Sotheby's Auction House in Financial Difficulty

If you thought the real estate bubble was bad, spare a thought for the even-more deflated art bubble. World famous auction house, Sotheby’s, and by extension, Sotheby’s International Realty, would seem to be in some financial difficulties at the moment. The current situation has more to do with declining art “values,” and unrealistic guaranteed prices, than anything else. Sotheby’s share price has fallen dramatically over the last three months, and is currently trading at around $8, down from a high of over $56.

The firm has just borrowed another $250 million, pushing the edges of their $300 million credit facility, bringing their total debt up to around $620 million, and has just filed an 8-K with the SEC stating they have lost another $15 million after recent sales in London and Hong Kong failed to reach guaranteed levels. Adding to the problem, their accounts receivable now top $1.6 billion, and they stand a very good chance of being unable to collect at least a portion of this. Much of this debt is owed by Russian “billionaires,” no longer in a position to pay.

Auctions being held today and tomorrow in London and New York, expose the firm to another spate of potential losses if prices remain depressed and do not reach guaranteed levels. One painting by Picasso, “Arlequin,” which was expected to sell for $30 million when the auction was arranged, has already been withdrawn. A Sotheby’s representative stated that the painting had been withdrawn for “private reasons.”

This is unlikely to have any impact on realty associates, other than perhaps waking up to discover a new owner sometime soon. It is difficult to judge at exactly what point Sotheby’s becomes a potential take over target, because the one difficult-to-value asset they own is their brand name, but if the share price drops much lower, I would hazard a guess they will become an attractive trophy purchase.

Sotheby’s 8-K Filing

Despite all the guesses and news reports about the price paid for La Leopolda in Villefranche, the latest I am hearing is the price paid was not 500 million Euros

It was in fact, 365 million Euros. ($545 million US) Still no news on the buyer, but I doubt this will remain a secret for long. The entire point of paying this much for a property is to be able to tell your friends how much money you paid.

This is still a staggering amount of money to pay for a single property - regardless of the location. Although, the real estate agent responsible for the sale took a massive discount on the usual commission. He apparently accepted a measly 1%, so his commission was only 3 million or so.

A few newspapers are talking about a backlash against the amount of Russians buying property on the Riviera, but this is untrue. There is not a backlash against Russians per se, more against the nouveau riche attitude to waste that many Russian billionaires have. Being able to spend 365 million on a property you will only use 10 days a year is an example, but wasting food to show how wealthy you are is prevalent amongst the latest influx.

I will not name any names, but it would not be unusual to order 50 lobsters for 10 guests and make certain 40 of them are thrown in the trash, just to prove how wealthy one is. The more you can waste, the more money you have - simple. This is what is getting to the locals. Many French people have a healthy respect for food, both in the care and preparation, but also what happens to it afterwards. It is to be shared and enjoyed, not dumped in the trash.

Edit 18th August - Nice Matin is now reporting (unconfirmed as yet) that the mysterious buyer is Russian billionaire Mikhail Prokhorov, who was arrested by French authorities last year for involvement in a prostitution ring. No charges were bought, but Mr. Prokhorov swore never to set foot in France again, so who knows.

Edit 20th September - New rumor - Andrey Melnichenko, owner of the mega yacht “A” is the buyer. Nothing solid yet.

There are some more photos of La Leopolda here.

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