Where to Invest -- The Investment Spectrum: The Art Market
A Blue Period for Art Buyers
Peak prices have many collectors biding their time
Londoner Michael G. Wilson, a producer of James Bond movies, is a renowned photo collector. But these days, when he peruses the offerings of dealers, he's often shocked to find classic works by such artists as Man Ray or Gustave Le Gray priced at $500,000 or more. "I used to say a good photo cost the price of a used car," Wilson says. "Then it was a new car, and then a condo. Now, it's measured in houses."
Wilson's experience is typical of what's happening to art prices these days. Photography, sculpture, and other relatively overlooked market segments have turned red-hot in the past year. Old Master paintings are commanding top dollar. The most torrid price appreciation, however, is for risky, avant-garde contemporary art, whose prices blew through the roof at the November art auctions in New York. A male mannequin sculpture by Charles Ray went for $2.2 million, a photograph by Cindy Sherman, $259,000, and a painting by Cecily Brown, a young British artist now working in New York, $87,000--record or near record prices for each artist.DANGER AHEAD? Similar works by the same artists could have been had for a fraction of those prices just months earlier. "Recommending that someone buy contemporary art now is like recommending a dot-com stock at the peak," contends New York dealer John Herring.
Indeed, there are signs the art market is ripe for a nasty correction. "If we see a [deeper] crack in the stock market, some of those works that commanded huge prices at the fall auctions are going to be selling for less," predicts longtime collector Eli Broad, chairman of SunAmerica Inc., a Los Angeles financial-services company.
Signs of weakness are most apparent in the huge impressionist and modern art category, which accounted for two-thirds of the $457 million generated at the flagship New York auctions in November. The very best works are still being snapped up, but buyers have begun to balk at high prices for lesser works. "There was a time when a weak piece by a great artist commanded a great price, but that isn't so anymore," says Boston financier Thomas H. Lee.
Prices for top modern works are astonishing. Woman with Crossed Arms, an ultra-rare canvas from Picasso's Blue Period, went for $55 million at Christie's International, an all-time record for the artist. An Alberto Giacometti sculpture, Grande Femme Debout, fetched $14.3 million. And with many nouveau-riche collectors in the market, decorative works--that look good on the wall and aren't hard to explain--often go for huge premiums. For instance, many dealers were bemused when La Robe Persanne, a pretty Matisse painting of a woman in a striped dress, fetched $17.1 million. One dealer says the buyer was Steve Wynn, the Las Vegas impresario who is flush from selling Mirage Resorts Inc. Wynn won't comment.
But with today's prices not far below the peak they reached just before the 1990 crash, savvy buyers are turning cautious. As a result, 42% of the impressionist and modern works up for auction this fall failed to sell. Says Christopher Burge, who used to head Christie's U.S. operations: "All of the auction houses were at fault in pushing some price estimates too far."
One big reason is mounting competition among the auction houses. Giants Christie's and Sotheby's Holdings Inc. have been wracked by a price-fixing scandal that forced them to ante up a total of $512 million to settle lawsuits against them. That's creating an opening for No. 3, Phillips Auctioneers. Backed by its parent, France's LVMH Moet Hennessy Louis Vuitton, Phillips is making a vigorous bid for key consignments, forcing all three auction houses, dealers say, to hike the minimum prices, already high, that they guarantee to sellers to win their business. The auction houses are now stuck with many works that failed to reach those minimums.ON THE SIDELINES. Many smart buyers are sitting on their wallets. For the second year in a row, Boston money manager Scott Black, a careful collector, failed to buy any paintings at the fall auctions. He bid aggressively on a Monet that eventually sold for $1.5 million, double the pre-auction estimate, but dropped out when the tab hit $1.3 million. Thomas Lee and his wife, Ann Tenenbaum, also didn't buy anything at the auctions, but they've been picking up photographs privately. Dealers and other collectors say that brothers Ronald and Leonard Lauder, both major collectors, haven't been buying much either.
But a few collectors are still sniffing out bargains. Eli Broad was outbid on an Andy Warhol portrait of actress Elizabeth Taylor that went for $4.4 million. But he nailed down an Alexander Calder mobile for $950,000 at Christie's and privately paid just over $200,000 for a Roy Lichtenstein that had just failed to sell at auction. He also believes he got a major deal when he nabbed a Joan Miro sculpture for $350,000 at the sparsely attended first New York sale held by Alice, an upstart Paris auction house. "Frankly, I was prepared to pay more than the $600,000 high estimate" for the Miro, Broad says.
New York money manager Arthur Goldberg also is still buying contemporary art, focusing lately on movie-like works on videotape by such artists as Bill Viola and Slater Bradley. One reason: flat-screen technology has become good enough that much video art, long a staple of mixed-media installations, can now be hung on the wall like a painting.
A good strategy is to scope out talented artists before they become well known. In its annual art-market survey, the German magazine Capital tabs America's Walter de Maria, 63; Britain's Sam Taylor-Wood, 33; and China's Cai Guo-Qiang, 43, as potential shooting stars.
Meantime, Chicago collector Lewis Manilow is buying works by Alex Katz, an established artist who recently had a major retrospective at Pittsburgh's Carnegie Museum of Art. San Francisco art dealer Richard Polsky recommends box constructions by the late Joseph Cornell, which start at around $75,000. And Stephen J. Abt III, president of ArtFact Inc., a North Kingstown (R.I.) art research firm, says he has high hopes for such California artists as Edgar Payne, William Wendt, and Maurice Braun.
Serious collectors never stop buying. But with prices so high, many are taking precautions. The first rule--always--is don't buy art solely as an investment. Rather, buy works you enjoy living with. It's also probably best to avoid the pretty, decorative works that new collectors are bidding up right now.
And don't be afraid to wait if you don't find exactly what you want. During the early 1990s slump, says Black, he loaded up on works "at rock-bottom prices." Many collectors figure, given today's stratospheric prices, that a similar buying opportunity can't be far in the future.By Thane Peterson