Art collector flipped painting to make 220% in six months

In November, a painting of a pensive young woman by French artist Francis Picabia sold for 145,000 euros ($181,159) at auction in Paris. Six months later, the same 1940s work appeared at Christie's in New York, and at least three bidders pushed the price to $580,000 — the buyer paid $701,000 after fees. The anonymous seller scored a 220% gain, beating the Standard and Poor's Index's 3.2% return in the same period. The practice of flipping art, popular among some buyers of inexpensive emerging artists, is increasingly reaching the market for established masters such as Andy Warhol, Gerhard Richter and Mr. Picabia. Driving it are record prices for high-end artworks and Wall Street investors who are prioritizing rapid returns over long-term collecting. Trophy works that quickly returned to auction were once perceived as “a woman who has been divorced three times,” said Frances Beatty, vice president of Richard L. Feigen & Co., a New York gallery. “Because art is seen as an asset class, the more rapid turnover is considered encouraging. There's a whole new generation of collectors who are playing the art market.” Last month, Christie's, Sotheby's and Phillips sold a record $2.7 billion of art. Among the higher-priced works — those fetching $1.5 million or more — 13 had changed hands at least once before in the previous three years, according to New York-based Skate's Art Market Research. That's an increase of 54% from a year ago. In the two weeks of May auctions, 221 works overall sold for more than $1.5 million, Skate's said. In May 2007, the previous art market peak, only four such trades took place, according to Skate's, which tracks auction results through a database of 10,000 works at prices starting at $1.5 million. LOW RATES “The prolonged low interest rate environment brought a lot of demand from art buyers with no specific interest in art collecting,” said Sergey Skaterschikov, founder of Skate's. Among the works tracked by Skate's, 63 pieces were sold in May by owners who had previously bought them at auction, making it possible to calculate gains and losses. These sales accounted for $725.6 million of the May total, contributing to “the most speculative auction season ever,” Skate's said in a report. Quick resales are more common in the emerging art segment of the market, where works by unknown artists are traded with little risk in return for possible outsized gains. In May, 108 artworks created in the past three years were sold at the three auction houses, according to Artnet. They tallied $27.7 million in sales. POTENTIALLY LUCRATIVE “You buy several potentially lucrative items and one of them becomes a success,” said Mathias Rastorfer, co-owner of Gmurzynska Galleries, which has three locations in Switzerland, that specializes in modern and postwar masterpieces. “It's become a way of buying for people from the financial sector.” Flipping established artists, while it requires a bigger investment, does have some advantages. The most liquid segment of art investing is from $1 million to $10 million, according to Mr. Skaterschikov. “Certain brand-name artists and artworks become like a currency: tradable, movable, exchangeable and recognizable,” Mr. Rastorfer said. The difficulty, he said, is finding the right work to flip. “You will buy the right name and the right size, but you might not buy the right work,” Mr. Rastorfer said. “That's why this short-term speculative trading is a risky business.” WARHOL, CALDER The 13 blue-chip works flipped in May generated $125.7 million, according to Skate's. The group included five paintings by Mr. Warhol, two sculptures by Alexander Calder and two works by Yves Klein. Pablo Picasso, Francis Bacon, Joan Mitchell and Mr. Richter were each represented with one work. The best result in the group of 13 artworks belonged to a Picasso gouache, “Femme assise (Dora Maar)” which fetched $4.3 million, generating a 12.8% annualized return since its previous acquisition in April 2013. The Picabia painting wasn't included in Skate's list because its price was under $1.5 million. The most expensive lot was Mr. Bacon's “Portrait of Henrietta Moraes” that sold for $47.8 million at Christie's. It was last seen at auction in 2012, when it went for $33.7 million. It produced a 6.95% annualized gain, according to Skate's. Mr. Warhol's “Five Deaths on Turquoise” fetched $9.8 million at Christie's on May 11. It was purchased for $7.3 million just 18 months earlier, resulting in a 10.2% gain. CALDER'S LOSS Five of the 13 flipped lots — two Warhols, two Calders and a Klein — resulted in a loss, according to Skate's. It's unclear whether the sellers actually took a hit because in some cases they were promised an undisclosed minimum price regardless of the sale's outcome. All such guarantees were financed by third parties. The biggest loser was Mr. Calder's 1941 stabile sculpture, “Tic tac toe,” that fetched $2.6 million at Sotheby's on May 12. The work wasn't guaranteed. It had been acquired for $3 million two years ago in New York, resulting in a 16.5% annualized loss, according to Skate's. “You can be lucky but usually it's not good when an artwork comes up for sale twice in two years at big auctions,” said Paolo Vedovi, co-owner of Vedovi Gallery in Brussels, Belgium. A better route: Buying at a regional auction house and selling at an evening auction in London or New York, said Michael Moses, co-founder of the Mei Moses Art Index, which measures art performance by tracking repeat auction sales. 'BARGAIN' PICABIA That's what happened with the small painting by Mr. Picabia (1879-1953) that produced the spring auction season's biggest return — 220% in six months — for the owner who bought the work at Drouot in Paris. What increased the value in such a short time? The painting had been cleaned and collectors are betting a planned 2016 artist retrospective at the Museum of Modern Art in New York will boost Mr. Picabia's prices, said Mr. Vedovi, who was the under-bidder on behalf of a client. The painting also was a bargain compared to contemporary works in the same sale, he said. The final price after fees was $701,000, making it the cheapest lot on May 11. “If you are buying paintings for $30 million, it's pocket change,” Mr. Vedovi said.