Planet Money - Planet Monet (Classic)

Episode Date: January 11, 2021

Investors are pouring money into art, but a lot of it is disappearing into storage. We find out why. | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money, from NPR. Hey, it's James Sneed, producer here at Planet Money. A couple years ago, Julia Simon and Kenny Malone did a story on the art market and how some of the most valuable works in the world are kept in a kind of painting purgatory. So, for no particular reason other than it just happens to be one of our own personal favorite episodes, here's Planet Monet. Enjoy. Julia Simon. Kenny Malone. Last week you spent some time on Manhattan's Upper East Side.

I did. Because we had heard that there was like something weird going on in the art world, in the art market. Yeah. I went to Sotheby's. I went to this art auction and I get there. It's this big room. There's jazz music playing. Ladies and gentlemen, the sale is about to begin. If you could take your seats. I was surrounded by men in fancy scarves, women in black dresses, everyone drinking champagne. They settled in. Good evening, ladies and gentlemen, and welcome to Sotheby's my name is David Pollack and I'll be your auctioneer this evening. The art market has been going nuts and we begin with lot one. There are about 70 pieces up for

auction. A Titian. Lot 27 is next. A Van Dyke. Lot 42 is next. A Velazquez. Lot 48 a portrait. And a highly anticipated work by an artist named Nicholas Lankre. Which brings us to lot 69, an allegory of winter. An allegory of winter is the title of the painting, he says. It's from the early 1700s. It's some women playing cards, a couple of guys. There's one dude who looks like he's mansplaining to the lady about her set of cards. And one million dollars will start us at $1 million now. $1 million, $1.1 million, $1.2 million, $1.5 million. It goes up.

$1.8 million, $1.9 million, $2 million, $2.2 million. It's in the front. Fair winning then at $2.2 million. Sold. $2.2 million. With auction fees, it came to $2.7 million, a record for a Nicholas Longcrave painting. And records have been falling left and right in the art market. Maybe we even heard about the Da Vinci that sold for $450 million,

a record by $100 million at an art auction. Sold, $240,000. L-O-O-2-9. Thank you all very much indeed. As soon as the auction is over, they make me stop recording. Sotheby's doesn't want me wandering around with a recorder recording their high-end clientele. The art world is discreet. They're always saying that. But on my way out, as I was in line at coat check, this dapper British gentleman said something to me. You absolutely have to do the accent right now.

Okay. me. You absolutely have to do the accent right now. Okay. He said, I have it on good authority that much of this art came from storage and much of it will end up in storage. That is not bad. All of that's to say that some of this art may never wind up on someone's wall. It may never even end up in a museum. The money pouring into art as an investment is causing some of the world's greatest treasures to vanish. Hello and welcome to Planet Money. I'm Julia Simon. And I'm Kenny Malone. Today on the show, we take you into a shadowy world. A discreet world. Where investors are piling money into the greatest visual works of our culture and then hiding them. We go on a mission to find out where they are and why they're there.

So we're on a mission to figure out where all this art is. And again, it's very secretive. But I was told there's a woman in Los Angeles who knows the art world's secrets. My name is Amber Noland. Amber Noland is an artist herself. She's a curator. She went to art school. One of her sculptures was about a female pirate. These days, she works on the business side, treating art as a tangible asset, a way to store your money. People in the industry describe Amber as the closer. So like what does it mean that you're the closer? It means that I will do anything to find a solution to fix a situation. Okay so like

anything I mean that sounds a little dramatic. Yeah I don't knock anyone's knees out. What Amber actually does is for the past 24 years, she's managed art for wealthy collectors. One day she'll be helping a client block off a major street and use a crane to install a ruchet. On another day, she's dealing with a heist at a stoplight. Somebody lifted the back end of the truck and took the art that was in there. It was about four pieces of work that were really valuable. Never found again. Some days she's going into an ancient library to inspect a work by Leonardo da Vinci.

What was it? Can I ask? That I can't tell. She can't tell me because then you could google it and then you'd know who her client is. Amber is discreet because she works with billionaires. In the high-end art world, you have a broker for your stocks, and you have Amber for your art. I'm handling the actual physical aspect of their high-end investment. So they've got a $3 million painting, and the overall collection is probably valued at anywhere from $500 million to a billion. What? Whoa. Amber has around 40 full-time clients,

and sure, many of them are art lovers, but some of them see art as a place to put their money. Like a better version of a million-dollar apartment. Sure, it's a place to invest a bunch of cash, but you can't move an apartment anywhere in the world whenever you want. So these investors, they buy the art, they want the art, but they don't necessarily want to run a museum. They don't want to have to hire guards. They don't want to have to worry about mold or temperature or whatever. So it's not going anywhere. It's not hanging up in anyone's house.

It's not ready for the latest dinner party. So Amber explains, she tells her clients, look, if you're really buying this art as an investment, you want to keep it safe. You don't care if it hangs on a wall. She tells her clients there's this option, something called a free port. A free port. It is this weird kind of zone where a lot of art is headed these days. They're enormous buildings. They're usually near airports where art just sits and waits and hopefully gets more valuable. And the strangest thing about these free ports is that they sort of exist between worlds. So say I buy a work of art in London. If I send it to a free port in Luxembourg, it hasn't really entered Luxembourg. It's between countries. It's in this sort of customs limbo. Amber says as an art closer, fixer, whatever her job is, she has ended up placing

about $300 million worth of client art in these free ports. And there's one other big reason Amber sends all that art into free ports. Taxes So Freeports are used in the art world to hold work to delay taxation. So the work can live there and be immune to any type of taxation. Amber gave me an example of how this works. Say her client bought a work of art for a million dollars. If that client buys art in New York at Sotheby's, he has to pay the New York sales tax, 8.875%. That's $88,750. But maybe he sends that work of art straight to a Freeport, maybe in Geneva or Singapore. He doesn't have to pay that tax. And that's a lot of money.

That's a lot of money. A lot of money that you don't have to pay until you take that artwork out, which could be a long, long time. It could be forever. You might even be able to use that art stowed away as a kind of cash by taking a loan out against it. It seems like a great deal for art owners and a bad deal for governments. a great deal for art owners and a bad deal for governments. So I called up the federal office, which regulates these zones here in the U.S., and they didn't get back to me for an interview. But I did get in touch with Joshua Kaufman, a lawyer in Washington, D.C., who specializes in art. And I asked him, what is the incentive for the government?

Oh, to increase trade in the ports. It's an industrial stimulus for the areas. People are building those warehouses. They're paying real estate taxes on it. They're employing people in the facilities. They're shipping cargo there. It's legal because there are laws that says you can do it. And there's economic benefit spinoff by having them. And sure, maybe there is some economic spinoff by having them. And sure, maybe there is some economic spinoff by having them. But it's also true that these free ports have become one of these standoff issues.

Places compete to have rich people do business there. If Geneva has a free port, everyone will do their art business in Geneva. So Luxembourg has to have one too, and Singapore. And then the U.S. saw this and thought, oh, we better get in on this too. And so now there are free ports in the United States. But the other weird thing about free ports is that they're not at all new. It's just that being an art tax haven was not at all what they were intended for. No, they started in the mid-1800s in Switzerland, but they were originally built for things like grain and tea. Grain and tea, you can't store it forever. It's short-term storage. And that's why the Swiss government said,

hey, merchants, you can store your goods here for now without taxes. You can worry about taxes later on when someone buys your tea. Over time, rich people started to realize, oh, hey, there's this temporary layover. We can put our gold, our wine into tax-free and no one seems to care that we're keeping it here long term. In the last 50 years or so, art collectors started to keep their art in free ports in a state of tax suspension for as long as they want. And of course, we were dying to see the inside of one of these places. The challenge is that they are not advertised.

They're not open to the public. They are sort of like anti-museums. After the break, we go to a Freeport. In America's favorite tax haven. Delaware. So I went down to Delaware with a guy named Fritz Dietl. He's wearing glasses, blue jeans, blue shirt, blue coat. I like Picasso's blue period.

Oh, man. Fritz grew up in Austria. He became an apprentice, as you do in Austria. His apprenticeship was in art logistics, and he loved it. He was transporting famous works of art all over Europe. In the 1980s he moved to America. He started his own company transporting and storing high-end art but he was noticing a trend. Some of his clients in New York were sending their art back to these free ports in Europe. And Fritz he wanted in. He wanted to build his own Freeport. It's just like a big white building.

Very nondescript. Yes. That's why we like it. Yeah. Why do you like it like that? Well, you know, we're not advertising what's going on inside. So we get out. It's very snowy. Fritz rings the bell. We meet another Austrian, the building manager. Hi, how are you? They take me inside where I sign a visitor book. So this might sound like a weird question, but are we technically, where are we now? Are we in America?

You're definitely still in America. We are a designated foreign trade zone warehouse. So for U.S. customs purposes, we have some property here that hasn't formally entered the United States. But we are still under U.S. customs control. Fritz takes me through a loading dock, past lots of boxes, and then he takes me to the back of the warehouse, where the building manager opens up a huge metal gate. Wow. It's cavernous. 20-foot ceilings, and as far back and as far up as I can see, boxes.

So I'm looking down, and I see wooden boxes, wrapped-up crates. Everything that you see in here is artwork. We only store artwork. Everything, we only store artwork. I thought about something the former director of the Luxembourg Freeport once said, that he didn't want Freeports to become cemeteries for art. But what was I looking at? I was looking at a bunch of art in wooden boxes that kind of look like coffins. Fritz didn't let me look for long. I clearly wasn't going to be allowed among the priceless artwork.

You just turned off the light. Do you keep it in darkness? Yes, absolutely. He closed the gate, so we went out to the front room and talked for a while with some boxes nearby. So this could be a sculpture or a painting. So you can't tell me what's inside. I definitely cannot tell you what's inside. You know, I have a feeling this gives me a Monet vibe. It's kind of about the size of the water lilies. And this is the thing about free ports. They make it so tempting if you're an art investor, if you've poured money into this work,

to just take that work of art, box it up and store it out of sight. So I called up Joshua Kaufman, the attorney again, and I pressed him. Why are people OK with this system, a system that makes it profitable to put great works of art in storage? You're not using the art. This system encourages people to put their art in warehouses. To invest in art. I mean, it's a way of looking at investment. I, you know, it's like anything else.

People invest in art. They invest in real estate. They invest in all kinds of, you know, places. But you can see a building. You can see real estate. You know, a Picasso that's... Yeah, you can look at dirt, I guess. I know, but a Picasso that's sitting in a Freeport, you and I, we can't see it.

Well, I mean, you can start making that argument to a great extent about, you know, all great art that's in private collections, you know. But somebody's enjoying it on their wall. Well, those people do. I guess I could go to my Freeport and sit in my room and look at my art. I saw another piece near the loading dock as I was leaving. It wasn't in a box. It was wrapped in plastic. I found one piece of art. One piece of art that I could see because there's a clear plastic over it. Oh, it's like a lot of white paint kind of sunglasses. There's one piece that I can see. Later, I figured out who had painted that one piece I did see.

I tried to get in touch with her. I wanted to ask her what she thought about her art being in a warehouse. But she didn't want to talk. Sure, because I can imagine this is all pretty bittersweet. On one hand, you've sold a painting and the art market is booming, which is great. But arguably, all of this booming has contributed to more and more works of art being stored away in these like anti-museums. Yeah, Kenny, the two of us will be looking at art in books. But the real art, the art itself, it might be sitting in darkness.

Today's episode was produced by Jessica Chung. Our supervising producer is Alex Goldmark. Bryant Erstadt is Planet Money's editor. Thanks to Georgina Adam, Christine Hury, and Marcy Friedman. I'm Kenny Malone. And I'm Julia Simon. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.