notes

This morning’s inbox brought a missive about the final day in local business of one of our Jackson Square colleagues. While my handful of loyal readers have read, and re-read, and read yet again about the shrinking and eventual disappearance of established art and antiques venues from the world’s landscape, this one hit us particularly hard.

The why of this is that this particular dealer, Sarah Stocking Vintage Posters, had been our original benefactress on Jackson Square, providing the initial impetus for our opening, as it was then, directly across the very narrow street. She was never reluctant to let us know who the players were locally, not just amongst the dealers and collectors, but even including landlords and local politicos. Keith and I found her opinions and characterizations spot-on and consequently invaluable.

To say that Sarah’s stock in trade is excellent and that her knowledge about period posters is exhaustive is to repeat what is known by all the cognoscenti, but I’ll add to the chorus all the same. As she’ll continue to offer her stellar material online is some solace, and mind you, I doubt she’ll miss the commute from the Los Gatos home she shares with her redoubtable husband, antiques stalwart Charles Jay Conover. But for us, that she is leaving  Jackson Square is greeted with the same wistfulness that one finds with the end of a good book- an opening chapter, and then, ultimately, a closing one.

For those of you who’ve known me for more than a few years, also know that, for the first two decades of my working life, I worked for a bank, and during my banking tenure, basically did one job- commercial lending. Regardless of the type of entity, be it C-corp, LLC, LP- the business was always the alter ego of the principal owner, and it was with the owner that I sought to establish the relationship. And, too, relationship was key. We always sought to provide all the customer’s financing needs, not just because we wanted the business, which we did, but because so-called split financing situations, in the unfortunate circumstance of requiring legal means to collect a debt, inevitably resulted in a squabble amongst creditors. The technical term for this squabble was ‘pissing contest.’

While split financing was something the larger banks still seek to avoid, smaller banks and those new on the scene trying to build loan totals, always were the ones who, for lack of any other lending opportunities, would insert themselves into what is invariably a risky lending arena. However, one old aphorism, that no loan is ever bad when it is made, is true enough. They go bad, and for a few quarters, at least, loans that have inherent flaws, until there is actual payment default, are, for balance sheet purposes, good loans. And loan growth- what it is that actually earns money for a lender- is of paramount importance. After a year or two- and this happens to all new banks- the flawed loans default,  the bank scrambles for capital to cover losses, and the original management team is fired. This phenomenon is cumulatively known as the pigeons coming home to roost.

It is therefore interesting to see the growth in art market lending, carried on by non-traditional lenders including the major auction houses, making what amounts to loans based on the underlying value of the art collateral offered by clients. In one respect, the doing of this makes some sense for an auction house, as with the hypothecation of art collateral, a collector-borrower can then use the borrowed proceeds to make additional purchases from the auction house. Revenue enhancement, of course, realized not just through saleroom commissions, but interest earned on loans. So far, so good. But of course, this provides the classic opportunity for split financing, and it begs question, why did the collector-borrower not obtain his financing from his own bank? The answer must always be that the art market lender is willing to provide financing on more liberal terms, usually allowing a higher rate of advance against the pledged art collateral. And why would the art market lender be willing to do that? Ostensibly because art market lenders claim they know more about the value of the collateral, and if its liquidation becomes necessary, it has a greater ability to make itself whole. Sure. That’s why, over the past few years, the major auction houses have lost, and continue to lose, their tails on selling art objects that they have guaranteed or in which they otherwise have a financial stake.

The real reason for the growth in art market lending has been precisely for short term revenue enhancement- growth in assets, and growth in booked- but unrealized- revenue, in a competitive environment where more traditional sources of revenue, like sales commissions, are shrinking. All I can say is good luck, because these lenders will need it, not just to ensure the performance of their art market loans, but to make sure they have exited the premises prior to the pigeons coming home- and they will- to roost.

Just a few days ago, I read this phrase used by a fair promoter to describe the rationale for including disparate types of dealers within their venue. An interesting concept, and by the fair promoters design, they said, to expose attendees to areas of collecting that might be outside their ordinary collecting ambit.

Clever, but, really, what the fair promoter was doing was putting a good face on a bad situation. The fact is, all fairs have such a difficult time attracting better quality dealers that all of them, perforce, become, as they say, ‘cross-collecting’ venues. Sad but true, the numbers of dealers of any stripe are pretty thin on the ground anywhere, and the cost of participating in any fair anywhere puts off very many of those who’ve survived.

Was a time, dealers within one area of collecting would absolutely only participate in fairs where the other dealers offered if not precisely similar material, then at least material that was in some way consonant. Grosvenor House, that fair of blessed memory, was the perfect example of a harmonious linkage- period European furniture of the best quality, together with European paintings of the best quality, and, porcelains, and clocks, and antiquities- well, you get the idea. The collector of one type of material, however, might make a purchase of a similar class of material within a fair that was, shall we say, sympathetically curated.

Sadly, the trade is now so bereft of quality dealers that ‘cross-collecting’ as a rationale for fielding a fair is what we seem to be left with.

A recurrent conversational theme amongst the cognoscenti- by which I mean myself and my handful of loyal readers- is the displacement of traditional trade venues. While it is often argued that, for period materials, a lot of what’s gone on has to do with changing tastes, with a younger buying public more in tune with 20th and 21st century material, a private discussion with anyone who deals in what might ostensibly seem the mode of the present day would yield the same degree of weeping and gnashing of teeth.

And that degree of angst seems fairly well spread across the land, even up to and including that bastion of nouveau billionaires, the San Francisco bay area. We were surprised to find this past Friday that the local branch of an international auction house with whom we trade from time to time had shed a goodly number of senior staff, with the possibility floated it might close down that location entirely. While it had been reported in the fine art press this time last year it was considered as an acquisition by a saleroom partly owned by the Chinese government, nothing came of it.

While the purchasing opportunities for fine art and antiques have changed, they haven’t precisely shrunk overall. Although the retail venues like Bond Street, Madison Avenue, and even San Francisco’s own Jackson Square are shadows of their former selves, auction houses and online sales platforms, to say nothing of the websites of traditional dealers, provide a spoiled for choice opportunity for all and sundry. And these alternate venues, clearly, are struggling themselves.  And the why of this?

What hasn’t occurred is any concomitant expansion of the money that’s available to make purchases from whomever. Nothing has changed the simple fact that all buyers have a budget, by which I mean disposable monthly income, and that budget is finite. Our trade colleagues abroad are forever enquiring of our sales activity amongst the tech billionaires in the greater bay area, presuming that these folks have money to spend, and that as it is quickly and newly come upon will spend it profligately. Oh, that they would. The monthly budget limitation, in my experience, applies to all buyers of any stripe, established or, shall we say, parvenu. People spend what they happen to have on hand, and I have never, ever seen or heard of any punter encashing an investment to buy any piece of fine or decorative art. One irony, though, is the investment in and the floating of the plethora of on-line sales platforms.  With so many about, they do, like locusts, come and they go, but for the interim, the cost to develop and launch functions to siphon off a fair bit of cash from investors that might arguably otherwise go to purchase worthwhile items from the established trade.

Further, our competition for the monthly supply of the ready consists not just of erstwhile investment, or even of items of collector quality crowding in, but such like as Porsches and Maseratis. In this circumstance, we may level the playing field, or tip it in our favor, when we can figure out how to move a pair of Linnell salon chairs down the road with the buyer seated in them, and the price tag prominently displayed. A ridiculous notion, of course, but the alternative seems to be to wait until we experience a wave of connoisseurship. Until that time, the winnowing out amongst members of the trade that was this last week given evidence in the local saleroom will continue apace.