In recent years, Evan Beard has probably seen more blue-chip art than most international museums. A good year for his bank, Bank of America, is “$1bn or $2bn in art loans” and he is privy to the true value of the art that changes hands – in and outside the world’s auction rooms.
Beard is national art services executive at Bank of America Private Bank.
He brings a wealth of experience, helping clients plan the best way to marry their art with their business. “We get a lot of new clients with art lending because it’s become a real differentiator for us,” says Beard. Unlike other banks, which do not like to lead with structured credit, BOA is very comfortable starting a relationship with its art services.
The Ultra High Net Worth (UHNW) private banking and wealth management arm of BOA, has done “multiple billion dollar plus art loans against private collections that are valued into the multiple billions,” he adds.
If you are an art collector looking for a $5m line of credit against your $10m collection, you have come to the right place.
More art, more loans
The low-interest rate environment and elimination of the Section 1031 (‘Like-Kind’) Exchanges are the top reasons for the doubling of total loans in BOA’s loan book for art lending, Beard tells Private Art Investor.
Clients are considered from the investment range of $3m and upwards: “But really looking at $10m in investable assets who can do both structured credit or philanthropy,” says Beard.
These are often collectors who have the means to finance a sports team or a small business or even acquire a company. Of the four-core services BOA, its most successful is the art lending service: “The largest lender of art in the world,” he added.
This is the case following regulatory changes in 2017, when the US government abolished Section 1031 Exchanges (‘Like-Kind’) that allowed individuals to be able to buy and sell assets of a similar nature, such as art, over a certain period without incurring capital gains tax. One of the options is Qualified Opportunity Zones (QOZs).
However, Beard says: “We’re finding that there are enough wickets you need to hit to make it complicated enough. As a result, most collectors seem to be passing on the opportunity to invest in QOZs. But it could change.”
Further, for some years, collectors have been able to unlock capital at low interest rates and deploy it into something that is growing at a rate greater than the interest being paid on the debt. “All you need is a little bit of yield to make that trade look pretty good.”
Leading the charge
2019 saw the art lending market being valued at $21bn – $24bn, according to Deloitte’s latest Art & Finance Report. The private banks – BOA, Citi Private Bank and JP Morgan – led the segments, lending out $18bn – $20bn, while the finance departments of Sotheby’s and Phillips reported $1.3bn and $1.9bn respectively. The total of loans to dealers and galleries specifically was in the region of $1.7bn – $2.4bn.
The US is leading the art-secured lending market at present, with Beard attributing 90% of the global figures to the country. “It’s a function of our legal architecture. The existence of the Uniform Commercial Code allows a financial institution to perfect its interest in tangible assets like art and allows borrowers to keep the assets on their walls,” he said.
This is not a new phenomenon. In 2017, the US art-secured lending market increased by an estimated 13.3% over the year before. And in the five years before that, it is estimated to have grown a total of 15-20% just based on value of loans outstanding.
As for the rest of the world, Beard remarked Brexit will not be as much of an economic catastrophe as predicted, China’s economy is on the mend and the EU is in a better position than it has been in the past. He is optimistic about the overall sales in the art market sales for 2020, stating this might be the first time in some years that it will really expand.
“It should be a pretty good year for growth in the art lending market, but, despite headlines in the past five or six years, the overall art market has been very stagnant. We think this year has all the ingredients for that to change – from low interest rates to strong global growth and relative geopolitical calm.”