By Yvonne Bynoe
Around the country gas prices and rents are at record highs, coupled with product shortages in grocery stores and drug stores. Consequently, some financial experts are predicting another recession. Understandably, collectors are looking for ways to weather the storm should it come.
While every collector hopes that the work he or she acquires appreciates in value, increasingly Black Americans are purchasing art as part of their investment portfolios. This means that a collector whose main motivation is acquiring art as a financial asset has to make different decisions than the collector who views the appreciation of their art as an unexpected bonus.
Before providing further insights, it's important to first give some context about what impacts art prices.
Overall, the factor that most influences the rise in art prices is scarcity. Art is one of the few assets where supply decreases over time. After an important artist dies, his/her works are often acquired by museums so there's a limited number of works for sale in the art markets. For example, Jean-Michel Basquiat, one of the most influential artists of the 20th century, was known to have been a prolific painter. However, in 2021, only 18 Basquiat paintings sold, totaling $258 million in sales.
In the case of living artists, such as 2021 MacArthur "Genius Award" winner, Jordan Casteel, Amaoko Boafo, Mickalene Thomas or a rising star such as Oklahoma-based artist Robert Peterson, increased interest by institutions or by private collectors can quickly result in higher prices for their available work.
The selling price of a sought after artist, living or dead, goes as high as the market will bear.
The recent sale of Ernie Barnes's (1938-2009) iconic 1976 painting, Sugar Shack is a prime example of the above statement. Based on prior sales of Barnes's work, Christie's had placed their auction estimate at $150,000-200,000. However, a bidding war ensued between African-American hedge fund manager Bill Perkins and another prospective buyer. When the dust settled, the work was sold to Perkins for $15.275 million.
Various studies have shown that the art market doesn't correlate with the stock market. This means that art tends to sell well even when the U.S. economy is doing poorly. In financial circles, art is considered a "currency neutral asset." The art market is roughly divided into quarters between the United States, Western Europe, China and the rest of the world. Subsequently, a market downturn in one art market doesn't necessarily impact the value of a work. If there's a recession in the U.S., a collector could still sell his/her painting in Hong Kong for a great price.
The caveat is that generally during a down market masterpieces still command high prices, while lower priced works lose value. In other words, blue chip art will always do well—even in a recession. (Blue chip art are works priced at $500,000 or more.) Art industry analysts maintain that works that consistently hold their values are by well-known artists that are estimated between $100K and $1M in major art markets such as New York and London.
The standard for valuing art is based on two main criteria: predictability of returns and cultural significance.
Predictability of returns:
This is the sales history of the artist. Wealthier collectors (or their art advisors) use auction sales data to examine the rate of appreciation of an artist's work over the course of his/her career. These collectors are wary of artists without a solid sales track record. They fear that an unseasoned artist may have one or two high selling works followed by a succession of flops that would depreciate their oeuvre.
This is a very subjective assessment of how important an artist is to society based on the views of art industry elites. This measurement is chiefly about what recognized art industry people and entities the artist is associated with, including but not limited to: what museums are collecting the artist's work, which galleries the artist has exhibited with, and whether the artist's audience reach is national or international.
What does all of this mean for the "average" affluent collector who will spend $35,000-$40,000 on their collection during their lifetimes?
The short answer is that there's no surefire way to recession-proof your collection. Although all financial investments carry some level of risk, in the art market, lower priced works tend to experience higher volatility.Jamaal Barber, "I Heard a Song and the Whole World Changed".
There are, however, several recommendations to assist you in mitigating financial loss when you do sell your works:
1. Consider your art acquisitions as long-term investments.
In art, similar to real estate (another limited asset), the appreciation comes from playing the long game. The value of a work increases as the reputation of the artist rises. Expect to hold your work for a minimum of three years before contemplating a sale. Generally, collectors retain works for 10 years or more.
Case in point: In November 2021, Princeton University Professor Imani Perry sold her painting, "Welfare Queen" (2012) by Amy Sherald at a Phillips auction for $3.2 million, beating the $1.2-$1.8 million estimate. Perry, who reportedly bought the work on a payment plan, likely paid under $25,000 for it. Several years later, Sherald gained worldwide acclaim as the portraitist for former First Lady Michelle Obama, resulting in the market value for all of her work increasing exponentially.
It also bears mentioning that more and more artists and galleries are including clauses in their sales agreement to prevent the "flipping" of their artwork. Furthermore, some galleries are softly blackballing collectors who they have found to engage in this practice. These artists and galleries prefer that their work be placed with collectors who consider themselves stewards of the artwork rather than investors seeking to profit by selling it one or two years later.
2. Thoroughly research the art you're buying (or hire an art advisor).
As you would research a stock's historical performance before buying it, you need to conduct the same due diligence for your art acquisitions. You should become very knowledgeable about a few key artists or on a particular category of art (e.g., Harlem Renaissance, Post WWII, Abstract Expressionism, etc.). You do this by studying available auction sales data, visiting museums, and reading books about your favored individual artists or on the major leading artists in your favored art category.
It's common, however, for contemporary artists not to have any auction sales history; only the industry's creme de la creme are sold at a Sotheby's or Christie's auction.
In instances where there's no auction sales, you'll need to use available public information (art publications, magazines, exhibit catalogs, etc.) to determine the market value of an artist's works. You are also trying to ascertain if their work has been acquired by museums, including university museums and/or whether they have any high-profile collectors, such as celebrities, business founders or leading executives. Influential collectors may affect the price for a specific work or the artist's entire body of work.
3. Understand that from a financial perspective, investing in emerging artists is highly risky.
Although there are many sound reasons a collector should acquire works from emerging artists, as a purely financial investment, it's a gamble. The collector is buying relatively inexpensive work early in an artist's career, anticipating a high rate of return that may not be realized. This is comparable to investing in a start-up company; there is no performance information on the venture so the only measurable component is the past performance of the startup's management team.
Similarly, when it comes to gauging the financial viability of emerging artists, you'll need to assess their professional support apparatus, which includes but is not limited to: past graduates of the artist's MFA program, if applicable; the success of the gallery that represents the artist; the caliber of the group and solo exhibitions the artist has been in (in the U.S. and abroad), any prestigious residency programs that the artist has participated in and the artist's collector base.
Since the new artist doesn't have a track record of his/her own, you're essentially making a buying decision based on how confident you are that the artist's talent, combined with their professional network, will be enough to catapult them to prominence.
4. Invest in Original Works.
Revisiting the principle of scarcity, original works tend to have much better appreciation rates than limited editions. Original works include an artist's sketches and studies (preparatory drawings for a work). One thing to be mindful of is that original works that best reflect the artist's style are typically valued higher.
If your budget only allows for buying a limited edition, consider those with 25 prints or less. One of the chief drawbacks of limited editions is that if several are being sold at the same time, the prospective buyer can shop around for the lowest price. Also think about spending a bit more more for an Artist's Proof (A/P), if it's available. An A/P is distinguished from the rest of the edition and is therefore more valuable.
One thing that doesn't get stressed enough in articles about art sales, particularly during recessions, is that many wealthy collectors will pull their works from auctions rather than accept less money than they believe the work is worth. Moreover, if they do take a financial loss by selling to a private collector, there's no available record of it. In all candor, the best advice for the majority of collectors buying works in the $2,500-$10,000 range is to make sure that the asset allocation in your investment portfolio is such that you're not relying on proceeds from selling your art to stay financially afloat in a down market.
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