets where we can make a difference.”
Alzarka says that they have allocated around $200 million to Falcon Fine Art and believe that it can build a $500 million art loan portfolio within five years. Hunter says that he is confident they can achieve this: “We have the money and we are ambitious.”
Both feel that there is a shortage of finance available. “A lot of people talk about the need for art finance – and there is growing demand in what is a huge market – but very few people actually provide it,” says Hunter. “That is probably because art people do not have the financial knowledge and very few financial people can get comfortable with art..
“One of things that attracted me to Falcon is that there had already put in more than two years of work looking at art as an asset class. Every time I said: ‘OK, what if this happens?,” they had already considered it.”
So would Falcon consider launching a private bank? “No. I have absolutely no interest in that. We are not in the business of taking people’s money,” says Alzarka. “We are in the business of lending money out, not taking it. I much prefer that.”