9/10/2014 AAD :: The Detroit Institute of Art Dueling Valuations: Fair Warning for Collectors

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THE DETROIT INSTITUTE OF ARTDUELING VALUATIONS: FAIRWARNING FOR COLLECTORS

September 10, 2014

CINDY CHARLESTON-ROSENBERG

Diego Rivera, Detroit Industry, (1932-33) North Wall, Detroit Institute of Art (Fresco Detail)

No case in recent history more clearly illustrates the subjective nature of pricing art than the disparateexpert opinions of value of the Detroit Institute of Art (DIA) collection. The take-away for collectors shouldbe that experts at the top of the market often do not agree on fair pricing, one significant inherent risk ofcollecting at the top of the market. The other two risks worth exploring in this discussion are authenticityand clear title.

Managing Risk # 1: Fair Price/Value

If you want four opinions, ask three experts. It's sobering how dramatically an opinion offered by an expertwill shift during the course of a conversation where alternative views are expressed, weighed anddiscussed. It is indisputable: the top of the luxury art and antiques market is thin and remarkablyunpredictable. Premiere auction experts rarely hit the sweet spot. The record price for a work at auction,Francis Bacon's Triptych of Lucien Freud brought $142 million, almost twice the pre-sale estimation.

With this in mind, let's take a quick look at the DIA Expert Opinions:

Opinion #1: $454 - $867 million. The first valuation was conducted by Christie's, engaged by the City ofDetroit. The City of Detroit owns the DIA. Preservation of the collection is in the interest of the DIA andarguably, in the interest of the City. Detroit is vulnerable to litigation by donators and museum

CINDY CHARLESTON-ROSENBERG

CINDY'S AAD PROFILE

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stakeholders for improper deaccession. This valuation included only a portion of the collection,reportedly, considered less vulnerable to litigation.

Opinion #2: $2.8 billion - $4.6 billion. The second valuation, performed by Artvest Partners, alsoengaged by the City of Detroit, for the full collection. A complex analysis conducted by Artvest weighed notonly the individual values of the works, but also critical market factors and impacts. Although thisestimation came in multiples higher than Christie's, Artvest estimates the risks of market saturation,threat of litigation and notoriety related to ethical and responsible deaccession, could cut the actual pricerealized to as little as $850 million.

Opinion #3: $8.5 billion, ten times Artvest's "bottom line" estimation. The third evaluation, also for thefull collection, was performed by Victor Wiener Associates (VWA). VWA was hired by attorneys acting onbehalf of one of the Detroit’s largest creditors, with an eye toward collateralization. Wiener rejected theweight given by Artvest to negative market impacts, and has, according to media coverage, expressed theopposite viewpoint, that the notoriety of the collection would be a positive market factor.

This last point deserves a footnote. The first question considered in a credible, impartial valuation is"where is the market"? In other words, who is the buyer and what would they likely pay? It should beunderstood that a significant number of the potential buyers are patrons of the arts, and have in one wayor another made substantial contributions of time, money and artwork to help build and shape importantcollections. Yes, Chinese billionaires and Russian mobsters will still be in the game, but removing patronsadverse to the social and ethical stigma associated with the demise of the DIA collection should becarefully considered.

For the average collector, critical questions relating to value are: Is the price in line with similar works thathave sold by the same artist, with similar attributes in the same condition? Is current value likely to holdup or appreciate over time? Are there existing or predictable market factors likely to impact value?

Managing Risk #2: Authenticity

New York Times, June 12, 2014, Note to Forgers, Don't Forget The Spellcheck

It's important for collectors to understand that even with the advancement of current forensic analysistechniques, opinions of authenticity, are just that. They are not absolute and change over time. Panelsand individual scholars are becoming increasingly skittish.

See The Truth about Art Authentication here:

http://www.art-antiques-design.com/featureDetails.cfm?featureID=716

Flawed authenticity opinions contributed significantly to Knoedler scandal, where at least one expert waspaid an exorbitant sum for a positive opinion that later proved wrong. One work changed hands at$160,000, bearing a signature with Jackson Pollock's name misspelled.

For managing the risk of authenticity, the best protection is to engage the expert recognized to havecredibility regarding a specific artist's work. This can be a scholar, gallerist who has complied the catalogueraisonné, or increasingly, a panel of experts.

Managing Risk #3: Clear title

Justifiable unencumbered ownership comes down to: Do you have the legal right to own the work? Thisquestion relates not only to works which may have WWII provenance issues, but also certain culturally

9/10/2014 AAD :: The Detroit Institute of Art Dueling Valuations: Fair Warning for Collectors

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protected properties and stolen works. Increasingly, buyers also need to investigate if there are collateralfinancial liens against the artwork as well. The bundle of rights that accompany ownership includes theright to sell.

Conclusion

Gustav Klimt, Portrait of Adele Bloch-Bauer, 1912Sold at Christie's Auction 2006, preceded by a highly publicised

international controversy surrounding its provenance

Be aware: As the Detroit Institute of Art valuations bear out, respected experts will disagree about value,even for important and documented works of art. Be aware: Important Works may have uninvestigatedfair title issues, or acquire provenance details which are inaccurate. Be aware: Authenticity must be fullyexplored, and the respected experts may disagree.

Prior to the Knoedler scandal, vetting by a gallery known for connoisseurship and ethics was an industrystandard of due diligence. This may still be the collector's best option, but the bar for diligence on the partof the buyer has been elevated. Explore the limitations of seller's guarantees. Most reputable galleriesoffer collectors broad protections.

Yes, follow your trusted dealer's advice to buy what you love from their vetted inventory, but also makeintelligent, well-informed inquiries. Has the work been properly authenticated, is provenance convincing,is the price fair? If you are buying art as an asset class, or with the hope of financial return, it's critical tounderstand that there are significant risks which should be diligently managed, and understand thatqualified experts may disagree. At the top of the market, the most reliable standard for "a good buy" is:Have opinions been gathered from experts without financial interest in the outcome? Even then, you mustaccept the hard truth that you have managed, but not eliminated, risk from the process.

Cindy Charleston-Rosenberg

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