“Volatility Can Be a Good Thing,” Says One Art Market Insider

By Nina del Rio

2020 has been one for the art history books. In March, as most countries began to lock down in response to the Covid-19 crisis, insiders, like Bank of America’s John Arena, paid close attention to the pandemic’s effects on the markets. Arena’s interest comes from his 40 years in banking and wealth management, where most recently he is responsible for structuring loans for the bank’s high-net-worth clients, in particular against their fine art collections. Now, six months later, Arena sat down with Nina del Rio, head of Sotheby’s Advisory, to reflect on those early days, examine findings from the spring and summer auctions and look forward to what the future holds for the art world.

Bank of America’s John Arena with Jeff Koons' Rabbit

Nina del Rio: Looking back to March, what did you think would happen in the art market and how have your views changed since then?

John Arena: When the pandemic reared its ugly head, it was unprecedented and there were a lot of unknowns. Art fairs would be postponed, the auction season was being pushed back, and we realized that the market was kind of pausing, but it was not going away.

Since then, we’ve seen a tremendous amount of activity in the market and I think that will continue for the remainder of the year. We have not seen a large decline in valuations, which surprised some people; though I was not. I expected good art to continue to hold its value and to sell – and that has certainly proven itself.

At Sotheby’s, we’ve observed a decline in the total auction sales, but an increase in other areas including in online sales. Do you think people not being able to see the art in person has impacted the market? Or would you have expected a much greater impact?

Online sales have proven to be a viable, and appropriate platform in which to buy art. The auctions at the end of June were very successful – I understand the volume wasn’t as great as pre-Pandemic times, yet the product brought to market was extremely well received, like the estate of Ginny Williams that we brought to market with our Consignment Services team. It was a hundred percent sold, which is phenomenal. I sensed Christie’s and Sotheby’s sales would go well because there was a virtual Art Basel in June and galleries were selling seven-figure works. People did not shy away from going online to purchase art. And looking forward, at Bank of America we have a number of clients who are looking at their credit lines and are starting to talk about what they want to buy in this upcoming season.

Helen Frankenthaler's Royal Fireworks (1975), from the Ginny Williams Collection, sold for $7.9 million, a new record for the artist.

What other trends or observations have you noted following the spring and summer sales?

One thing that has been uncovered is that millennials are embracing the online sales. They're not necessarily buying at the highest end, but they are buying and they are using the online platforms. This will be key as the great wealth transfer takes place. There is a great amount of wealth that will transfer from one generation to the next – somewhere close to $3 trillion – and the millennials are going to be the beneficiaries. The question is, how will they deal with that and where will they apply the funds? Online platforms will be a good way to access them and help them deal with that wealth as it comes into play.

Christie’s showed resilience in selling online. Their One: Global Sale was worldwide attracting buyers across the global and all done in one virtual online sale evening. Phillips participated as well and saw good results with 100% of their NYC lots sold. Phillips also had clients realize solid value for their works offered in the Hong Kong sales too.

Roy Lichtenstein's Nude with Joyous Painting (1994), sold for $46.2 million. Photo by Timothy A. Clary / AFP via Getty Images TIMOTHY A. CLARY/AFP via Getty Images

Do you see parallels between volatility and upticks in the financial markets or downturns in the art markets?

The art market doesn't operate in a vacuum. The people who are buying art are also active in all those different financial markets – whether they be a consumer or a financier or a business owner, they're all part of it. From a financial perspective, the fact that interest rates are so low is a key factor because for those people looking for financing, it's a lower cost of funds where they can use those funds to redeploy into other assets, like art. Volatility is also important because it allows opportunities.

For high end collectors, volatility can be a good thing in terms of opportunities – but, of course, it depends on what side of the volatility you are on.
John Arena

For high end collectors, volatility can be a good thing in terms of opportunities, but of course it depends on what side of the volatility you are on. The retail clothing business, for example, may not be the place to be in right now, but tech delivery services would be.

One correlation I always look at is between the art and real estate markets – as high-end home sales increase, the art market follows. Why do I say that? Because when you buy a high priced home, you decorate it with high end collectibles. This is not a scientific analysis, but rather my view that his correlation is tighter than, say, the stock market going up. Right now the residential market is doing very well, and consequently we've seen a good level of financing activity for our products. We may even have one of our best years in lending ever.

Are you seeing your clients taking advantage of the low interest rates to buy art and do you think they are taking advantage of fire sales, motivated by distress?

It's always about chasing an opportunity, and clients wouldn’t be purchasing art and drawing credit otherwise. It doesn’t necessarily mean there is a distressed sale price, but what it can mean is they are taking advantage of the opportunity to buy art that they couldn't get before. In June at Sotheby’s you saw the Bacon sell for $85 million and also new records for some artists like Helen Frankenthaler.

Francis Bacon's TRIPTYCH INSPIRED BY THE ORESTEIA OF AESCHYLUS (1981) sold for $84.5 million

Christie’s also realized impressive results from its ONE: Global Sale. They hammered $364 million in works sold amongst Hong Kong, London as well as New York and Paris. All sales exceed 90% of lots sold with works like Lichtenstein selling for $46.2 million in New York, a 103% above its low estimate.

Many of these works had not been seen in years, and buyers saw an opportunity to add to their collections.

When I looked at the data for online sales, it was comforting to me. I believe this will be an integral platform to help us help our clients better.
John Arena

2020 has been a year we'll all look back on. Of our findings thus far, what are your main takeaways?

Two things come to mind. One is that the volume was lower, and that does not surprise me. The auction houses and collectors were resetting and dealing with a new market dynamic. There was cautious optimism in how the virtual sales platform would perform. Nevertheless, I was reassured by the quality of works being offered. Second, there was the strength of the online market – when I looked at the data for online sales it was comforting to me. I believe this will be an integral platform to help us help our clients better.

The last piece of the puzzle that is still missing, yet will come back, is the physical interaction with art. It is inevitable that people will come together and see and experience the art in person. To use the analogy of online dating – until you actually meet the person, you really don't get a true sense of who you're dealing with. The same is true with art. Without meeting these masterworks in person you don't get to experience their full energy.

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