Private Art Investor: Asher Edelman targets art leasing with Artemus
When visitors walk into the lobby of One World Trade Center, they will not be able to miss José Parlá’s 90-foot abstract mural, the biggest work of its kind in New York. This piece, and the other works in the tallest building in the western Hemisphere, have also inspired the launch of a new leasing company by Asher Edelman.
Edelman was advising his clients the Durst Corporation on art for One World Trade Center, when he realised that it would make sense for the company to lease – rather than own – the art. Now he has partnered with them to launch Artemus.
“Art leasing really makes sense for corporate America. Art does not need to be a balance sheet item for corporates,” says Edelman. “We see the market moving towards this. Our plans are modest to start with, we are only expecting to lease around $50 million of art in our first year.”
Artemus combines Edelman’s knowledge of finance and art. He worked in finance for 27 years – co-founding finance boutique Mack, Bushnell and Edelman in 1969 – before leaving to launch a museum and then a gallery. In 2010 he launched ArtAssure which provides art loans, advisory and auction guarantees.
For Artemus, he has partnered with the Durst Corporation and financier David Storper. Storper, who is co-founder of investment firm Armory Merchant Holdings, is a specialist in distressed investment, having worked for 16 years with Wilbur Ross, both at Rothschild and as a founding member of WL Ross & Co in 2000. He ran WL Ross’s hedge fund for several years.
“The partnership gives us serious money, which we are also combining with our knowledge of the art market,” says Edelman.
Buy and lease
Artemus buys art work from the owner and then leases it back, typically, for seven years. At the end of the lease the buyer can buy it back for a pre-arranged price, extend the lease or walk away.
It typically buys the work for between 75 per cent and 80 per cent of the art work’s value – although Edelman says that very strong corporate credits could get closer to 100 per cent. The buyout price at the end of the lease is typically the amount that Artemus acquired the works for, plus a 3 per cent premium for each year of the lease.
“If you ignore the art that gets all the headlines and looks at the art market in general you will see that art has typically risen by 3 per cent a year for the last 20 years, says Edelman. “So we are giving lessees the opportunity to buy back more or less where the value of their art should be.”
Artemus will consider shorter or longer leases but aims for seven years. “Under five years does not work for us,” says Edelman. “Over 10 years our capital gets expensive.” Lessees can also buy out leases before the term ends.
rtemus is focusing on Post-War, Contemporary, Modern or Impressionist art. “We are most concerned with liquidity,” says Edelman, speaking about how easy it is to sell works. “We have around 700 artists that we are happy to lease against.”
One of the issues that faces all leasing companies is concentration risk – where one type of asset (or artist) accounts for too much of the portfolio. Edelman says this is less of an issue for them. “It is always a risk,” he says. “But we are not picking art, it comes to us, and we are also ideally acquiring portfolios so should get diversity there.”
He says that an ideal transaction would be buying a portfolio of 20 pieces of art for around $10 million. Artemus also believes that this is a less volatile market compared to high value individual works.”
Because of the Durst Corporation’s relationships with its tenants, much of the initial focus has been on corporates, but Artemus is also keen to work with individual collectors and dealers.
At the moment art leasing is only available to US clients, although they would consider allowing major companies to place works in the international offices. “In the US, owners clearly have priority,” he says, “in other parts of the world, possession is also a factor.”
Leases versus loans
Edelman says that ArtAssure is still seeing demand for art loans, but the demand for leases is stronger.
One benefit for corporates (but not individuals) is that lease payments are tax deductible so leasing is typically cheaper. Edelman also believes that lessees are more likely to extend leases, while art loan borrowers typically need to resell art to repay loans.
Art that is used as collateral for loans also needs to be valued regularly – loan covenants may also require borrowers to post extra cash if the value of the work has fallen. Although Artemus tracks the market closely, it does not involve the lessee. In fact, lessees are far less exposed to the market value of a leased work. Lessees of works that appreciate significantly can benefit from this, by buying work back at the agreed prices. If a piece falls below the amount that Artemus originally paid, the lessee can just walk away. Borrowers of art loans have an obligation to repay regardless of how the asset has performed.
As with loans, lessees are responsible for insuring all of the works and Artemus has the right to inspect them to check the condition.
With his backgrounds in finance and art, it is perhaps surprising that Edelman has never launched a fund. The reason for this is simple. “I don’t believe in art funds,” says Edelman. “There are too many different tastes involved including how long people want to invest for, the returns they want and individual tastes. I don’t think art works for funds. Also, funds become so worried about conflicts they stop being entrepreneurial.”
There is no guarantee this will be Edelman’s last start-up. Although he is always described as a financier, he is also a serial entrepreneur. In 1988 he launched The FAE Musée d’Art Contemporain in Pully near Lausanne, Switzerland; in 2002 he created his gallery Edelman Arts. He launched ArtAssure in 2010 and now has Artemus. He laughs: “I have lots of ideas.” – Alasdair Whyte, as published on PrivateArtInvestor.com on Nov. 10, 2014