Need Money? Score Big Cash for Fine Wine
"I just think it's really strange seeing these people who live in these $20 million homes wanting $100,000 dollars," said Stephen Burton as he stood in front of $150,000 worth of expensive wine. "I think it's crazy."
Crazy enough to make Burton some nice profits. His company, Bordeaux Cellars, makes loans against the best wines in the world. "I've got quite a few cases of Romane-Conti, which is around $120,000 to $150,000 a case."
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Burton got into the loan business when his traditional job as a wine broker began to suffer after global wine prices fell. "I was reading an article in the Sunday Times. There was a pawnbroker over here in London who had a warehouse full of Aston Martins and Ferraris," he said. "Literally, people were just driving into this warehouse, handing them the keys for a cash loan. So I just put two and two together, and I thought, you know, we could do this with wine."
More than a year later, Burton said he and his partners have made 200 loans worth $30 million. He displayed some of the wine in hock—the Romane-Conti mentioned above, also a Magnum of 2004 Petrus, some Chateau Lafite Rothschild, and Chateau Latour. Burton even claimed one American going through a divorce put up two dozen cases of Screaming Eagle to get some quick cash. Two dozen cases.
Here's how the loans work.
Burton inspects the wines being used as collateral and stores them. He provides 12-18 month loans worth 35 percent of the market value of the wine, and he charges an interest rate of 15 percent a year, plus a one percent facilities fee. He passes along 12 percent of that interest money to his lenders, and he has a waiting list of lenders. "I've got a lot of lenders in Hong Kong, Singapore, Tokyo, where interest rates at the moment are sort of negative...so they're getting a pretty good deal."
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Why would a wealthy individual pay such high interest rates for a loan? "It's proving a point that over here the banks are not lending at the moment, or if they are lending, compliance is very difficult," Burton told me. Rich people have bad credit, too, but good wine is always good wine. "We can offer these people a loan within 24 hours." Bordeaux Cellars has also received inquiries from borrowers wanting loans against art and jewelry, but the company has turned down those assets. "I'm not a pawnbroker, I'm a wine dealer." (Burton dislikes being called a pawnbroker but admited "the principles are the same.")
The company hears from about ten potential borrowers a week, and so far, there have been no defaults on any of the loans. "I mean, they're only receiving 35 percent of the value of their assets, so they'd have to be pretty desperate not to pay back the loan."
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If there is a default, the good news is Burton gets to keep the wine. But not drink it.
"Obviously the wine would be sold at the market value, and then the lender gets his money back, plus interest, and then any balance goes back to the borrower." However, if Burton did get to drink one bottle, which one would he choose? "I'm a Burgundy lover, so I'd have to take a bottle of Romane-Conti."
—By CNBC's Jane Wells; Follow her on Twitter: @janewells