Eli Broad On The Art Bubble

By Maria Bartiromo

In the span of a 50-year career in business, Eli Broad built two major companies from the ground up: SunAmerica (AIG ) and KB Home (KBH ). Recently, he and California billionaire Ron Burkle, who is getting involved in the bidding for Dow Jones, made a run at Tribune Co. (TRB ) before it was snapped up by another former real estate mogul, Sam Zell. At lunch and then in a later interview, Broad ruminated on the sizzling art market, the housing slump, the hunt for Dow Jones, and a world awash in liquidity.

You are one of the world's great art collectors, and prices are soaring. Is there a bubble?

We may be developing a bubble, especially in contemporary art. And if hedge fund managers and others start doing very poorly, I don't know where the money is going to come from to sustain this overheated contemporary art market.

Who's buying all of this art?

One, Europeans are buying more because of the weak dollar. Two, hedge fund managers have put billions into art. And they're paying record prices.

What about the Russians and Middle Eastern money?

Yes, to some degree. But I'm not sure their taste is totally in contemporary art versus others.

So it's really contemporary art that has seen prices skyrocket.

Yes, contemporary art has been ahead of the pack, as far as appreciation, by big numbers. You know, Old Masters haven't gone up very much at all. But look at [contemporary] artists--a Jean-Michel Basquiat brought in $18 million at Sotheby's, whereas we bought [one of his] works in 1982 for $5,000. If you compare that with what Old Masters are fetching at auction, you scratch your head. It gets down to what people want to have on their walls. And a lot of people are only interested in contemporary art because there's a social cachet

You co-founded KB Home, formerly Kaufman & Broad. Where are we in the housing cycle?

Remember now, I left there 15 years ago. But my observation is we haven't quite bottomed out yet. We don't have such a thing as one national housing market. The high-end market in Manhattan and the high end on the west side of Los Angeles are strong, but most other markets are either flat or are going to continue to weaken.

Are you surprised that the weakening hasn't had more of an impact on the economy?

I think it's too early to tell. You know, there's a multiplier effect. If people stop buying homes, it affects furniture and all sorts of different things.

You were pursuing Tribune, owner of the Los Angeles Times. Now News Corp. (NWS ) is going after The Wall Street Journal. What's behind the interest in newspapers?

Every situation is different. Our interest in the Los Angeles Times was we thought it would do better under local ownership. We saw it as a civic trust, so to speak. It wasn't totally economic. On the other hand, Rupert Murdoch thinks The Wall Street Journal ought to be part of News Corp. because he sees great opportunity there.

What do you think about all the private equity money sloshing around and the action in global markets?

We've had the perfect storm: low interest rates, easy credit--I've never seen banks so lenient in their lending to private equity firms for leveraged buyouts. Same thing in mortgage credit. I can't see how this can continue. We haven't yet seen deals of any size that have gone bust. But there will come a day of reckoning, and we're all going to sober up.

Maria Bartiromo is the anchor of CNBC's Closing Bell.

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