Silver Linings

The noticeably thinner crowds at the Art Basel Miami Beach fair last December may not have put smiles on the dealers’ faces. But many fairgoers were happy. In fact, a number of seasoned attendees reported that they encountered less competition for primary-market works. "It’s so much better for me," says Hadley Martin Fisher, a Manhattan real estate developer and grandson of the museum patron Emily Fisher Landau. "I don’t have to make a split-second decision. Now you have a day to make that choice as a collector." Fisher was thrilled to get the undivided attention of the New York dealer Zach Feuer, from whom he purchased two new animation pieces by the much sought-after young Berlin-based artist Nathalie Djurberg for $18,000 apiece.

Savvy collectors have not retreated from the art market despite the slumping economy. In fact, those driven away by the speculative climate of the past few years are getting back into the game and taking advantage of the more rational prices on top-tier pieces. There were already signs of change last fall at the New York sales. The estimates still reflected boom-time expectations, but sellers wishing to avoid painful buy-ins had to slash reserves. The billionaire art patron Eli Broad smelled opportunities at Sotheby’s contemporary event, winning four works for less than their low estimates: an untitled Donald Judd stack piece from 1990 (est. $2-3 million) for $1 million; Jeff Koonss Wishing Well, 1988 (est. $2.5-3.5 million) for $2 million; Ed Ruschas Desire, 1988 (est. $4-6 million), for $2.4 million; and Robert Rauschenbergs Bantam, 1955 (est. $3-4 million), for $2.6 million.

Conditions were similarly buyer-friendly at the Christie’s Paris December sale of Impressionist works owned by the late fashion legend Jeanne Lanvin, where the New York collector and dealer Nathan Bernstein bought Renoirs 1890 portrait of his son, Pierre (est. €200-300,000; $254-380,000), for €265,000 ($335,358). Even if this were a flush time, "it was a bargain," says Bernstein, who collects pictures of artists’ children. He figures that prices are 30 to 40 percent of what they were a year ago. Bernstein has purchased more art for himself and his clients since last October "than in a very long time. I believe in the market," he says. "People who still have money are buying art because it can be enjoyed aesthetically and will keep its value or appreciate."

Nevertheless, Bernstein has been unable to unload a prime but overshopped 1982 Jean-Michel Basquiat painting that a cash-strapped New York collector had already offered to "all the usual suspects." The initial price was $4.5 million, a figure that quickly dropped by more than $1 million. "Nobody wants to pay even $2.5 million for it," he says.

Sellers like the Basquiat owner are increasingly willing to bypass the auction houses. For dealers, this is a double-edged sword. "We are getting more consignments," says a major London contemporary-art dealer, "but we can’t move them." The Gagosian Gallery will not say whether it has been reducing prices, but a trade source notes that two of the new large-scale "Rose" paintings by Cy Twombly, in a show on view at its London branch through May 9, each sold for "around $6 million" — significantly lower than the original asking price of $7.5 million.

It is generally not easy to uncover substantial details about private-market transactions, but news reports indicate that last year’s $600 million dealer-brokered sale of items from the collection of the late dealer Ileana Sonnabend has left a few billionaires feeling buyer’s remorse. Gagosian in New York recently held a show of Warhol paintings, sculpture and works on paper, some of which were for sale, that were supposedly part of the Sonnabend trove. The exhibition raised eyebrows and suggested either that some of the initial deals had unraveled or that the purchasers — who included the American hedge-funder Steve Cohen and the Russian oligarch Mikhail Fridman — needed to flip their investments for the ready money. Efforts to reach the players were unsuccessful, but a source close to the situation says that of the handful of works that sold, all were discounted between 10 and 20 percent from their Sonnabend price tags. "The important thing to notice is that while prices haven’t changed that much for quality works, they are becoming available for sale."

Market observers are wondering if the largest private collection of paintings by Mark Rothko could be the next such "quality works" to hit the market. Between 2003 and 2004, just before Rothkos shot into the stratosphere, the now-disgraced money manager J. Ezra Merkin acquired 12 Rothko canvases from the artist’s estate and other sources for a reported $100 million. Now that Merkin is being investigated for his role in the Bernard Madoff financial scheme, he may have to sell them. Whether he does so one at a time, in small clusters or as a single group, the result will be a test of how prices for Rothko, whose current auction record is $72.8 million, stand up in a recession. They could be worth $350 million to $400 million or more, but that is still less than they would have brought at the peak of the market. "It’s the kind of situation where a secondary-market dealer fields an offer and sends it on to the owner," says a prominent New York art adviser. He adds that he is unaware of any pending deals but says that competing art advisers have been flooding Merkin with offers.

Although the true depths of distress selling could take time to become apparent, the spring auctions in New York next month and in London in June will be indicators. The sales will also reveal salesroom reaction to a shifting pricing structure. "There’s still a substantial spread between the asked and bid prices," says the New York adviser. "Many owners are still convinced of last year’s sums." But that is changing.

Even great works require reduced expectations. At the Sotheby’s Old Master paintings session on January 29, J. M. W. Turners Temple of Jupiter Panellenius, 1814-16 (est. $12-16 million), consigned by the New York dealer Richard Feigen, went for a hammer price of $11.5 million, arguably a bargain for a rare and acknowledged masterpiece. One connoisseur at that sale was willing to venture above the $10 million threshold, but in general, auction shoppers have been going for the underpriced gems.

This was evident in London in February. At the Sotheby’s Impressionist and modern sessions, the veteran art adviser Abigail Asher, of the Los Angeles and New York firm Guggenheim, Asher Associates, purchased on behalf of a client the small but sublime René Magritte oil Souvenir de voyage, 1958 (est. £400-600,000; $586-879,000), for £746,850 ($1 million). Although the price (before premium) was just above the high estimate, that estimate was at least 30 percent below what it probably would have been last fall. At Christie’s Imp/mod event, meanwhile, the classic Jean Dubuffet Miss Araignée, 1950 (est. £400-600,000; $594-890,000), went for £713,250 ($1 million), seemingly a triumph for Christie’s but actually a coup for the buyer, who may have done his homework and known that the painting failed to sell at the house in 2004 with an estimate of £1 million to £1.5 million ($2-2.7 million).

"We’re trying to buy bargains," says Philip Hoffman, the CEO of the London-based Fine Art Fund, who underbid, through the London private dealer Ivor Braka, Bridget Rileys first-rate Gala, 1974, at the Sotheby’s contemporary sale. "We thought it was good value and could be a very expensive piece in five years time." In fact, the Riley, which sold to a telephone bidder for £735,650 (before premium) against an estimate of £600,000 to £800,000 ($879,000-1.2 million), was a better deal than even Hoffman may have realized: Months before the credit meltdown, Sotheby’s had estimated the painting at £800,000 to £1.2 million ($1.5-2.2 million) and, say several trade sources, had guaranteed it for £1 million ($2 million).

Two contemporary-sale cover lots bested their estimates but were still cheap relative to the artists’ recent price histories. At Sotheby’s, Gerhard Richters Troisdorf, 1985 (est. £1.5-2 million; $2.2-3 million), sold for £2.1 million ($3 million), and at Christie’s, Jeff Koons’s Monkeys, 2003 (est. £1.4-2 million; $2-2.9 million), was nabbed by the Gagosian Gallery for £1.4 million ($2 million). "It’s a steal," the New York art adviser Sandy Heller says of the Koons, which he believes could have fetched twice that amount six months ago. Indeed, another Koons painting from the same series sold for $4 million at Sotheby’s New York last November.

At Phillips on February 11, the price bubbles for still more artists deflated. Mark Grotjahns Untitled (Pink Butterfly M02G), 2002 (est. £200-300,000; $293-440,000), sold to Gagosian, one of the artist’s key dealers, for £180,000 ($260,000). This led the London collector Edward Lee to wonder about his own holdings of the artist’s paintings. "[They] were trading at $500,000 to $600,000 not so long ago," he says. "I don’t know if it’s better to sit on my hands or sell works to get some money back."

As speculative buying becomes less feasible, the market may focus again on the artworks rather than their profit potential. In the past few years, "people had more money than sense and were willing to pay premium prices for subpar work," says Howard Rachofsky, the Dallas collector and museum patron. Rachofsky longs for an environment in which "if something of quality is offered to you, you could possibly negotiate a fair price and build a collection or change focus." Prices falling into line with quality may just be the crucial indicator in this still-adjusting market.

"Silver Linings" originally appeared in the April 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's April 2009 Table of Contents.