DETROIT — When Detroit’s bankruptcy trial resumes on Monday, the battle over the value of the Detroit Institute of Arts will return to center stage.
The city’s biggest holdout creditor, bond insurer Financial Guaranty Insurance Co. (FGIC), is betting its case against the city’s so-called big market on the premise that the city belongs to IAD is worth billions more than Detroit emergency manager Kevyn Orr is willing to admit.
If the FGIC can prove the museum is undervalued or the art can and should be sold, U.S. Bankruptcy Judge Steven Rhodes could reject Orr’s restructuring plan to cut more than $7 billion from the city debt, reinvesting $1.4 billion in services, and preserving the DIA as an independent business. institution.
In other words, even as the lawsuit appears on a fast track to the finish line, the dispute over the DIA remains a potential roadblock that could force Orr back to the drawing board.
Although Rhodes has repeatedly signaled that selling the DIA treasures will not support the city’s finances or services in the long term, the fight over museum value speaks directly to the legality of the large $815 million bargain. dollars at the heart of Orr’s plan – and whether the plan is fair and feasible.
The key question is whether the big deal — $815 million pledged by foundations, the state government and the DIA to bolster city pensions and protect art from sale by transferring museum ownership to an independent non-profit organization – represents a reasonable approximation of the value of the collection within the overall context of the city plan.
A city expert witness testified last week in support of a report that the DIA’s more than 60,000 jobs were worth no more than $4.6 billion – but also warned that a genuine Fire sale might only bring in $1.1 billion due to legal hurdles and other practical impossibilities. Meanwhile, FGIC attorneys are expected to present evidence and call witnesses as early as this week to claim the museum is worth more than $8 billion, nearly double the city’s estimate.
“Ultimately, the judge will have to look at each of these assessments and the assumptions made in each and make a decision on which he thinks is most accurate and why,” said Craig Barbarosh, a municipal bankruptcy attorney based in California. “That’s the purpose of expert witnesses. He will judge which evidence is more credible.”
The city believes that greater market fairness is underpinned by the legal uncertainties surrounding any proposal to sell art or use it as collateral, and the results of two separate DIA assessments. The New York Arts Investment Company Artvest Partners valued the DIA art at between $2.8 and $4.6 billion – although the report also states that if the art were indeed sold, it would fetch only $1.1 to $1.8 billion, and may -be as low as $850 million if lawsuits block the sale of a large number of works.
The Artvest report, which was funded by both the city and the DIA, was authored by company co-founder and director Michael Plummer, who testified last week.
Additionally, the city points to an initial appraisal it commissioned last year from auction house Christie’s which said the 2,800 DIA works to which the city has a clear title because they were purchased directly with city funds, are worth less than $900 million – almost exactly the total included in the grand bargain.
On the other hand, FGIC, which could lose more than $1 billion if the city’s plan is approved, argues that the big market is unfairly excluding it from the deal and inappropriately understating the art. FGIC’s former ally, bond insurer Syncora, dropped its objections after reaching a settlement with the city, leaving FGIC the strongest critic in the big market.
The creditor’s main expert witness will be New York art consultant and appraiser Victor Wiener, director of Victor Wiener Associateswho authored the report setting the value of the DIA at $8.1 billion.
Appraising art is a notoriously slippery business. Results can vary widely depending on the amount and quality of information funneled into the equations and the assumptions behind how the numbers are interpreted.
New York valuation expert Beverly Schreiber Jacoby said it should come as no surprise that the Artvest and Wiener reports both end up supporting the interests of those who paid for them. She declined to say either report was authoritative, though she did credit Artvest for providing more detailed analysis of various sectors of the art market.
“I think there are fundamental flaws in all reports that render them essentially meaningless,” said Jacoby, Harvard-educated president of BSJ Fine Art in New York and a respected independent voice in the industry. “There is a lot of selection bias and confirmation bias in these reports – selecting examples that either strengthen your argument or weaken another. An assessment is a professional opinion of value. It is always hypothetical and subjective.”
Art law and bankruptcy experts say Rhodes has several options. He could accept the numbers from Artvest or Wiener as final, or he could split the difference between them. He could decide that the certainty of the cash that the big market represents combined with the importance of the DIA to the city’s future outweighs the objections of creditors and the uncertainty that could accompany a rejection of the plan of the city.
Conversely, Rhodes might decide that the big market is undervaluing the art enough to justify forcing Orr to find more money for FGIC than the roughly 10 cents on the dollar he gets under the plan. ‘Orr. “I think it’s creditors’ endgame,” said Nicholas O’Donnell, a Boston-based attorney who specializes in ss-related law. “They know they can’t force an outright sale.”
O’Donnell said an art sale is increasingly unlikely. Neither creditors nor the judge in a municipal bankruptcy can force the sale of assets like art, and Orr spokesman Bill Nowling said in July that even if the big market were to collapse , the city did not plan to sell art. O’Donnell said he believed the DIA argued his collection was barred from sale because it was held in a charitable trust – despite technically being owned by the city.
“I’d be quite surprised to see any talk about selling art coming back to the table,” O’Donnell said.
Contributor: Nathan Bomey, Detroit Free Press