Day 11: Detroit’s Bankruptcy Trial

Day 11: Detroit’s Bankruptcy Trial

The day began with Michael Plummer’s return to the witness stand. The founder of Artvest, Plummer authored a study assessing the value of the entire collection at the Detroit Institute of Arts. Here’s some of what he had to say yesterday. He was followed by Annmarie Erickson, the chief operating officer of the Detroit Institute of Arts, and John Satter, a real estate appraiser who valued the museum’s physical property.

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3:35 p.m.

Judge Steven Rhodes interrupted Allan Brilliant, who represents the Macomb Interceptor Drain Drainage District, while he was questioning a real estate expert about what the Detroit Institute of Arts building and land are worth.

Rhodes asked Brilliant what HE thought the property is worth.

$200 million, Brilliant said.

2:31 p.m.

Other information from the testimony of John Satter, the Midwest region managing director at Hilco Real Estate Appraisal:

The DIA sits on 14 acres. The property is worth $500,000 an acre. So Satter concluded the property alone is worth $7 million.

The fair market value of the property and the building is about $43 million.

But that is if it was sold to someone who wanted the property for an “institutional use.” Satter also appraised the property as if it was sold to an investor who would need to make substantial changes to the site.

In that case, Satter estimated the sale price at $18.5 million.

But Jones Day attorney Geoff Irwin, working for the city, asked about taxes the DIA property and building would generate if purchased by an investor for commercial purposes. Satter said it could generate $1.5 million annually in taxes.

But he also cautioned about its marketability to investors.

“It’s a beautiful building. It’s got wide halls and nice spaces but it would be a real challenge to repurpose that. There’s a lot of question marks and some caution. It’s in a historic district, and what allowable uses remain would be answered by the city,” Satter said.

Under cross examining by Allan Brilliant, who represents the Macomb Interceptor Drain Drainage District, which has a $26 million claim in the case, Satter admitted he has done 6 real estate appraisals in Michigan.

One was in Detroit. It was of a fast-food restaurant.

2:07 p.m.

The first – and possibly only – afternoon witness is John Satter, the Midwest region managing director at Hilco Real Estate Appraisal. He appraised the real estate holdings of the Detroit Institute of Arts for Jones Day law firm on behalf of the city.

His conclusion: “The market value of the property in question falls somewhere between $18,500,000 and $43,000,000, depending on the circumstances of the sale.”

His full report is here.

1:18 p.m.

At the end of Annmarie Erickson’s direct and cross examination by attorneys, Judge Steven Rhodes had some questions of his own. Here are a few of their exchanges.

Judge: What is your opinion on what the value of the museum is to the 60,000 school children who you said came there in the past year?

AE: I think the museum is of tremendous value to those children. It gives them an opportunity, first of all, to get out of the classroom and do something different and learn something different and look at the world in a different lens than they might in their classroom. …. I think that’s really valuable and if I could tell you a small anecdote: last spring when we were very full of schoolchildren, there were two little boys walking together. One of them looked at the other and said, ‘This is way cooler than I thought it would be.’ I think that kind of thing happens every day in the museum.

Judge: What is the value to the children of participating in the programming that the museum offers apart from just the opportunity to see the art?

AE: The museum uses a teaching method called Visual Teaching Strategies (VTS) and all of our school tours are based on VTS. … What we find is that kids who go though VTS in the art museum begin to develop skills in terms of critical thinking, in terms of being able to articulate their thoughts better … and sometimes, if we do a writing program with them, improve their writing. We also have literally a thousand comments from teachers … that talk to us about happened with their students when they were at the museum. It really does sharpen their curiosity in ways that one wouldn’t necessarily expect.

Judge: Families go to the museum.

AE: They do.

Judge: What is the value to families when parents take school-age children to the museum?

AE: I think the museum is a great social place for people. They can come in. They can feel very comfortable and they can engage in ways with each other they certainly wouldn’t do in front of a television. I think it promotes conversations. … Parents can actually feel smart, and that’s an important concept. Because if a parent doesn’t feel smart, they’re not comfortable talking to their child. … We don’t want a silent art museum at the DIA. Our mission statement actually says that we create experiences that help people have personal experiences with art. … That’s what we believe art is about.

Judge: What is the value of going through the art museum for adults who go…? Why do adults go to the DIA?

AE: I think that adults go, and I can put myself among that because I do go to the museum and I go to other museums, I think that adults go as a reminder of possibilities. The museum reminds us all that we can be creative problem solves because in the end, that’s what artists do: they solve problems. So I think adults, although they may not identify it as that, they go for inspiration. Certainly they will tell you they go to be educated. … They go to be educated. They go to be inspired. They go to see something different. It takes them out of everyday life in a way that is satisfying.

11:59 a.m.

Selling the art would not only decimate the museum collection, it would sacrifice the tri-county millage and donor gifts, according to DIA COO Annmarie Erickson who testified this morning.

“We have heard public statements from the county executives in Oakland and Macomb counties that they would stop millage payments if anything was sold. I have personally had conversations … that the millage would be stopped,” she said. “It would have a tremendously chilling effect on donors. … We can’t raise money while our future is in question. A sale of the art would be even worse. We would not longer get gifts or art because they would be subject to sale.”

Another effect: “We would be persona non grata in the museum world,” she said.

Erickson learned during the Spring 2013 that the city was considering the possible liquidation of the art collection to pay creditors. Museum executives made their opinions known.

“We affirmed that we hold the collection in trust for the public. We believe the city is a partner in holding that collection in trust and we would defend the collection as needed,” she said. “We made many public statements. It was reported in any number of media outlets. It was reported in our board minutes. We were very public about it.”

11:26 a.m.

The Detroit Institute of Arts chief operating officer, Annmarie Erickson, is convinced the museum will meet its commitment in the “Grand Bargain.”

That’s the deal that has foundations contributing $366 million to Detroit’s pensions systems and the state providing $195 million. Among the conditions: The DIA raises $100 million and no artwork is sold.

“It’s not easy but we’re doing very well. We have approximately $85 million committed to that and we have multiple asks that are still out there. I am completely confident that we will do it,” Erickson said while testifying in the city’s bankruptcy case.

If there was to be a sale of the art, the museum would fight.

“We would be in litigation to protect the collection. We hold the collection in trust and we consider that to be an obligation we cannot shirk and if it means fighting legally for it, we would,” she said.

10:53 a.m.

A few quotes from Annmarie Erickson, the chief operating officer of the Detroit Institute of Arts:

“The Rivera murals are probably what the museum is best known for,” Erickson said. “Rivera considered them to be one of his finest works of art, and we really consider them to be the heart of the museum. I don’t know that there is another piece that speaks so deeply to what a city is.”

 

“It’s the core of what we do: hold our collections in trust for the public. When the DIA was facing dire circumstances, we never considered selling our collection,” she said. “Everything we do is really for the public’s use of the museum.”

10:32 a.m.

Annmarie Erickson, chief operating officer of the Detroit Institute of Arts, is on the witness stand. Museum attorney, Arthur O’Reilly, of Honigman, is questioning her.

A few things she’s mentioned:

*The museum considers itself one of the top six in the country, and is the largest museum in Michigan. The DIA makes loans from its collection to smaller museums in the state and develop professional development seminars.

*There were about 610,000 museum visitors last year. “We are actually on track to do better than that this year,” she said.

*The DIA counts 30,000 members. “They’re absolutely critical to us,” she said. “They are our closest family.”

*About 700 volunteers are “active”, staffing the information desks, supporting security guards by walking through galleries, conducting public tours, dusting the art. “It is not an exaggeration to say we could not operate without our volunteers,” Erickson said.

*Full- and part-time employees number 300.

*The museum is conscious of the needs of Detroit, working with the veteran’s hospital, Children’s Hospital of Michigan, The Children’s Center, recovery programs and other social service providers and nonprofits. “By our very existence we provide benefits to the community,” she said, citing several educational, social service and professional programs.

*The InsideOut program temporarily installs high-quality reproductions of pieces in “unexpected places” in Detroit and suburban communities: parks, walls, alleys, “just places where you wouldn’t expect to see a beautifully framed piece of art.,” she said. “We’re now in our 5th year and we show no signs of slowing down.”

*The annual budget this fiscal year is $32 million. A tri-country property tax currently raises $22 million. “The other $10 million is fundraised,” Erickson said. “We go out and raise funds from individuals, corporations, and foundations to support the museum operations. There’s a very small revenue-generating line as well. …It’s less than 3 percent of the budget.” The city provides no operational funding.

9:52 a.m.

Ed Soto, attorney for bond insurer Financial Guaranty Insurance Company cross examined art expert Michael Plummer for 24 minutes.

Soto’s client, known as FGIC, commissioned a study of the Detroit Institute of Arts collection and found “likely buyers” who would spend up to about $2 billion for parts of the collection.

Plummer’s report, on behalf of the city and the DIA, valued the collection at between $2.8 billion and $4.6 billion but said that could drop as low as $1.1 billion if actually sold.

Soto questioned Plummer about his earlier statements about how much lower the collection would sell for as part of the bankruptcy and challenged his assertions that all works would be discounted.

“You might be able to sell ‘The Wedding Dance’ but there is an enormous collection at the DIA and I don’t believe there are enough buyers for that out there right now,” Plummer said.

9:33 a.m.

Michael Plummer recounted the story of the Delaware Art Museum’s sale of a treasured work in its collection to pay debt as a warning for Detroit.

Plummer is founder of Artvest, the New York art investment firm that evaluated the Detroit Institute of Arts collection for sale. He’s testifying as a city witness in support of the Plan of Adjustment during the bankruptcy trial.

Officials at the Delaware museum decided to sell William Holman Hunt’s “Isabella and the Pot of Basil,” and other works to raise money toward a nearly $20 million debt from a facilities expansion and to shore up the museum’s endowment.

Before the sale, Christie’s auction house estimated the 1868 piece would sell for $8.4 million. The actual going price? Just $4.25 million.

“It was the taint around that picture and the bad publicity around it,” Plummer said, “that resulted in a discount of 50 percent. It sold for half of what it was expected to sell for.”

The same scenario could follow any DIA liquidation sale, he said.

9:12 a.m.

Drop the comparisons between a hypothetical sale of the Detroit Institute of Arts collection and the Sotheby’s sale of Jackie Onassis’s estate, an art industry expert testified today.

“There was an aura around that auction that related to her personality, her life, her mystique,” said Michael Plummer, as he testified in the bankruptcy trial. “The sale of the DIA would not be a celebratory event.”

Any sale of the DIA works to raise money to pay the city’s creditors would be met with resistance from the established auction house and art collector communities, Plummer said. That would lower prices.

“It would be considered to be a tragic event. It would not be sold in a celebratory fashion. It would not be marketed in a glamourous way. It would have to be sold in a discrete way and it would have an aura that was negative not positive,” he said.

Plummer, the founder of Artvest, is the author of the report commissioned by the DIA and the city to assess the issues involved in selling the collection as creditors have argued should be done.

He began testifying yesterday and returned to the stand today, questioned on direct examination by city attorney Geoff Irwin, of the Jones Day law firm.

Another problem with selling the DIA collection, Plummer said, would be the time it would take: years to catalog the pieces, several more years to sell it because dumping it all onto the market would be more than the high-end art market could bear.

“That would flood the market so if you had an orderly liquidation you can plan to mete out the property in batches that would ensure the market was not flooded,” Plummer testified.

Just storing the art before such a sale would cost $6 million, Plummer testified, and even when it was auctioned, up to 40 percent of it would likely go unsold.

 

 

  • http://freeourfreemarkets.org/ Steve Banicki

    The issue should be how best to utilize the assets owned by the city and stored at the DIA. This is not the same as how best to save the DIA. The Grand Bargain is not so grand from the city’s perspective. Here is a seven minute video explaining what is wrong with the “Grand Bargain” being proposed in the Detroit Chapter 9 bankruptcy hearing. Following the video are the notes used to give the presentation…. http://lstrn.us/1pFDATC