| 12/10/2009 |
PAWNBROKERS TO THE STARS
Looking to raise cash against your art collection? There’s Sotheby’s, of course, and Citicorp and some other established lenders. And then there are the fellows who charge 30% and more per year.
By Christie Brown
Suppose you have a valuable art collection and need some quick cash, never mind why. You like your art and don’t want to sell it – especially not in this soft market. Where do you turn?
There’s Sotheby’s, of course. The auction house also lends money against works of art. But Sotheby’s loans are strictly big league -- $1 million and up, and only against collections, not individual pieces. It will lend 40% to 50% of the appraised value of a collection, at annual rates of prime plus 3 or 4 points. Duration: one year.
A handful of banks – among them Citibank, Chase Manhattan and IBJ Schroeder – make art-secured loans. So does Rosenthal & Rosenthal, a private lending firm in New York City. All have loan minimums of $100,000 or more; most will lend up to 50% of an artwork’s appraised value. Typical rates: prime plus 1 to 3 points.
Yet another source is Art Funding Corp. in Manhattan, which makes loans from $20,000 to $500,000. Art Funding will lend up to 70% of a work’s appraised value, but its rates are higher: prime plus 3 to 6 points, depending on the size of the loan and the liquidity of the particular item. Owner Bruce A. Miller says he has made loans against Shaker furniture, antique silver, watches, Disney cartoon cels and old master paintings. But he shuns modern and contemporary art and prints.
But suppose you need cash in a hurry, for a short time, and don’t want to bother with a lot of paperwork and credit checks. Your local pawnbroker would like to hear from you.
Pawnshops, which don’t care about how much debt their clients might already be shouldering, report that the art lending business is growing briskly these days. And if you think all pawnshops are dingy storefronts in the poorer sections of town, filled with old cameras and television sets, look again.
As you stroll down Beverly Hills’ Rodeo Drive, for example, past Van Cleef & Arpels, Giorgio, Bijan, Cartier and Harry Winston, it’s easy to miss an unassuming part of the area’s financial ecosystem: Rodeo Drive Jewelry Loans. This pawnshop to the stars, open by appointment only, specializes in quick cash loans collateralized by expensive jewelry and works of art.
Yale Neiman, owner of the shop, makes loans in amounts of $10,000 to $250,000 or even higher, and currently has in his vaults such treasures as a matched set of sapphire-and-diamond earrings, necklace and ring, and paintings by Marc Chagall and Andy Warhol.
Like most pawnbrokers, his rates are sky-high – 30% to 50% on an annualized basis. And Neiman will lend only about 50% of the appraised value of a work.
Yet Neiman reports there is strong demand for his services from fairly sophisticated borrowers. “For the most part,” says Neiman, “the people who come to me are wealthy people that are suffering a very temporary financial embarrassment, or they need money for a venture that they can’t get elsewhere, or they need a sudden infusion of cash.
“I’ve had people who couldn’t make their house payments temporarily,” Neiman continues. “You’re talking about a house payment of $10,000 a month. A typical client is someone who has a wonderful job, good credit rating, high income, but he has just bought a house and a car and has more or less used up his available credit. But the client needs to have $20,000 now to invest in a business venture. So he brings in jewelry or art and asks how much it will cost. I say, ‘40% per annum,’ and he says, ‘Okay, I’m only going to need it for 30 days,’ and takes it.” And hopes the venture works out.
Neiman cites the recent case of some movie backers who needed cash to finish a film, and needed it fast.
“Maybe for their own reasons they didn’t want the banks to be aware of their additional need for money or they didn’t want to take the time to go through that process,” explains Neiman. “I can make loans within minutes. They may have had other sources to go to but wanted it to be very confidential.”
Neiman lent them “over $50,000” against jewelry they owned. The collateral was redeemed within 90 days.
Neiman has competition. Ten blocks away, over on Wilshire Boulevard, Collateral Lender, another up-market pawnshop, makes loans on everything from Van Dyck paintings to samurai swords to Rolls-Royce Corniches.
“Ten years ago a big loan was $100 and now it’s $100,000,” says Sam Gonen, the owner of Collateral Lender, as he takes a break from making a television commercial for his pawnshop. (The advertisement features a Ronald Reagan look-alike steering a Mikhail Gorbachev look-alike to Collateral Lender.)
“It was unheard of to hock a Rolls until a few years ago,” Gonen goes on. “Then the same clients who brought in the Rolls-Royces said they also had nice art.” Gonen makes about 40,000 loans per year and figures that about 2,000 of those are now collateralized by art.
Back East, Gerald Modell’s pawnshop in New York City recently took in hock a collection of Pablo Picasso ceramics.
While pawnshops are handling a lot more art loans, they are not particularly good places to shop for bargains. For one thing, most valuable collateral is redeemed. (In fact, on all classes of collateral, pawnshop default rates average about 25% nationwide.)
Besides, pawnbrokers shudder at the thought of getting stuck with any piece of art. They often even arrange in advance to sell any defaulted art to local galleries and dealers.
Gonen will lend 50% of the appraised value on gems or a Rolls-Royce, but usually only 10% or so on art. “If a painting’s worth $200,000, I might loan $20,000 and have a buyer lined up to pay me $50,000 in case of default,” says Gonen. “I’ll make a bundle from an Erte I now have if the owner defaults.”
The nation’s 9,000 pawnshops, which made an estimated $2 billion worth of loans last year, are tightly regulated by the states. Their rates and fees vary widely. In Pennsylvania, for example, interest on major loans is limited to 2% per month; in New York, the monthly rate is 3%. But in Florida it averages 20%, and in Georgia the ceiling is a heart-stopping 25%.
So if you’re thinking of hocking your art, it pays to shop around.
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