Art Finance

Art Capital Group – It is all about the asset

After 10 years at an investment bank structuring debt, Terence Doran was looking for a new challenge. A friend suggested joining Art Capital Group, a specialist art finance arranger and investor. “I was actually taken aback by the idea of art finance as an industry,’” says Doran.

He was talked into meeting them. Ten years and $1.5 billion of deals later he does not regret the decision.

“Art deserves recognition as an asset class,” says Doran.

Art Capital Group arranges finance for borrowers, bringing in other lenders but also always has its own capital on every deal. “It is important to have skin in the game,” he says.

Art Capital Group is a true asset lender. Unlike most of its competitors it does not require personal guarantees, instead focusing on the underlying works. “Guarantees look lovely but you had better be right on the asset’s value,” says Doran. “The fundamental job of art finance is to get the value correct.”

Most of the art that they are working with is from the three main auction house categories: Old Masters; Impressionist and Modern; and Post-War and Contemporary. Deals are typically between $2 million and $20 million but it can go higher. The firm offered to lend $4 billion to the City of Detroit using its museum’s art as collateral. In total Art Capital has arranged more than $5 billion in loans.

Most art lenders let US borrowers keep possession of financed art because the US Uniform Commercial Code (UCC) allows them to demonstrate their right to repossess. However, when they are working on deals outside the US, financiers typically insist on the art being kept in storage. Art Capital Group has created unique insurance products that allow European and Asian borrowers to keep art in their homes.

“The art world at present has no geographical borders and neither should art financing,” says Doran.

Art Capital Group tracks renewals carefully and he says that more than half of clients have closed two or more loans with them. “We see this as the best sign that we are helping them – either to grow their collection or helping them solve a short term issue. We try to make sure it is not an onerous process for borrowers.”

Because it is focused on the art backing the deal, Art Capital Group is happy to work with a wide range of clients including galleries – which are underserved by many financiers. “No deal is ever the same and the same is true with our clients.”

High end art prices are getting a lot of coverage and it has attracted new sources of finance. This helps Art Capital when they are looking to syndicate but it also means that they have more competitors.

“The momentum of a very hot market and the shift in tastes towards tangible assets has caused an increase in art lending,” says Doran. “Anyone can hold up a placard and say we offer art finance. But very few have been through a cycle. You also need sophisticated knowledgeable lenders for more complicated deals.”

After 10 years, he does not consider himself an art expert. “I am an expert on art finance but not on art,” says Doran. But he does love the market.  “The art finance community is a great one,” he says. “There is healthy competition between the different financiers and very different personalities. And the variety of deals is fantastic. I am glad I was talked round.”

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Alasdair Whyte

Alasdair Whyte

Alasdair is a financial journalist writing about art. He has focused on high value asset finance since 1998. As well as Private Art Investor, he also edits Corporate Jet Investor (despite knowing very little about aircraft) and Helicopter Investor (ditto).