Art-secured lending and evaluating the loan-to-value ratio in art and real estate lending markets

I analyze the lending terms for loans with art as collateral. The standard loan-to-value (LTV) ratio offered by private banks is 50% of the value of a piece/collection, while for other tangible assets, such as real estate, LTV is often 80%. I use a linear regression model with common U.S. stock indices as my independent variables to compare systemic and idiosyncratic risk for art and real estate. My analysis indicates that differences in these risk characteristics explain in part the substantially lower LTV ratio for art versus real estate. I also examine concerns about market liquidity, ownership, and authenticity of art as they pertain to LTV.