The Booming Art Market Investors Go Crazy Over Culture

Never has so much money been made with the sale of paintings as in 2006, with some works selling for as much as a Boeing. From Shanghai to New York, the thirst for beauty -- or a good investment -- appears insatiable. But some are cynical about the hype.

By Ulrike Knöfel and Joachim Kronsbein


A new era will dawn in the Middle East next March, when the Middle East's first contemporary art show, the Gulf Art Fair, opens in Dubai under the patronage of Her Royal Highness Princess Haya Bint Al Hussein of Jordan. Most of the participating gallery owners will travel to Dubai from the West, from major art centers like Los Angeles, New York, Paris, Helsinki and London.

The prospects are dazzling, at least if one is to believe the trade publication The Art Newspaper. Interest in the Arab world in young art from the West has been tentative in the past, but, writes The Art Newspaper, "in the wake of Dubai's real estate boom ... a nascent contemporary art market has emerged."

Real estate? Contemporary art? Dubai? What is the connection here exactly?

They fit together perfectly, as it turns out, because money is the cement that holds things together. And, in the Gulf region, money is flowing like nowhere else in the world. Even Christie's, the prestigious auction house, has made an appearance in Dubai.

While the Impressionists were the stars in the 1980s, today's mantra is that the younger the artist, the better. The new trend is for so-called Baby Boomer Art.

For a new capital elite, art is the new oil, the new gold. Cities from Shanghai to Seoul to Moscow are discovering the business of art and organizing art shows. Contemporary art is even experiencing a boom in India, following in the footsteps of the country's growing economy.

With the world's ranks of ultra-rich increasing all the time, there are plenty of buyers. There is an estimated $33.3 billion currently floating around the world just waiting to be invested, and art is an especially attractive place to put one's cash. In an article about powerful hedge funds, the Wall Street Journal actually advises investors to "forget Wall Street" and emulate astute hedge fund managers, who have taken to collecting expensive art. "The hedge fund boys are throwing their money at the art world as if it were confetti," says a jubilant Richard Feigen, a New York art dealer.

Even in an economically unstable country like Venezuela, with its huge gulf between rich and poor, "art is the darling of anxious investors," the New York Times writes. According to one artist the newspaper quotes, in Venezuela art is "the only market that doesn't scare away consumers."

Art is considered enriching -- quite literally -- across the globe. It is a world market and, from an aesthetic perspective, a world power. Art's intangible beauty has been transformed into a measurable and thoroughly materialistic value.

According to a study by the European Fine Art Foundation, worldwide art sales amounted to $25.2 billion in 2002. More recent estimates suggest that the annual total has already increased to well over $30 billion. Even that figure underestimates the true total, as many buyers and sellers prefer to keep their transactions out of the public eye.

Kirchner's "Berlin Street Scene" sold for an incredible €38 million in 2006.
DDP

Kirchner's "Berlin Street Scene" sold for an incredible €38 million in 2006.

Nowadays the business of art emulates the business of life: breathless, intense and exceedingly expensive. Exceptional works of art can cost as much as a Boeing. Art buying is the new parlor game of so-called "heavy buyers" intent on building their collections, which simultaneously serve as an attractive, aesthetically-pleasing parallel world.

But members of the jet set aren't the only ones collecting art these days. The hunt for paintings and the sport of rummaging through this parallel world, one that is distinctly separate from crisis-ridden reality, has also taken hold of the middle classes. In an age of crumbling certainties, the search for beauty is driving crowds into museums and one-off exhibitions. Spectacle is always a creative act, whether it is Goya, Picasso or the collections at New York's Museum of Modern Art.

But the real headlines are made at the pinnacle of the art market, where an appreciation for beauty and connoisseurship go hand in hand with unlimited funds. Bankers have already recognized the potential: Managers at Swiss banking giant UBS consider art an important investment sector, and they have even established a new department called "Art Banking."

Art is seen as a means of gaining access to the worlds of extremely affluent private customers. They include those who collect art out of passion, but also many who hope to make money with art. One study confirms the strong demand for alternative investments: Their share of overall investments is increasing, from 10 percent in 2002 to a predicted 22 percent by 2007.

And cash registers in the art world are certainly ringing. In 2004, the Picasso painting "Boy with a Pipe" shattered the psychologically important $100 million mark. An anonymous buyer paid exactly $104.2 million for the painting, which was auctioned off at Sotheby's. Prices have shot skyward ever since. A portrait by Gustav Klimt fetched $135 million, and one of Jackson Pollock's drip paintings may recently have been sold for an even higher price. Prices over the $200 million mark are no longer inconceivable, and this year's fall auctions in New York registered a record $1.3 billion in sales in just two weeks in November.

"New buyers from China and Russia have recently acquired many of the great iconic works of the postwar era," says Tobias Meyer, a star auctioneer at Sotheby's. "They've driven up bids and they will continue to do so."

"We are experiencing a historic highpoint, and the business is even likely to expand still further," says David Zwirner, a New York-based German who is one of the world's top gallery owners. He can even afford to give away art as a form of marketing for his own business -- he donated a portrait of a serious-looking Condoleezza Rice by the celebrated Belgian painter Luc Tuymans to New York's Museum of Modern Art.

Despite repeated warnings of an imminent crash, everything in the art world is geared toward expansion. The number of museums, biennials and art shows is on the rise. In the wake of the extremely successful "Art Basel Miami Beach" show, established in 2002, 13 parallel shows have popped up.

There certainly seems to be enough buying power to go around. Members of the jet set, traveling in their private aircraft, get together at these buying orgies, where the mood of customers is as bubbly as the champagne. The notion of "art for art's sake" is no longer the only motivating force at these new shows, where the crowd wants entertainment. And entertainment is what it gets. Even venerable museums like New York's Guggenheim have taken to staging awards ceremonies as if they were Hollywood premiers.

Art, says dealer Jeffrey Deitche, is something for buyers who move in the kinds of circles where people "can hardly be expected to pin a Playboy calendar on their walls."

Old-school collectors are horrified by the hype, as are some artists. "This market has become part of the entertainment industry," says renowned German painter Gerhard Richter.

And the Germans are becoming especially popular. Tomma Abts, a 38-year-old German painter based in London, has just been awarded the British Turner Prize.

Traditionally eccentric German artists like Joseph Beuys and Martin Kippenberger, and painters like Gerhard Richter and Sigmar Polke, Georg Baselitz and Anselm Kiefer, established a reputation for German contemporary art as profound, at times extremely ironic and consistently well-made. All these artists are now represented in the world's leading museums.

Photographers from Germany's Rhineland region were the discovery of the turn of the millennium. Names like Andreas Gursky, Thomas Struth, Thomas Ruff and Thomas Demand became world-famous -- and expensive -- overnight. A proof of a Gursky edition could be had for less than 10,000 German marks in 1995. Nowadays the artist's photos sell for more than $2 million at auctions.

And international collectors are going just as crazy over paintings from the east German city of Leipzig, which has now become something of a brand name for contemporary German art. The works of young German painters, currently Germany's hottest cultural export, are an absolute must-have for collectors eager to keep up with the times.

At the head of this trend is the 46-year-old Leipzig painter Neo Rauch, whose paintings triggered a renaissance in figurative painting. American collectors in particular are hungry for his surreal and melancholic works. Gerd Harry (known as Judy) Lybke, the Leipzig gallery owner in the enviable position of representing Rauch's work, describes today's art buyers as people who "want to stand out from the crowd."

His star painter's most recent gallery show was sold out immediately. Rauch's paintings, each priced at several hundred thousand euros, are being sold to buyers in places like China, Israel and Hawaii.

The artist's motifs are already being copied in China. A knock-off of one of Rauch's works is titled: "Copy Art #51, Neo Rach." Rach sounds close enough to Rauch, and the paintings, which even bear some similarity to the Leipzig painter's works, are a steal at €130 ($173).

Meanwhile Jonathan Meese and Daniel Richter, both represented by Berlin gallery owner Bruno Brunnet, are leading a second new wave of German art.

The market has now discovered a new source for art that is as sensitive as it is lucrative -- the inventories of museums. Restitution art -- art that was essentially stolen from its persecuted owners during the Nazi era and ended up in museums, either directly or later through the art market -- has garnered some of the most spectacular prices of late. The heirs of the prewar owners are increasingly demanding restitution of the works. In many cases the attorneys involved are pushing for quick sales and receiving up to 50 percent of the proceeds in fees.

A number of prominent transactions have attracted worldwide attention. Immediately following the restitution of Gustav Klimt's Art Nouveau icon "Adele Bloch-Bauer I," US cosmetics billionaire Ronald S. Lauder purchased the painting in June for $135 million, and a second restituted Klimt portrait of Adele Bloch-Bauer was recently sold at auction for just under $88 million. The paintings had been hanging in a Vienna museum since 1938. Lauder also purchased Ernst Ludwig Kirchner's "Berlin Street Scene," which had been in the collection of Berlin's Brücke Museum -- for $38.1 million.

Such paintings, long viewed as unavailable for sale, are suddenly becoming marketable. Dealers, who are promising their clients a "fresh" market, estimate the value of stolen artworks that have not yet been returned at up to $25 billion.

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