Detroit’s emergency financial manager has broad discretion to decide
what to sell or lease during bankruptcy, including a world-class
municipal museum and its masterworks.
By Mark Guarino
CHICAGO — Besides looking for ways to cut operating costs and
assessing obligations to pensioners and retirees, a bankrupt Detroit
is also turning to its public assets, such as its airport, parking
garages, and its publicly owned art to find ways to chip away at its
$11.5 billion of unsecured debt.
The potential sale of its public art collection, which includes
masterworks by Rodin, Degas, Van Gogh, and Cézanne, is generating the
Emergency financial manager Kevyn Orr announced Monday that he is
hiring Christie’s Appraisals Inc., the famed New York City auction
house, to appraise a portion of the collection at the Detroit
Institute of Arts on the behalf of creditors who are requesting the
assessment, which then might be used in a sale or leasing situation to
help pay back the debt.
Creditors have good reason to demand the assessment. When Mr. Orr
announced Detroit was filing for Chapter 9 bankruptcy in July, he said
he wanted to stop paying unsecured debt to creditors and, instead,
restructure the terms to offer them 10 cents or less on the dollar.
But Orr is assuring the public that he is looking at the art
collection, among other assets, as a way to “create value from the
asset without a transfer of ownership.”
“Our goal is to preserve the value of all of the city’s assets and
make sure they are rationalized in a way that value can be returned to
its citizens and, in certain cases, enjoyed by Detroit metro area’s
residents for many years to come,” he said, in a statement released
Certain pieces of the museum’s 60,000-piece collection are off-limits,
if their original benefactor stipulated they can never be sold, but
Orr has the right to sell pieces without those barriers.
It’s unlikely he will do it, says Stephen Selbst, chair of the
bankruptcy department at Herrick, Feinstein, a New York City law firm.
Under the terms of a Chapter 9 bankruptcy, Mr. Selbst says, the court
cannot determine which assets, if any, should be sold, leaving the
decision solely in Orr’s hands.
“My guess is that Kevyn Orr is getting the appraisal to demonstrate to
creditors there are no sacred cows and he will at least consider the
sale of property. But at the end of the day, creditors can’t force him
to sell it,” Mr. Selbst says.
Orr could potentially lease the artwork as collateral to raise money
for a loan, says Dennis Enright, a national expert in privatization of
government assets with NW Financial in Hoboken, N.J.
“You could create a revenue stream around it. It’s definitely not a
normal governmental world activity, but certainly private collectors
use their art as collateral and bet it against for their own private
interests,” Mr. Enright said.
The Detroit Institute of Arts is considered in “the top five” of U.S.
art museums, says Henry Adams, an art historian at Case Western
Reserve University in Cleveland. Some of its prized works are “A
Family Group,” by Anton Van Dyck, which is “hugely significant” and
was once owned by the Medici family in Florence, Italy, and “Nocturne
in Black and Gold: the Falling Rocket,” (1875) by Jaes McNeill
Whistler, which Professor Adams views as the worldm’s first abstract
painting. “In essence, modern art comes out of that painting,” he
Because such unique works rarely, if ever, come to the market, Adams
says that the appraisal will be extremely difficult.
“You don’t have anything close to compare it to. They’ll come up with
a figure, but there’s a lot of guesswork there,” he says.
The only market the paintings might find buyers is China and the
Middle East,” Adams says.
“In this moment in the art market, that’s where the really big money is.”
The city owns the museum’s building, property, and collection. In a
statement released Monday, the museum said it supports Orr’s efforts
but that “he undercuts that core goal of getting the city back on a
sustained path to solvency by jeopardizing Detroit’s most important
Since Detroit is the largest city in the U.S. to declare Chapter 9
bankruptcy, any decision Orr makes will be unprecedented — and closely
Many cities have sold their assets to pay creditors or to fill budget
gaps, however none faced the task at such a large scale.
Orr said Monday he is also hiring outside experts to appraise the
value of the city’s parking garages and meters, the Detroit-Windsor
Tunnel, the Coleman A. Young International Airport, and certain
municipal real estate holdings.
“There’s never been a case like this,” says Selbst.
If the politically risky decision would be to sell Detroit’s art, the
politically expedient one would be to sell off its vast acreage of
vacant land, left abandoned due to systemic population loss over
decades, Selbst says.
“You have tens of thousands of lots that the city owns by virtue of
default of property taxes, and no one in Detroit would argue if you
sold them,” he says.
“In a sense, the art is [also vulnerable to a sale] but the political
stakes are immeasurably higher. No one would blink at the sale of
abandoned property, but when you talk about Diego Rivera murals,
people will be upset.”
The challenge of real estate is that it is susceptible to unstable
markets. For example, officials in Pontiac, Mich., were forced to sell
the Pontiac Silverdome, an 80,300-seat stadium once valued at $20
million, for just under $600,000 in 2009.
And some privatization efforts also carry a political risk, such as
when Chicago Mayor Richard M. Daley sold the city’s parking meter
system to Morgan Stanley for over $1 billion in 2008; the issue
continues to be a lightning rod under the Rahm Emanuel administration,
especially after Morgan Stanley hiked parking rates and independent
investigations revealed that the deal was undervalued.
Despite those risks, Orr is likely looking at long-term assets to
privatize, such as the water and sewer systems, and garage and meter
parking, because they are traditionally “assets that are the most
interest to investors in the market,” says Enright of NW Financial.
“The value will be created, in part, by [raising] rates over time,
which the city probably hasn’t been doing. By doing that, you can
monetize those [assets] into longer-term cash flows and entice the
private sector to participate,” he says.