There was a lot of self-congratulation at this morning’s buoyant press conference, where the Detroit Institute of Arts and Mayor Mike Duggan announced that the museum has now raised almost 80% of the $100 million it has committed towards the $816-million Grand Bargain that is intended to prevent monetization of the museum’s art to help pay Detroit’s creditors. Nine new contributors, led by Roger S. Penske and Penske Corp. (with a $10-million pledge) have promised $26.8 million in this latest burst of philanthropy.
Reporting in the Detroit Free Press, Mark Stryker quoted the exultant Mayor saying this:
I am just overwhelmed. I have lived and worked in this city my entire life, and I can’t remember a time of such unity and hope…
…or maybe not. No kumbaya chants about “unity and hope” have been heard from Financial Guaranty Insurance Company and Syncora, among Detroit’s largest (and most contentious) unsecured creditors.
Even if fully funded, the Grand Bargain won’t make a dent in what’s owed to those companies. The combination of state funds and privately pledged money is specifically earmarked for the city’s pensioners, not for its mega-creditors, who have argued that “it is vital that the full value of the [DIA's] collection be explored in order to generate potentially billions of additional dollars [emphasis added] for the benefit of all creditors.”
As Eric Gibson notes in today’s Wall Street Journal, trying to monetize the art to come up with those supposed billions would be “playing art-market roulette.” This is one conclusion to be drawn from the Detroit- and DIA-commissioned appraisal by Artvest of the museum’s entire collection. Artvest estimates the total market price of DIA’s art at about $1.1 billion “for the present value of an orderly liquidation after allowing for the likely delay of litigation,” or $1.8 billion, “with no litigation and an orderly selling plan.”
The discount that this represents from Artvest’s $3.68-billion “mid estimate” of the collection’s “gross valuation” reflects the same price-depressing factors that I had cited seven months ago, in my detailed post analyzing Christie’s appraisal of under 5% of DIA’s holdings (only those works that had been purchased by the City of Detroit). In its report, Artvest cites two CultureGrrl posts, but not my Dec. 19 analysis, which states this:
In fact, there’s no way of knowing with any degree of accuracy what the art’s market value would be in this unprecedented context. Should the potentially price-depressing impact of dumping a large number of masterpieces on the market be weighed? Would the fact that this would be, in effect, a forced “fire sale” also depress prices? Could prices be depressed because these are “tainted goods”? Some dealers, museums and even collectors who might otherwise have bid on such works won’t touch them because they oppose such disposals on principle.
To these possibly price-depressing factors, Artvest added another—the potential volatility of the market, particularly in contemporary art:
When a market sector or the entire market “crashes,” as it did in the Autumn Season in 2008, it creates an illiquid marketplace where values often fall by as much as 50%, and property, especially that of the highest caliber, becomes either difficult to sell, and/or sells for a fraction of its previous value. From the previous market peak in 2007, to its nadir in 2009, the fall in sales was 54.6%.
Adhering largely to the party-line of the museum and municipality that commissioned its report, Artvest didn’t mention a possibly price-inflating factor that I had cited in my analysis of the Christie’s appraisal—the value added by the museum’s illustrious provenance.
“It’s impossible to say,” I noted, “how much weight to give to these conflicting factors.”
Whatever the “correct” numbers may be, all this talk about billions can only whet the appetite of the major creditors. The only thing that matters to them is whether they will be allowed to get their hands on art proceeds, whatever they might ultimately turn out to be.
About that possibility, the Free Press’ Mark Stryker wrote this on July 9:
Neither creditors nor the judge in a municipal bankruptcy can force the sale of assets. But if [Judge Steven] Rhodes refuses to confirm the city’s plan at trial—or if individual pensioners vote down the plan—the consequences could push Orr to propose a sale to raise more cash. However, in the wake of the Artvest report, [Bill] Nowling [spokesperson for Detroit emergency manager Kevyn Orr] said that the city “has no plans to sell art even if the grand bargain falls apart.”
The votes by pensioners are now being counted. According to Stryker in today’s article, “Sources have told the Free Press that pensioners have likely approved the plan.”
That would be one more step in the right direction.