On Eve Of Art Basel, Top Art Advisors Say the Market Has Gone ‘Haywire’

Last week, in the lead-up to this year’s Art Basel, ARTnews sat down with two art world veterans to talk about the state of the art market on the eve of its most important fair. 

Allan Schwartzman is an art advisor and founder of Schwartzman & Associates; Philip Hoffman is founder of The Fine Art Group.

The Fine Art Group is a 20-year-old London-based firm. When Hoffman founded the company, it was one of the first art investment businesses of its kind. He expanded it into an advisory firm and, more recently, into art financing.

Schwartzman & Associates is a multifaceted advisory business started by Schwartzman in 2020 after he parted ways with Sotheby’s, which had acquired his previous firm AAP (a partnership with former auction house executive Amy Cappellazzo and investment banker Adam Chinn) for $85 million.

Hoffman and Schwartzman announced in March that the two companies will work together on multiple aspects of their dealings.

We met in Schwartzman’s art-filled New York offices.

This conversation has been edited for clarity and length.

ARTnews: Let’s talk about what the art market looks like right now as we go into Art Basel. This is a moment of incredible upheaval—the markets, crypto, the war in Ukraine, the January 6th hearings, inflation, the threat of a recession. A gallery director told me that dealers are trying to sell whatever artworks they have on consignment because they are worried that the fall is going to be shaky. 

Allan Schwartzman: There is upheaval in our world in every way. And it is a corollary in the art world that the market’s gone haywire, particularly for the work of young artists. 

It’s hard to talk about the market monolithically, of course. So we’ve got to talk about the blue-chip market and the emerging market and also talk about auctions. We tend to only hear about auctions. We sometimes forget that auctions are roughly 10 percent of the art market. 

During this last round of auctions [in May], we saw at the upper end of the market there is a great appetite for the most extraordinary examples of artists’ work. Works at the mid-level by the same artists have become increasingly difficult to sell, regardless of how far down they’re discounted. 

You have more people who have the funds and the eyes to only collect the best. And that’s all that they’re interested in. And there is a healthy amount of trading at that level. 

For many of the more expensive works, particularly those for which there are pre-sale guarantees, there’s already been significant negotiation starting at one price level, and then going higher and higher. In the competition between the auction houses for the property and also—in many cases—in the vetting of potential backers for those guarantees. So in a sense, by the time you get to the public auction, that work has already been brought up to its maximum value. 

The lesson we’ve been learning for a number of years now at the highest level auctions is that most buyers go into that very informed. Regardless of where you place the estimate, people know what they’re willing to pay and they simply don’t get carried away. 

What about these extraordinary prices we are seeing for young and emerging artists?

Schwartzman: In the last few years, coinciding roughly with Covid and with the upheaval in museums and with shifts in what it is that people are looking at within the realm of contemporary art, there’s been a massive emergence of a significant number of very compelling young artists. 

Five years ago, emerging artists were being introduced at a kind of already mid-level price for an emerging artist; many of these artists have been first introduced to the market at $4,000 to $8,000. So it makes someone more open to having a wide appetite to cast a wider net in what one’s prepared, comfortable, or interested in looking at. 

Now, having said this, the vast majority of the people who are collecting art have been sitting at home for 2+ years. They have more time to be looking and spending money. And many people at the high end of the economy have been earning more money in this time period. So there has consequently been the emergence of a much, much larger market for the work of emerging artists. The demand has gotten so beyond the capacity of a natural supply to fulfill it that it really has set the market haywire. There are more collectors. 

For a gallery, the notion of who you prioritize to get work to is thrown askew because there are that many people who are serious about collecting new work. We’ve seen for a variety of reasons, especially related to this increase in demand, there has been a much more rapid activation of a resale market for such artists’ works. An artist whose work was selling for $75,000 one year and brings $800,000 at auction six months later or sells at auction for $3 million two years later. There’s no precedent for that. And the number of artists for which these prices are being achieved, it’s off the charts. 

You have artists going into Phillips day sale with an estimate of $10,000 selling for $400,000. 

Schwartzman: It is my understanding that the buyers are serious collectors. These are not primarily speculators. They are very new to the market. They know what they want and they’re used to instant gratification. And they are of such levels of wealth that $100,000, $3 million, $30,000—this is as much a commentary on the value of the dollar as it is the demand for art. 

Philip Hoffman: Allan, do you think that what we tend to see is that others who own the same artists suddenly think, well, I bought it for $30,000, maybe I can offload the same work for $1.4 million? And the auction houses are reluctant to try the second or third time so quickly because they don’t think they can follow through on the phenomenon. 

Schwartzman: Well, that’s always the question, isn’t it? When an artist goes from 0 to 1,000, or 0 to 4 million. What we’ve seen since the late ’80s is that when there is demand for an artist and collectors who cannot get access to the primary market, that when a major work shows up at auction, it ends up bringing an extraordinary price that’s often easily 20 times what the primary market price could be. Usually one or two sell at that very high level and then the price dips down in the resale market because the people at the front end who had an insatiable need to fulfill that interest have already fulfilled. It raises the prices for that artist to a much higher level, but it then tapers down to where a wider market can reach it. Controlling the supply is the greatest challenge that dealers and auction houses are facing.

Hoffman: So now you see all the dealers putting in 5-year non-resale clauses. 

Which can’t really be enforced— 

Hoffman: They’re not enforceable, but gallerists try really hard. Then they also put huge pressure on anybody that does want to sell it. We’ve seen it with clients who bought things, then had to sell. They were building collections and the gallery is completely mad and you don’t have control and you can’t say, “Well, that guy can’t ever sell.” It’s up to them today. They will go into it saying they’re not going to, but then financial circumstances change. Dealers will also imply that if you want to buy anything else from the gallery, you’ve then got to sell the piece back through the gallery. So it doesn’t go to auction.  

Schwartzman: I don’t think I could count, at the moment, how many first-time exhibitions of promising young artists have sold out before they’ve opened. The appetite and the speed of awareness is so rapid. There’s very little of that material that’s going to make it to the art fair. 

Philip, in terms of what’s been happening with your business in the recent weeks, let’s say, including the auctions and since the auctions, what kind of mood are we in? 

Hoffman: What’s weird is that the stock market was in turmoil. There’s inflation and everybody is worrying. But I just had someone on my team tell me that one of the major pieces that we’ve got in Basel in the multimillion-dollar category pre-sold at a big price. 

Our clients are really worried about inflation and they’re looking at all the possibilities of what’s going to happen, what they should put their money in, rather than having it in the bank or in the stock market. I’d say probably 25 percent of them are thinking, you know, blue chip art—I can enjoy it. I can make money out of it. And if I have a smart advisor like Allan or myself, we get it right and go into the right things. So there has been a big appetite for buying. 

Our clients were incredibly active with the auctions. In some cases, we told them they might have to pay double or triple the estimate. But there is a real appetite for great pieces. I think Basel will be very active at the top end. The great pieces will sell off the walls in 24 hours or less. Some of these dealers in Europe haven’t had any Americans coming over to them. So they’ve said, “Look, we have great things. The auction houses have managed to ship pictures around the world and get their local person to go and sell it for them. The galleries and some of the smaller dealers haven’t been able to do that.”

Schwartzman: Phillip, given the increase in the appetite for blue-chip work at the highest level of each artist’s production, do you see the market widening its definition of blue-chip? Do you see more artists being brought into that level of collecting? 

Hoffman: Two or three artists creep into the blue-chip every year. But it’s still pretty rarefied. We’re going to be out there raising large amounts of money for buying art as a potential inflation hedge for the investment side of things. These are people who want to borrow money to buy more art. And then there’s a huge growth in philanthropy and art gifting. Collectors who want to buy the greatest things and then be known to have given them to institutions. 

At Basel, the blue-chip art is on the first floor, emerging on the second. 

Schwartzman: But there are a good number of galleries on the first floor that have become increasingly focused on the work on primary market materials. So you have a lot of second floor activity on the first floor. I am aware of a few situations where galleries that were invited to go to the first floor declined the invitation. 

It’s true that the more crowded a VIP opening gets, the slower it is that most people get to the second floor except for those who begin on the second floor, given that what’s on the second floor is virtually all or mostly all primary market material. If you’re active in the market, you’ve already had access to those artists. You’re not bound by timing. 

But the heart of the galleries on the second floor are mature galleries that have been around for several decades, and they may not be the biggest names, but there are some very significant galleries upstairs and there are some smaller-scale galleries that have very healthy, long histories within the art market. In many of these are dealers who are functioning in a part of the middle market that has been challenged. As you say, there are equally as many galleries—at least from my experience—there are a lot of galleries in that middle market that are doing extraordinarily well and have found ways to adapt … but these are mostly very established galleries that have been around for quite some time. They’re showing, for the most part, artists that they have represented for a very long time. Also at the same time, we’ve seen a greater increase in the number of artists added to these galleries over the last few years than in previous years. And that is about a shift in taste and a shift in demand. 

I’m assuming we won’t see a huge number of collectors from Asia.  

Hoffman: One of our biggest Asian clients is coming over. We have one very big Chinese client who really wanted to get out and was excited because they booked on the first plane out of China to find out that the visa office can’t cope with the processing of visas. There’ll be a real struggle for many people to come from China, but I think we’ll see a few more from Hong Kong. 

In recent years it’s been the middle market that has struggled. Is that still where the struggle is? 

Schwartzman: The middle market grew so much that it was anything that wasn’t blue-chip or emerging. But many galleries have found that some of the artists they’ve represented for a long time, or ones they’ve added to the gallery in recent years, have seen great increases in demand. I think that there are many more galleries that have survived a period in which many thought that their survival was threatened. Yes, there are still many galleries in the middle market whose survival is threatened. But it’s not monolithic like it was before. Still, when galleries lose their top artists, it really does create a fragile situation. 

Artists don’t always benefit from a market rise. 

Schwartzman: I’m very happy whenever artists can make money. Even if the behaviors of the market are askew from the perspective of quality and significance. And yet we’ve seen many instances where artists have gone from very hot to very not. And that’s not just a phenomenon of the market of recent decades. All shifts in taste result in casualties. 

Most artists I know have a resilience, and their commitment to making art exceeds the interest of the market in supporting them. So while we may have a much more fattened market of artists who are driven by the fact that there is a market out there for them, I think the heart and soul of what keeps this system alive and healthy is the work of serious artists, some of whom become very successful and some of whom don’t. 

Source: artnews.com