It must be said that being “poor in money”—which means you have a lot of assets, but very little wealth in spendable form—is, despite its negative connotations, a position of incredible privilege. More often than not, you’ll hear about it in connection with celebrities as the reason for a house flip or the sale of a beloved Lamborghini. But as surprising as it may seem, gallery owners, art collectors and even artists also find themselves in this position. This is the kind of people from Jordan Tabach-Bank: “The child’s school fees must be paid, the property tax is due, there is a divorce agreement… You don’t have the money , but you have this Picasso.”
Tabach-Bank is chief executive of The Loan Companies, which has offices in Beverly Hills, Calif., Chicago and on 47th Street in Manhattan’s Diamond District. In addition to jewelry and watches, he specializes in donating quick cash for high-value works of art. Bring that Picasso, leave with a check.
Tabach-Bank is by no means the only pawnshop—yes, even in the world of luxury, it’s still called pawnbroking—which lends money against high-value works of art and indeed the last 20 years have seen an increasing number of pawn stores across the country that are moving upmarket to capture a market that could be described as One Percent.
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There are about 10,000 independents pawnbrokers in the United States, up 40% since 2007, according to the National Pawnbrokers Association, which has 1,700 members. A spokesperson for the association said the majority of pawnbrokers are “family businesses” with loans typically between $50 and $150. But pawnshops that accept higher-end items as collateral have increased in number over the past decade, which may be attributable to the recession of the same period. Although works of art are not the largest area of luxury items used as collateral, they certainly make up a significant portion.
Leveraging tangible assets for quick cash takes place for a wide variety of reasons, and pawnbrokers have heard of all the reasons. “I don’t usually ask borrowers why they need the money, but they tell me anyway,” Tabach-Bank said. “Sometimes I feel like a bartender.” Occasionally, art dealers need money to pay rent or payroll; other times, individual artists with stories of needing to pay a foundry or running out of money between shows, come in for a loan.
Dewey Burke, managing director of Luxury Asset Capital, a Denver-based high-end company pawn shop that operates entirely online, confirms that the relationship between the broker and the broke is strange. “Customers voluntarily provide us with personal information. We don’t ask. But often it’s the same story: “divorce, tuition, vacation, vacation homes, maybe buy something else.” Someone has a Ferrari but he sees another one for sale that he wants and needs to raise the money quickly to buy it. You know, the things we all go through.
The speed of obtaining a loan—for any reason—is the overriding factor that explains why owners of valuables go for the high end pawn shopping around rather than asking for a loan from a bank. And having no intention of parting with an item permanently is the reason the cash poor don’t go to auction. Pawn stores, high-end and low-end, also do not require credit checks, and there is no penalty for borrowers who prove unable to repay their loans: they simply lose the guarantee at the profit from the pawnbroker.
Banks may still seem like a more attractive source of borrowing for owners of artwork and other expensive items. Interest rates are considerably lower at banks—typically four to five percent per year, compared to two to four percent per month (24 to 48 percent per year) in California and New York pawn stores—and private banking generally allow borrowers to retain possession of their valuables, while pawn stores require the physical removal of items from the home or office of the person receiving the loan. Tabach-Bank claimed that a recent loan against a painting by Christopher Wool involved moving the artwork from the borrower’s bin in an art warehouse to his company’s bin in the same facility. . One small step for art, one giant leap for high finance.
The duration of an art-secured bank loan is generally longer than that of a pawn store—between six and 24 months for the first, between one and four months for the second—and if the money you need is in the millions, it’s more like a bank. Pawnbrokers will rarely go that high. “I loaned up $1 million once,” Burke said.
The loan-to-value percentage (how much money you have on hand compared to the value of the asset) is often the same at banks and high end pawn stores, ranging from 30 to 70 percent. Yossi Dina, owner of The Dina Collection, a pawn store in Beverly Hills, said the amount it would lend to a potential borrower depended on “how much I can sell it at immediately, if the person defaults.” By checking auction records, he quickly determines an artist’s market strength and the popularity of a particular work. In the contemporary field, “we are looking for artists with strong representation—a Gagosian or David Zwirner, for example—and secondary market records,” Tabach-Bank said, adding that it will be more generous to a borrower with an artwork that has never been purchased at an auction. “I can move a Warhol Marilyn Monroe Where Elizabeth Taylorbut maybe I’m not so lucky with a Warhol Electric chair,” he said.
The biggest risk of art trafficking for a pawnbroker? False. While the appraisal process may be a little less rigorous than at an auction house, the authentication process is not. The collector must provide proof of purchase, a certificate of authenticity, and a history of ownership of the work (called provenance) from the time it left the artist’s studio to the present day. “I can tell 80% of the time if a work is a fake,” Dina said, adding that he also relies on “a guy who knows a lot” about the art and does some quick research. “I will not take any Russian art. There are a lot of counterfeits out there. If Dina’s word is to be trusted, this guy must be good, as Dina has claimed to have only loaned money on counterfeits a few times over the years.
Sal Menjivar, director of the San Francisco-based Buy Sell Loan which has six locations in the Bay Area, said his pawn store has “never lent money against a fake” but added that “we are pawnbrokers, not curators” and does little more research than checking online auction records. For this reason, the company will only lend up to 30% of the assumed value of the collateral.
With Luxury Asset Capital, which acquired internet pawnshop Pawngo.com last year and operates entirely online, collectors must also submit photographs of the works they hope to borrow money from. The receipt, provenance, and photographs are sent to the Winston Art Group, an art consulting firm with seven locations in the United States, who will do a quick appraisal of the art object and send someone to address of the potential borrower to examine the coin in person. This process takes a few days and the cost of its evaluation, usually $2,500, corresponds to an additional fee that the borrower would pay to Luxury Asset Capital. If the loan is approved, the artwork is transported from the borrower’s home or office to a nearby artwork warehouse.
Burke noted that the company has “lost money on fake watches twice in our seven-year history,” but never on artwork. The default rate at Luxury Asset Capital for all object categories is 1.5%, well below the national average of 20-25% locally. pawn stores that do not specialize in high-end items. “People don’t want to lose things—a Ferrari, a Rolex, a Warhol—and they pay the loans and the interest,” adding that 74% of the company’s business consists of repeat customers. “They borrow against something they own to buy something else, then repay the loan, and they come back to borrow again against that same object to buy something else, then repay that loan.”
When a loan is not repaid, the collateral is put up for sale, sometimes at auction, sometimes through a concessionaire and sometimes at pawnbrokers‘ own place of business. On the walls of The Dina Collection are works by Marc Chagall, Salvador Dali, Amedeo Modigliani, Pablo Picasso, Ed Ruscha and Andy Warhol. “I sold more art last year than most galleries,” boasted Dina.