Doug \ll/oodliaim 1'z'csirlez1t, (':l1z'1's't1'C3' CHRISTIES December 3, 2013 Mr. Kevyn Orr Office of the Emergency Manager 1126 Coleman A. Young Municipal Center Detroit, Michigan 48226 Dear Kevyn: Consistent with our mandate from your office, Christie's is in the final phases of its work appraising the City~purchased art that forms part of the Detroit Institute of Arts' collection. The art we have appraised accounts for approximately 5% of the objects in the DIA's total collection and excludes all major gifts. The purpose of this letter is to summarize the scope of our work, our process for conducting the appraisal, and, at your request, provide a preliminary aggregate valuation range. A final range will be presented the week of December 16th. In addition, Christie's is recommending options for alternatives to sale that would allow the City to gain value from the collection while keeping it intact. A summary of the proposed alternatives to sale is also presented here. Scope of Work Christie's remit from your office was to conduct a Fair Market Value appraisal of only those works that are classified as City of Detroit purchases COD works were either purchased entirely by the City, or in part with City funds. The total number of COD purchases in the Museum's collection of approximately 66,000 works was anticipated to be about 3,300 works at the start of the appraisal, based on lists of COD purchases provided to Christie's by the Museum. This number has since been adjusted downward to 2,781 works, after adjusting for mult:i--part objects, objects unavailable for inspection, and works deaccessioned by the museum over the years FMV is the price at which a work would change hands between a willing buyer and a willing seller in the relevant marketplace. It is determined by using the market data approach which compares the subject work to similar works sold in the marketplace, makes appropriate adjustments to allow for any differences between the subject work and the comparables, and reflects the current market place. Chiistie's has provided both a low and high range for FMV for each appraised work and for die aggregate total. The lower number represents a conservative price, and the higher number represents the most advantageous price at which the property would change hands. Page 1 Of5 Christie's 20 Rockefeller Plaza, New York, NY 10020 phone 212.636.2060 dwoodhain@christ1es.Coin For the purposes of clarity, it should be underscored that the individual values provided are not auction estimates. Auction estimates are the price ranges that Christie's and other auction houses assign to a work at the point of sale in order to attract maximum bidding interest. As such, auction estimates are not necessarily a reflection of fair market value. Pursuant to our contract with the City, our work was conducted in three phases, with timelines assigned to each phase. All phases are being delivered within the agreed timelines. As noted in the scope of work, Phase I includes all COD purchases on view in Museum galleries (319 works total); Phase Two includes all COD purchases in storage with perceived values of $50,000 or greater; and Phase Three includes all COD purchases in storage with perceived values under $50,000. As discussed, we will provide a final written appraisal during the week of December 16. Though the preliminary figure provided below is not final and inclusive, we do not believe these figures will change significantly at the conclusion of our remaining work. Per our contract, with the receipt of our final appraisal document, we will have completed all our work for the Emergency Manager. At this time, we have no plan or agreement in place for additional work with the Emergency Manager. Aggregate Valuation Estimate Based on an FMV analysis, the aggregate estimated value of the COD purchases appraised by Christie's is $452 - $866 million. As noted previously, the lower number represents a conservative price, and the higher number represents the most advantageous price at which the property would likely change hands. Note that eleven "Phase One" works on display in the galleries account for 75% of the total value of the COD purchased objects. Appraisal Process Christie's prioritized its visits and assigned relevant specialists to each work by starting with the categories of works with the highest potential values. We were accompanied on our site visits by two art handlers employed by the museum. In order to limit disruption in the galleries, a decision was taken at the outset not to physically remove the works from the gallery walls or inspect objects out of their cases. This lirnitation did not inhibit Christie's ability to provide the requisite values for the works. Further examination of the condition of each work could reveal issues that would reduce the value or, alternatively, confirmation of unlined canvasses may adjust the values upward These potential variations have been accounted for in the estimates provided. Phase Two and Phase Three works were located in storage, allowing Christie's specialists to examine the artworks in greater detail. At this date, Phases One and Two of the appraisal are complete, and Phase Three is underway. As agreed with you, we have not gone in person to review the following Phase Three items due to their low commercial value, and thus have not included them in the aggregate figure presented: Page 2 of5 350 photographs by the art historian and photographer Clarence Kennedy 375 textile fragments 12 photostats by local architect W.G. Malcomson, 105 drawings and prints by artists who command only very low prices 35 pieces of furniture 50 coins 35 architectural fragments 40 single folio leaves 135 pieces of sculpture and utilitarian objects jewelry boxes, mortars) Based on information and cataloguing provided by the Museum, Christ_ie's believes there are no major COD pieces left in storage that would increase the aggregate value of the appraised group by more than 1% of the total noted above. Alternatives to a Sale Christie's also agreed to assist the City by helping conceive alternatives to sale that could potentially allow the collection to remain intact. We would like to highlight five potential alternativescollateral for a loan: (2) leasing the art to a partnership museum; (3) creation of a "masterpiece trust"; (4) sale and permanent loan or gift to and (5) a traveling exhibition. We very briefly summarize each of these alternatives below. These five alternatives are not mutually exclusive -- some could be exercised in tandem. It is clear that the success of these alternatives depends heavily on cooperation between the City and the Museum, along with supporting third parties in certain cases. All require further exploration to make practical assessments of their feasibility and to approximate the amount of revenue they could generate. Certain alternatives have more revenue than others, and while some of these ideas have precedent in the museum community, others remain untested. Regardless, their ultimate viability will be determined by the Emergency Manager and others involved with the bankruptcy process who will decide how much, if any, revenue must be derived from the City~purchased art within the larger DIA collection. 1. Use City-Owned Works as Collateral for Loan or Line of Credit City--owned works of art could be pledged as collateral for a long-term loan or line of credit. The current robust global art market coupled with the fact that the city--owned collection contains some high--quality and valuable works, suggest this could be an effective financing arrangement. The debt could be financed by city--generated revenue, or by revenue from other sources. Page 3 of 5 2. Identify a Partner Museum for Long-Term Lease of City--0wned Works of Art Revenue could be generated from a partnership agreement with another museum or museums whereby masterpieces from the DIA would be leased on a long-term basis. A likely partner would be a museum with significant financial resources and a collection that lacks works of art matching the quality of a number of works owned by the City. Variations on such partnerships have been successfully negotiated in the U.S. in the past. Museums in this country have agreed to lend works of art or pre--packaged exhibitions for an extended period of time to a partner museum in exchange for a fee. The most fruitful museum partners would likely be found in emerging markets where high levels of government funding and significant private wealth may be available to underwrite the partnerships. The partnership could include rotating loan arrangements for masterpieces over the term of the lease, which could be as long as 10-15 years. This would guarantee an ongoing revenue stream that would be paid to the City. Beyond the financial benefits, other aspects of the partnership may benefit both institutions. It may create opportunities to develop future patronage among leaders in the business and philanthropic communities in the host city and allow for other cultural exchanges. In addition, the DIA could offer professional and Curatorial training for a fee. 3. Create a "Masterpiece Trust" to be Accessed by Members of a Museum Consortium The City might consider establishing a "Masterpiece Trust" that could be accessed by members of a newly--created museum consortium. Unprecedented in the art world, such an entity could generate revenue for the city and provide an ongoing lending structure for museums in the U.S. to essentially rent museum--quality works of art. City--owned art would be transferred into the Trust and minority interests would be sold to individual museums, making them a member of a larger consortium of institutions. Revenue generated by the sale of shares in the Trust would be paid to the City. Ownership of shares in the Trust would entitle members to borrow works for predetermined periods of time. In order to boost revenue from the Trust, City-owned works could be purchased by a consortium of US. philanthropists on the condition that they be on permanent loan to the Trust, or to the DIA if the Trust dissolved. 4. Sale and Permanent Loan or Gift A sale and permanent loan arrangement could also be considered as a way of monetizing City- owned art while still maintaining the asset in the public domain in Detroit. The City might consider the sale of a single, or several, City--owned works of the highest quality to a philanthropist or consortium of philanthropists on the condition that they agree to permanently lend them to the museum. Page 4 of 5 Permanent loans, also known as "Permanent Deposit" arrangements are not uncommon in the museum world. The recipient institution takes responsibility for the curatorial care and stewardship of the works of art as if they were part of the permanent collection, but the title is retained by the individual or entity placing the work/ on deposit. Although such an arrangement would include an outright sale, the transaction would be negotiated with restrictions stipulating that the work/s remain on permanent loan and display. The City would receive the revenue from the sale and the DIA would benefit from the permanent loan arrangement. Traveling Exhibition of Select Works The DIA's prior experience with traveling exhibits suggests that they are not a substantial revenue generator. They are very costly to mount, and it is unlikely that any tour would raise more than $1 million. Of the five, this option may be viewed by the decision--makers as the least viable in terms of generating a revenue stream for the City. However, there may be other reasons that justify a traveling exhibit or exhibits; including, raising the DIA's profile, and thereby generating interest in, and support for, the DIA. DIA's collection lends itself to the mounting of exhibitions that could travel nationally, and possibly, internationally. For example, a high--profile selection of works across collecting fields could be mounted, such as "Masterpieces from the Detroit Institute of Arts." The media attention the DIA has received in connection with Detroit's bankruptcy filing and the accompanying outpouring of public support for the City's artworks could help to generate interest, and thereby revenue, from tour sponsors and patrons. Exhibitions of this type would also provide opportunities to raise DIA's profile even higher. In closing, Christie's is honored to have been approached by the City's representatives to assist Detroit in its restructuring efforts, and to support you by employing Christie's broad expertise and experience in providing both a fair market value appraisal of COD purchased works and recommendations for alternatives to sale. We sincerely appreciate the opportunity to play a productive and constructive role in this process. Sincerely, Ollg as it/at/Am oodharn President, Christie's Americas Cc: Bruce Bennett Ken Buckfire Page 5 of 5