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Art Basel Miami Beach:Investors see the green in art

Art prices are breaking one record after another as the wealthy and the trendy drive values up, which could continue at Art Basel Miami Beach.

Posted on Mon, Dec. 04, 2006

Real estate has hit the doldrums, but Miami soirees will soon be abuzz with chatter about spiraling prices and frothy market speculation -- for art.

The fifth annual Art Basel Miami Beach international fair, which will put South Florida at the epicenter of the art world this week, comes at a time when art sales are breaking one record after another.

''Prices are staggering, especially contemporary art,'' says Marvin Ross Friedman, a Miami private art dealer and attorney. ``I've felt for several years they were getting extraordinary prices, and yet they keep going up. It's a steamroller. Almost everything is appreciating.''

In June, Ronald S. Lauder, the cosmetics billionaire, reportedly paid $135 million -- believed to be the heftiest sum ever paid for a painting -- for Austrian artist Gustav Klimt's Portrait of Adele Bloch-Bauer I, now the crown jewel at the Neue Galerie in New York, where Lauder is president.

But that record sale was broken in October when Mexican financier David Martinez reportedly paid Hollywood entertainment mogul David Geffen $140 million for a Jackson Pollock painting.

A number of forces are fueling the boom. In part, the run-up in prices tracks the enormous expansion in wealth and the number of wealthy people -- aging baby boomers who have achieved riches as well as young tech wizards -- who gravitate to art as a natural accessory to the good life.

They've got the yacht, the collection of fancy cars, far-flung vacation properties. Art is a way of confirming that they've made it -- and not simply with money, but something more elusive: class.

''In the U.S. in particular, art has a certain social acceptance factor,'' says Karl Schweizer, head of art banking for UBS, the Swiss banking giant that is the main sponsor of Art Basel, both in Miami Beach and in Basel, Switzerland. ``People who are wealthy are buying art and shopping more and more for cultural things.''

`ROCK STARS'

Hype is also driving the demand for art.

''Artists are the rock stars of the 21st century,'' says Friedman, the Miami dealer. 'People are buying with their ears. They hear `so-and-so is buying this.' ''

All of this has created a boom at the art auction houses.

At a Christie's auction in New York on Nov. 15, Untitled XXV, a painting by Willem de Kooning, fetched $27.1 million. That was the highest auction price ever paid for a postwar painting and a world auction record for the Dutch-born American abstract expressionist. The same evening, 18 other artists, including Clyfford Still and Andy Warhol, chalked up world auction records.

Last week at Sotheby's New York, Hotel Window, an Edward Hopper painting estimated to bring $10 million to $15 million, went for an artist's record of $26.9 million. And Norman Rockwell's Breaking Home Ties brought $15.4 million, another artist's record and more than double the top estimate of $6 million.

The global nature of the new market -- with bidders participating from every corner of the planet -- also has put prices on steroids. Joining fat-walleted Americans and Europeans on an acquisition tear are Russians, Chinese, Indians and other Asians who have become wealthy in the new global economy.

It was Joseph Lau, a Hong Kong real estate magnate, who bid up Andy Warhol's Mao at the New York Christie's auction last month, setting a world auction record for the American pop artist, who died in 1987. The $17.4 million price tag -- a world auction record for Warhol -- was more than $5 million above the high estimate of what it would bring.

But it's not just the top end of the market that's in a frenzy. According to ArtNet, a New York-based art data specialist, art prices rose an average of 10 percent during the first six months of this year, compared to 2005, and climbed 7 percent between 2004 and 2005.

''There's a lot of money blindly chasing money, but that doesn't mean we're at a peak,'' says Kevin Radell, head of the financial products division at ArtNet. ``It's impossible to predict a peak for this booming market. It's already exceeded the last major bull market of '89 and '90. But new forces are unleashed. There's global money -- a lot of new money fueling these prices.''

Many people now look at paintings, sculpture, drawings and other works of art as alternative investments -- a way to round out a portfolio of stocks, bonds and real estate. And banks increasingly are viewing art in the same light.

That's risky, of course. When the art boom of the 1980s ended -- an aftershock from the 1987 stock-market crash -- it wasn't a pretty sight. Art prices tumbled nearly 60 percent between 1989 and 1993, according to ArtNet.

Experts counsel that art should be bought primarily for its aesthetic value and regarded as a long-term investment, not something that can be flipped fast like a piece of real estate. ''Don't make the mistake of buying today and thinking you'll make money in a couple months,'' says UBS's Schweizer. ``It will not work very often.''

He adds: ``To be honest, if you're buying today at retail and selling [right away], you will most likely lose money.''

The next big test of the art market's buoyancy begins Thursday when Art Basel Miami Beach opens to the public. The huge event will showcase more than 1,500 artists from the 20th and 21st centuries -- the hottest areas in art.

''Art Basel is probably the best art fair in the U.S. today for contemporary and modern art,'' says Ian Peck, chief executive officer of Art Capital Group, a New York firm that specializes in art lending and finance. It will have four people at the show and a dozen or so clients exhibiting works.

BIG NAMES, BIG MONEY

Among the names expected to fetch big bucks are de Kooning, Warhol and Jean-Michel Basquiat, a New Yorker born to a Haitian father and Puerto Rican mother who first won notice as a graffiti artist. Works by Pollock and Jasper Johns are also on the A list. Large-scale photographs are also expected to draw big prices, as is sculpture.

Beyond the current big show -- which is highly selective -- the demand for art is so intense and the prices so high that some dealers are beating the bushes in search of new talent.

Miami dealer Friedman says: ''It's astounding. Kids -- very young people -- are getting $5,000 at a first show, then $50,000 at the second show, and then $500,000 in a couple of years. People are in the business of rooting around for product -- and that's what a lot of that is -- product.'' He and others doubt that many of the works fetching big prices today will have sustainable value.

''Dealers, anticipating salability, are going into schools and picking out students and giving them shows,'' ArtNet's Radell says. ``And work is being bought right out of their studios. There's clearly speculation going on.''