Art and Prime Property Were Best Bets in Recession

Sotheby's staff carry away the Edouard Manet painting entitled 'Portrait De Manet Par Lui-Meme, en Buste' (Manet A La Palette) ('Self-Portrait with a Palette') after it was auctioned at Sotheby's in London on June 22, 2010 where it fetched 20,000,000GBP.
Carl Court | AFP | Getty Images
Sotheby's staff carry away the Edouard Manet painting entitled 'Portrait De Manet Par Lui-Meme, en Buste' (Manet A La Palette) ('Self-Portrait with a Palette') after it was auctioned at Sotheby's in London on June 22, 2010 where it fetched 20,000,000GBP.

For some, the ongoing economic crisis has been little more than an idle diversion, something of a soap opera. There are those who hit rare good fortune on the financial markets. Then there are others who were able to invest in art and property at the very top level – two specialist markets that have recently provided safe havens.

According to the Mei Moses World All Art index, investment grade art grew in value by 10.2 per cent in 2011, outperforming both the S&P 500 and the FTSE All Share total return indexes.

And while the Knight Frank Wealth Report 2012, published last month, cautions that “price performance of the prime property markets favoured by high net worth individuals [HNWIs] was far from uniform last year,” prime property in London, Hong Kong and New York saw price rises of 12.1 per cent, 4.6 per cent and 3.1 per cent respectively.

A comparison of record-breaking sales provides an arbitrary, but not insignificant, illustration. In 2010 Sotheby’s London set an auction house record with the sale of Giacometti’s “L’Homme qui Marche 1” for £65m, smashing the previous record set by Picasso’s “Garçon a là Pipe,” which sold at Sotheby’s New York for $104m (£58m) in pre-credit crunch 2004.

"Because the rest of the market is extremely difficult, [HNWIs] are going to buy things they can enjoy ... and that  have a reasonable level of protection from downwinds." -CEO, Christie's International Real Estate, Neil Palmer

Meanwhile, the UK’s most expensive house, the 300-year-old Park Place, set in hundreds of acres outside Henley-on-Thames, sold last August for close to £140m; the vendor had bought the property during the peak of 2007 for £40m, at the time the highest price paid for a house outside London.

Then there have been coups without precedent, like Damien Hirst’s two-finger salute to the gathering storm in September 2008, when his two-day sale at Sotheby’s London raked in £111m the same day that Lehman Brothers filed for bankruptcy. Or the Candy Brothers’ gamble with One Hyde Park, the super-prime development that launched just as property markets around the world began to nosedive, and has since achieved prices above £6,000 per sq ft.

Uncertainty surrounding stock market investments, coupled with a range of stimulus measures around the world, has incentivized property buyers and fuelled an increasing demand for “investments of passion,” including art, luxury collectibles (cars, boats and jets etc), sports investments and wine, jewellery and watches.

According to the Knight Frank Wealth Report, the proportion of HNWIs expressing an interest in fine art investments in 2011 rose by 25 per cent compared with 2010. Such concrete assets are not only perceived as more secure, but they also fulfil a complex set of aesthetic and emotional demands.

“I would say that in 2009 everyone had a problem and I don’t think we were immune,” says Neil Palmer, chief executive of Christie’s International Real Estate. “What’s become really apparent over the last 24 months is that HNWIs have decided that, because the rest of the market is extremely difficult, they are going to buy things they can enjoy, look at, and that have been shown to have a reasonable level of protection from downwinds over the medium to long term.”

Tania Buckrell Pos, head of the art advisory firm Arts & Management International, admits the prime art market, like the prime property market, suffered a blip, with a number of disastrous sales in the autumn of 2008. She says it “took a good two years” to recover confidence but is now “full speed ahead.”

The commercial relationship between art and property is nothing new. Back in 1976 Sotheby’s auction house launched its own property division titled Sotheby’s International Realty and, although it entered a long-term strategic alliance with the U.S.-based Realogy Corporation in 2004, it remains under the Sotheby’s umbrella. Christie’s entered the game a little later with the acquisition of Great Estates in 1995 to become Christie’s Great Estates and, more recently, Christie’s International Real Estate. Although the relationship between the art and property divisions varies between the two companies, within each there are reciprocal links.

Charles Smith, managing director of Sotheby’s International Realty UK, tells me about a valuable meeting that was arranged by an auction house colleague; he had struck up a conversation with an overseas buyer acquiring numerous lots at one of his art sales who explained that he was planning to move to the UK and wanted to decorate the new property. “When asked where the house was, the client said he hadn’t found one yet,” Smith says. “So he was introduced to me and a few months later bought a very substantial house in London.”

Then there are those looking for the right property to house a collection. Neil Palmer of Christie’s recalls a recent property search in London. “We were specifically looking for a large, galleried reception room that had to have minimum 20-foot ceiling heights and a minimum of a 40-foot running length along one wall,” he says. “The client had this fantastic triptych by one of the great contemporary artists of our generation and this was the space that was needed to get it up on to the wall.”

The desire to acquire property and then some art to put in it is a universal impulse among the newly wealthy: while a house provides the initial wow factor, its contents communicate a subtler and more sophisticated message. A well-chosen art collection tempers and flatters its owner, it serves as shorthand for intelligence, wit and urbanity – and acts as a kind of justification of wealth. And while the thrill of property purchase ends with the completion deal, art purchases can open the door to a year-round calendar of parties and private viewings.

In recent years, both art and property markets have been buoyed by the wealth emerging from growth economies – and these buying patterns are well documented. Russians, for example, started buying prime London property early in the millennium and the impact was subsequently felt on the art market.

“You can chart it from when Abramovich bought Chelsea Football Club [in 2003],” says Charles Smith. “When [former Chelsea owner] Ken Bates did the deal nobody had ever heard of that guy. We didn’t do Russian sales. Then suddenly oligarchs started to come to the fore and now there are several Russian Art sales.”

More specifically, new collectors from fast-growing economies tend to show an interest in buying back their own heritage. Last month Christie’s announced that 2011 sales totalled £3.6 billion and credited a growing “international appetite,” with 13 per cent of sale registrations coming from Greater China; the fact that Asian Art is now the auction house’s second-strongest category (after Post-War and Contemporary) with auction sales totalling £552.9 million, an increase of 13 percent on 2010, is not unrelated.

The commercial link between art and property can be identified on a massive scale. Consider Dubai and Abu Dhabi; at the close of the 20th century these cities could boast little in the way of contemporary culture but with the building boom came two new commercial art fairs, Art Dubai in 2006 and Abu Dhabi Art in 2009. And although property development has stalled in recent years these two cities are still growing in status as hubs for the sale and purchase of Middle Eastern art.

Art and architecture have always been the most powerful expressions of wealth, and throughout history emperors, popes, princes and private patrons have been defined by what they have left behind.

There are countless examples of art collections and the buildings that house them achieving an exquisite synthesis, where paintings speak to each other across a room, say, or a sculpture is ideally suited to a particular play of light.

And who knows, among those cramming loot into their One Hyde Park apartments may be the John Soane or Henry Clay Frick or Peggy Guggenheim de nos jours, but it seems unlikely. Today’s new collectors may be trendsetters but few are tastemakers – that role is now played by the dealers and gallerists.

Unlike many of the great patrons of the past, from the Medicis to the Mellons, who were interested in curating art of earlier periods or in discovering and nurturing new talent, a growing number of those buying art at the highest level now see themselves primarily as investors. They might already own a portfolio of properties around the world, each with an immaculate, if rather soulless interior, and they want to buy into blue chip artists whose works offer them financial security rather than a reflection of their own personality.

Some in the art world have expressed a fear that top buyers are losing interest in the aesthetic value of art, and Anthony McNerney, head of contemporary art at Bonhams, warned recently that art dealers were in danger of becoming “commodity brokers.”

“It is happening, unfortunately,” says Tania Buckrell Pos. “What I enjoy most is to take a new collector and help them define their aesthetic and purchase within a collecting strategy. And if that’s just about money, it’s no fun.”

A related development is the trend for “dressing” properties. This began in earnest in 2010 with The House of the Nobleman, a semi-commercial exhibition of art – including works by Poussin and Picasso – that was used to promote London’s Cornwall Terrace development during the Frieze art fair. It was repeated again last year and will appear again for the last time – to sell the final property in the terrace – this October. Most art critics frowned upon the event (although many of the works successfully sold) but according to Beth Dean, director of sales and marketing for the developers Oakmayne Bespoke, it had impact.

“People have seen how it’s worked and how it’s highlighted the development because off the back of both shows we’ve sold a house each time,” she says. Certainly, a number of other property developments in London, including Walpole Mayfair, have since used art exhibitions as a marketing tool for property sales.

The influence of “dress to sell” is also indicative of the increasing power of interior design. As a profession it has promoted itself from “decoration” to “design”, and practitioners at the top level are now responsible not only for selecting colour schemes and swatches, but also art and artifacts – in some cases a whole new lifestyle – for their clients.

Tarfa Salam is a London-based designer who has worked on interior schemes across the Middle East, many of which have involved the purchase of art. “As interiors have become purer and purer in lines, you can only bring atmosphere really in what you are sticking on your walls and what sculptures you’re bringing in,” she says.

“When an interior designer is, like I am at the moment, designing a big loft in Beirut, all I can do really is suggest art, otherwise I’m also terrified that the client might just go and choose his own art and muck up my beautiful design.” Salam sources most of her art works online, she says, although she has developed a relationship with particular dealers and gallerists in London and the Middle East.

“In Beirut I made them buy an enormous Iranian painting [by Khosrow Hassanzadeh] of Umm Kulthum. She is a diva in the Middle East, like Callas, so he’s used her like Andy Warhol used Marilyn,” she says. “I had to twist their arm because it was essential that I found an enormous painting for that wall.” The price of the painting was $43,000, negotiated down from $66,000.

Perhaps not surprisingly, art advisers are wary about interior designers extending their remit. “It’s very dangerous,” says Tania Buckrell Pos. “I don’t see how somebody can be an interior designer and an art adviser at the same time; they will not be making the right choices for their clients. It will be decoration that they are putting on the walls rather than something a lot deeper and more profound.”

For better or worse, depth and profundity are not always the primary concerns of the super-rich – indeed, an obsession with surface value is often what earned them their fortune. Most within this rarefied demographic share a passion for quality but if market trends continue (and, whatever anyone says, art and property hold no guarantees) there will be widening differences in attitudes towards ownership.

There will be many individuals who will deploy their riches with taste and imagination, who might even see themselves simply as the lucky custodians of some of the world’s most treasured art works and most sought-after architecture. But there will be an increasing number who will regard these possessions as mere objects, empty vessels for the accumulation and articulation of wealth.