Art For Lucre's Sake

After a bullish decade, there's a new high in the Canadian art market.

David Heffel, standing at a podium erected in the ballroom in Toronto's Park Hyatt hotel, appears slightly nervous. Along with brother Robert, he runs Heffel Fine Art Auction House, and it is just minutes away from opening bidding on millions of dollars' worth of Canadian art at its annual fall auction. The room is packed. All of the more than 300 seats are taken, and Heffel employees man a bank of phones to field calls from New York, London and Hong Kong. Ken Thomson's favoured bidder, David Loch, a Winnipeg-based dealer, is in his usual spot–last row, on the aisle.

There is a palpable sense of expectation in the air. Last year, the Heffel brothers, who inherited a Vancouver art gallery from their cattle-auctioneering father, set a record for a single auction when they sold $8.5 million worth of Canadian art. That gave the two upstarts bragging rights over incumbent auction houses Sotheby's Canada/Ritchie's and Joyner Waddington's. But the auction also represented a new high in the Canadian art market–which has been bullish for almost a decade now.

It used to be assumed the art market followed a five-year cycle of boom and bust. So when the market picked up in the mid-'90s, many thought a pullback was imminent after 2000. But the peak has yet to arrive. In fact, the uptrend continued through the early part of this decade, as the dot-com crash forced investors to look outside equity markets. Since then, stock markets have generally moved sideways, real bond returns have been low, and new wealth has been created in the energy sector–all factors that have helped keep the art market buoyant.

In fact, art has turned into a major alternative asset class. Bloomberg has a weekly show about art investing that airs in Italy. Many big investment banks have added art consultancies to their services. And art market action is a major factor in the business strategy of London-based publisher–and No. 89 on the Rich 100–Louise Blouin MacBain (see story, page 39).

Art funds, meanwhile, have popped up all over. One of them–Fernwood Art Investments LLC, a New York-based art fund currently in a quiet period ahead of an IPO–says in company materials that there are hot and cold sectors within the market. The works of post-modern masters (1950s on) are, according to Fernwood, in a bubble. But the works of modern masters (1900-1945) are undervalued, while the works of Old Masters (Rembrandt et al.) provide good bear-market protection.

Still, expected returns from art can be hard to calculate. One study from the '90s found art trailed equities by a slight margin and tended to correlate to the market as a whole. A more recent study, however, suggests art outperforms bonds and provides good diversification in a portfolio.

Jacques Barbeau, who collects the work of E. J. Hughes, a West Coast painter, says that “art can be a good investment, if you're lucky.” The retired Vancouver-based lawyer (who wrote a book about his collecting called A Journey with E. J. Hughes) says buying art in the established auction market can return 10% to 11% a year. And that figure could be higher after a hot market over the past nine months.

Barbeau says the key was that he latched onto Hughes before the artist's work was recognized by the larger community of collectors. “You want to find an artist who is recognized but not yet exploited,” says Barbeau, who uses a French word, coté, to describe that special quality that will generate demand in the secondary, or auction, market. Hughes' scenes of B.C. coastal life (see Ocean-Going Ship, right) were out of style for most of the artist's career, which spanned the era of abstract art in the '60s and '70s. Barbeau came upon the works after moving to B.C. from Montreal, where “all I saw were other buildings.” He was captivated by the majesty of B.C.'s landscape. “Hughes encapsulates that,” Barbeau says. He had four kids to feed, but he began buying any sketches by Hughes he could find. It turned out to provide a lifelong passion that paid off handsomely. “It's been my best investment,” says Barbeau.

Of course, investing in art isn't only about hard returns. Jane Corkin, a partner in the Corkin Shopland Gallery and one of Toronto's most respected photograph dealers, suggests aesthetic and intellectual payoffs are the first reasons to invest in art. “You have to find something that resonates,” she says. But Corkin is also a savvy investor, and she suggests that if you are going to collect in the primary market (where original first-time works are sold through galleries), you should do due diligence on the artist. Is he, for instance, going to remain an artist, or could there be a career change? That's an important consideration if you hope to be able to resell your art into the secondary market for established, salable artists.

But will the wider auction market hold up? No one likes to talk about the peak, but it is out there. Barbeau suggests, however, that new oil wealth in the West will help sustain the market. “The art market is basically a function of money,” he says, “and there seems to be lots of that around.” Corkin says she has seen new interest from younger buyers in Toronto. “The last generation spent its money putting in infrastructure such as hospitals and libraries,” she adds. “The next generation is concentrating on building up the cultural life of the city. There has been a real explosion in that over the last couple years.”

The Heffel auction suggests the market is strong. The hottest bidding of the night was for The Bird Shop, St. Lawrence Street, a 1920s oil (see previous page) by Quebec master Maurice Galbraith Cullen. It was estimated to go for $300,000, but telephone bidders quickly bumped the price to $850,000. Then, Loch jumped in and, along with someone on the phone, bid the price into the stratosphere. The room went quiet as the bids passed the million-dollar mark. When the gavel fell, the Cullen was sold to Loch for the sixth-highest amount ever for a Canadian painting at auction: $1.495 million. The room erupted into applause. The Heffels ended up auctioning off $12.2 million on the night–another record.