What to pay for art?

12/11/2011

MIAMI — When Art Basel Miami Beach brought hundreds of galleries, thousands of visitors, and millions of dollars to Miami early this month, casual fairgoers might have found themselves asking: What would possess someone to drop hundreds of thousands of dollars for work by an up-and-coming artist?

The answer: The artist’s museum exhibition history, of course. Also his gallery representation.

Don’t forget his popularity with in-the-know collectors. And the price his work last fetched at auction.

“This is just like any other business,” said Miami art adviser Lisa Austin. “You do your research.”

While many serious art collectors insist they buy pieces that appeal to them aesthetically — not financially — they have company from investors seeking a place to park their money other than real estate or the stock market. International buyers flush with cash are also crowding the field and driving prices up, experts say.

“Art is an asset class that the wealth management community is beginning to embrace not only because it exhibits performance, it doesn’t seem to have anything to do with the stock market — which is very advantageous,” said Jim Hedges, president of art financial advisory firm Montage Finance. “Increasingly it’s become a currency for people who are operating in different parts of the world.”

The path of an artist from starving newcomer to international superstar typically begins with reasonable prices at lesser-known galleries or nonprofit spaces, said Robert Manley, head of the New York Post-War and Contemporary Art department at Christie’s. The artist might move on to better-known galleries and see their work increase by 10 percent or 20 percent with each exhibition, he said.

“As the works get sold, the market starts to be created,” Manley said.

"And very quickly, the laws of supply and demand kick in."

When demand grows to the right level, an auction house such as Christie's might step in and let the bidders dictate the final price -- which could change the game altogether.

"At auction, listen, anything can happen, and sometimes [prices] can be pushed to almost unsustainable levels," Manley said. When that happens, early adopters of some artists can find themselves priced out of future sales.

Adam Sender, a hedge fund manager who hosted a private exhibition at his Miami Beach home during the 10th edition of the prestigious art show, said the art market has exploded since he started collecting in 1998.

"Things that were easily attainable 14 years ago have moved to another level, so you try to find the next artist that's undervalued," he said.

When an artist's popularity takes off, experts say, prices can get out of whack. Miami gallery owner Gary Nader said the key to valuing art should always be the quality of the artist's work and their "curriculum," or the number of shows they have appeared in, where those shows were and which important galleries, museums, or collectors acquire their work.

To boost an artist's curriculum, collectors sometimes loan their own pieces to museums -- a practice that can benefit cash-strapped arts institutions.

But critics often point out that while the donor is doing the museum a favor, the museum is also doing a favor for the donor, said Carol Damian, director of the Frost Art Museum at Florida International University.

"I'm validating that collection," Damian said. "You're always walking a fine line when it comes to exhibiting work and what the repercussions are. All of this contributes to the value of art."

Damian, also a professor of art history at FIU, said newcomers to the art scene often seek out her advice.

"It's an education and that's why people ask me all the time: 'What do we do, what do we look at?'" Damian said. The answer: "Always look at the artist's record. And if he or she is indeed new and young and the work is not expensive and you love it? Buy it."