A Landlord Rents Office Space, and Maybe a Picture or Two

Written by Randall Smith.  Published Friday, July 25,2014 on Dealbook.nytimes.com. 

A new venture will offer commercial customers the ability to lease works by well-known artists like Andy Warhol (though probably not these, which were sold in May at Sotheby's).

CreditMany business owners want their offices to reflect good taste, with fine art on the walls. But they must weigh the cost against the vagaries of the marketplace. A few good years, and the millions come rolling in. A few setbacks, and the banks send a crew to pack up the furniture.

Many business owners want their offices to reflect good taste, with fine art on the walls. But they must weigh the cost against the vagaries of the marketplace. A few good years, and the millions come rolling in. A few setbacks, and the banks send a crew to pack up the furniture.

For this cold reality comes a new service: art leasing. A business being started by the Durst Organization, the big Manhattan office landlord, and Asher Edelman, a New York art financier, plans to acquire fine art and allow banks, hedge funds and other businesses to lease it for their office walls, a cheaper alternative to buying.

 

Mr. Edelman said in an interview that the service would offer customers the ability to lease works by well-known artists like Andy Warhol and Frank Stella under leases of five years or longer for annual fees he estimated might be 6 percent to 12 percent of the artworks’ market value. Some of the leases may also include an option to purchase.

While a few such services already exist, the entry into the market of a landlord that owns 13 million square feet of prime office space and a well-known if controversial art connoisseur appears to reflect the current boom in art-market prices and prestige.

“Conceptually, there’s a legitimate need for it,” said Jeff Rabin, co-founder of Artvest Partners, an art and finance advisory firm in New York City. But he noted that its merits would depend on the terms and structure of the leases.

“A lot of tenants are interested in fine art but may not have the time or money to get involved to acquire the art or to finance the art,” said David Neil, chief administrative officer of the leasing and marketing division of the Durst Organization. “We believe this venture will be a tremendous amenity and benefit for tenants not only in our buildings but elsewhere.”

A Wall Street raider in the 1980s, Mr. Edelman, 74, said the leasing business would be called Artemus, which he described as a male variation on Artemis, the Greek goddess of the hunt. Another partner in the venture is David Storper, a distressed-investing expert who worked for 16 years with Wilbur Ross, leaving W.L. Ross & Company in 2012.

Mr. Neil said Mr. Edelman proposed the art-leasing venture after Durst’s chairman, Douglas Durst, visited his East Side gallery, Edelman Arts, about a year ago. Mr. Edelman has since advised Mr. Durst on art for one of his office buildings. His main business, ArtAssure Ltd., offers art-related loans, sale guarantees and the purchase of large collections.

Among Durst-owned Manhattan properties are One Bryant Park, the Manhattan flagship office of Bank of America; 4 Times Square, headquarters of Conde Nast; four buildings on Third Avenue; and three more on the Avenue of the Americas. Durst is also an effective co-developer of One World Trade Center with the Port Authority of New York and New Jersey.

Mr. Edelman’s alliance with Durst comes after a court battle with another New York real estate dynasty, the Milstein family, whose Emigrant Bank Fine Art Finance unit accused Mr. Edelman in 2010 of defaulting on $3.1 million in art-backed debt. In a countersuit, Mr. Edelman contended that Emigrant was trying to gain control of his art-finance business. A judge ordered Mr. Edelman to pay Emigrant a disputed $559,000.

Asked about Mr. Edelman’s history of litigation, which has included matters like unpaid rent and compensation for damaged artwork, a Durst spokesman said the Durst business also litigates when necessary. “We live in a litigious society and, unfortunately, litigation is part of doing business.”