Annie Leibovitz’s exit strategy

By Felix Salmon
August 31, 2009

Bloomberg’s Katya Kazakina has done the rounds of various real-estate appraisers, asking them how much Annie Leibovitz’s property might be worth, and it turns out that the real estate alone – never mind her life’s work – could well sell for substantially more than she owes Art Capital Group. But, as Kazakina says with delicious understatement:

Whether the appreciation of the real estate, in Manhattan and upstate New York, will offer the photographer a path out of her financial troubles is unclear.

For one thing, Leibovitz has to repay Art Capital the sum of $24 million, plus $2.9 million interest, plus fees, by September 8. As one appraiser told Kazakina, “It’s not going to sell in a week” – especially not her West Village live/work studio, renovated at enormous expense, and custom-designed to the specific needs of Annie Leibovitz. And there’s another major impracticality: according to Art Capital’s complaint against Leibovitz, she has refused to allow Art Capital’s real-estate brokers to show her property to interested potential buyers.

For there’s the rub: as part of the loan agreement, Leibovitz authorized Art Capital to act as the “irrevocable exclusive agent” for the sale of both her photography and her property. Neither Leibovitz nor anybody else can sell these properties, the liens on which are held by Art Capital. Only Art Capital can do that. And the way that Art Capital’s sales agreement with Leibovitz is structured, there’s very little incentive for them to sell any property before September 8. As Kazakina reported on August 18, quoting Art Capital spokesman Montieth Illingworth:

Goldman and Art Capital stood to gain 12 percent interest from their one-year loan to Leibovitz, Illingworth said. This means, Leibovitz would have to pay $2.9 million on top of the $24 million loan…

If Leibovitz doesn’t default, Art Capital would receive a 10 percent commission on copyright and real estate sales, Illingworth said. If she does, the commission would increase to 25 percent of the sale of the collateral (the higher rate includes 11 percent to 13 percent in legal, real estate and other fees, Illingworth said.)

How many people, working on commission, will sell an item at a 10% commission today if they know full well that the commission rate rises to 25% in little more than a week’s time?

It’s not just the sales agreement which gives Art Capital an incentive not to sell the property. There’s the loan agreement, too: Art Capital’s Ian Peck told me in June, talking about his business in general rather than Leibovitz in particular, that his “commissions and fees are designed to be prohibitive” in the event that a borrower defaults on her loan. Come September 8, Art Capital won’t just be collecting a 25% commission on any real or intellectual property it sells on behalf of Annie Leibovitz. The amount which Leibovitz needs to repay Art Capital will also spike significantly: the interest rate on the loan will go up to some unknown penalty rate, from 12%, and Art Capital will almost certainly charge Leibovitz substantial (and also unknown) fees on top for going into default.

What’s more, since Art Capital is now working on a 25% commission, it’s also clear that it has every incentive to sell both the real estate and the intellectual property, rather than the real estate alone, since the best-case scenario for Art Capital involvesmaximizing its total sales commission.

The subtext to the Bloomberg article, as elucidated by the likes of Jessica Pressler, is that if she’s really lucky, Leibovitz might be able to pay off her whole loan just from real-estate proceeds, without having to touch her intellectual capital. But that seems improbable to me. Clearly, no real estate deal is likely to get done between now and September 8 — so if and when the property is sold, Art Capital will take a 25% commission off the top. Using the high end but not the highest end of the estimates in the article, the Rheinbeck property could sell for $6 million, with the West Village property going for $24 million. That’s $30 million together, or $22.5 million after commission – not enough even to repay the loan principal, let alone the interest and any unknown default penalties.

Art Capital would, I think, then be fully within its rights to continue to shop Leibovitz’s full archive of photographs, which it values at $50 million, to the highest bidder – and to take its full 25% commission on any sale before repaying the balance of the loan plus interest. Let’s say it sold the archive for $30 million: again there would be that $7.5 million in sales commission, leaving $22.5 million to repay $1.5 million loan principal, plus interest and unknown penalties. Even with no penalties at all, there’s $2.9 million in interest already accrued: in the wake of her real estate and life’s work being sold off for a total of $60 million, Leibovitz would be left with just $18 million, or less. The rest of the proceeds ($42 million plus) would be kept by Art Capital. Oh yes, and Art Capital would also be entitled to a 25% commission on any income from photography which Leibovitz makes for two years after the loan is paid off.

How can Leibovitz get out of this mess? As I see it, she has two hopes. One is that Goldman Sachs, which owns part of the loan, takes pity on her and advances her the money to pay it off in full. The other, as sketched out by John Cook, is that she files for bankruptcy and throws herself on the mercy of a sympathetic bankruptcy judge:

Art Capital would still likely be able to force the sale and recoup some or all of its debt, but a judge might be convinced to reduce the amount, modify the interest rate, or alter the sales agreement under which Art Capital gets commission on the sale.

For Leibovitz, there’s a real risk that the bankruptcy strategy would gain her little and just end up diverting precious millions to two (or more) sets of bankruptcy lawyers. But I reckon it might well be her best hope.

13 comments

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What a mess. Is Annie in denial? I’m just trying to think we’re her head was at when she signed this agreement. What’s up with her not letting the realtors into her properties?

This just makes the sympathy for her all the more confounding. If this loan is essentially a mortgage that is fully covered by the property, then the whole intellecutal property thing is kind of a red herring and she is no different from any other homeowner who bought too big. Nobody wants to lose their home, but she could have sold and been free and clear to live a very nice lifestyle she could afford. How many people would love that option nowadays?

Posted by Ledbury | Report as abusive

Art Capital bills itself as “the only independent source of art lending” …Surely as Art Capital drags its own reputation through the mud over its handling of such a famous person, the time is ripe for other firms to unseat them.

Posted by Dan | Report as abusive

Art Capital will go down in history as a creative thief. Annie keep your vision.it is yours not a banks.

Posted by siobhan westapher | Report as abusive

Uh, and we care about this because…?

Posted by Observer | Report as abusive

“One is that Goldman Sachs, which owns part of the loan, takes pity on her”ROTFL. Vampires don’t show pity when they smell blood.

Posted by a | Report as abusive

Um,”Art Capital’s Ian Peck told me in June, talking about his business in general rather than Leibovitz in particular, that his “commissions and fees are designed to be prohibitive” in the event that a borrower defaults on her loan”Smacks of an admission that this is a penalty clause. Courts generally won’t enforce penalty clauses. Leibovitz should breach.

Posted by zach | Report as abusive

If the punchline here is that an artist who lived for years like a captain of industry, royalty or a Russian oligarch, spent a gazillion and a half when she only had one gazillion because she wasn’t willing to control her spending, and then ends up with “only $18 million” after her assets are liquidated, well, it’s just a little hard to get all that worked up about it. And I suspect that a bankruptcy judge who spends large parts of his or her time seeing destitute folks struggling to pay their car loans may not be all that sympathetic.

Posted by Vincent | Report as abusive

“Leibovitz would be left with just $18 million, or less.”Cry me a river. Sure, it sounds like she is getting royally screwed, but when the outcome of getting royally screwed is to be left rich and famous, then I have zero sympathy.

Posted by Bob Montgomery | Report as abusive

Well, what can I say, with her junkie mentality, she has never changed..Annie brought this on herself , years of abusing her assistants and reckless attitudes to others, so she dug her own grave Why should anyone take pity on her? She might want to get closer to God for starters and attempt to turn her life around so that her beautiful children will have a decent future.

Posted by Lara | Report as abusive

Your math wrong. Annie walks away with the original 24 million plus another 18 million … equals 52 millionEnough to get by on, as long as she didnt invest in madoff with the original 24 mil

Posted by tom | Report as abusive

I think there is another option, which I have arrived at after reading the story about and terms of this loan: Leibovitz can be declared to be NOT IN HER RIGHT MIND when she made this deal and therefore non compos mentis. Perhaps her legal team could work with that.

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