The ‘Emerging Art Bubble’ Has Burst: “Everyone Got Caught With Their Pants Down”

Submitted by Mike Krieger via Liberty Blitzkrieg,

Earlier today, Bloomberg published a fascinating article on the collapse of what is known as the “emerging art market.” Namely, a slice of the art world where spraying a canvas with paint from a fire extinguisher had been commanding six figures a pop.

(apologies if we got the 'art' upside down)

Well all of that is now over, as the space has experienced a stunning collapse.

Bloomberg reports:

Art dealer and collector Niels Kantor paid $100,000 two years ago for an abstract canvas by Hugh Scott-Douglas with the idea of quickly reselling it for a tidy profit. Instead, he is returning the 28-year-old artist’s work to the market this week at an 80 percent discount.

Such is the new art season. At auction houses in London and New York, sellers are preparing to bail on their investments after the emerging-art bubble burst and the resale market for once sought-after artists dried up.

“I’d rather take a loss,” said Kantor, who is offering the Scott-Douglas work at the Phillips auction in New York on Sept. 20. “I feel like it can go to zero. It’s like a stock that crashed.”

Kantor acquired the work privately in July 2014. Four months later, a similar piece from the series went for $100,000 at Christie’s. Kantor expected the prices to keep surging, but in February 2015 another canvas from the same series failed to sell at auction.

“I feel like we were a little bit drunk and didn’t think of the consequences,” he said. “Then the bottom fell out. Everyone got stuck with their pants down.”

Before consigning his piece to Phillips, Kantor tried selling it privately for a year — through Blum & Poe, the work’s former owner, even on EBay. At one point he was asking $50,000 but couldn’t get an offer.

“There are certainly some cases where people have paid more at the height of the market,” said Rebekah Bowling, head of the Phillips sale. “We are in a market where we have to be conservative. Everyone is very price conscious.”

Prices for works by young artists such as Scott-Douglas and Lucien Smith soared with the auction market in 2014, sometimes reaching hundreds of thousands of dollars, when they were traded like bull-market tech stocks. But since auction sales began to drop in late 2015, the emerging names have been hit especially hard. Sales by some artists are down 90 percent or more as the glut of work and nosebleed prices scare away buyers.

That’s because speculators purchase art to resell it, not to keep it.

Today’s market is a far cry from a few years ago, when young artists churning out process-based abstract work presented opportunities for outsize returns.

The works were often created by artists still in their 20s. Smith saw a painting he made while an undergraduate at New York’s Cooper Union fetch $389,000 at Phillips in 2013, two years after it was purchased for $10,000.

This week, estimates for three Smith pieces are as low as $7,000. One, from the series he made by spraying more than 200 canvases with paint from a fire extinguisher, is estimated at $12,000 to $18,000. A bigger spray work sold for $372,120 two years ago.

Before consigning his piece to Phillips, Kantor tried selling it privately for a year — through Blum & Poe, the work’s former owner, even on EBay. At one point he was asking $50,000 but couldn’t get an offer.

While interesting in its own right, the reason I flagged this article is because it comes on the heels of reports of plunging sales figures in the ultra luxury segments of various real estate markets including Aspen, Miami, Manhattan, the Hamptons and Greenwich, CT. All of which followed a weakening London’s high end real estate sector last year, which proved to be the perfect leading indicator.

As I observed in September 2015’s post, Luxury London Home Sales Plunge 26% – Has this Mega Real Estate Bubble Finally Burst?

It appears the music may have finally stopped for one of the world’s largest luxury real estate bubbles: London.

It’s well known that foreign oligarchs love London real estate as a means to launder funds, typically “earned” by soaking their host countries dry via corruption and fraud. This has caused absurd and irrational spikes in high-end residential real estate in the English capital, as well as a flood of new construction.

With emerging markets now completely collapsing, the seemingly endless flood of foreign money is drying up, and with it, London real estate.

So has the London real estate bubble popped? Probably.