Online Lenders for 1 Percent Turn Conspicuous Consumption Into Cash
Monday, 11 November 2013
Last year, Marc Kaye suffered a cash shortage. He had tuition to pay at three colleges -- including Harvard and Columbia -- and his insurance business wasn't generating enough commissions to cover the bills.
Then Kaye remembered a friend in London who had pawned his Patek Philippe watch with a company called Borro Ltd. to cover a similar gap. Unlike traditional pawnshops, filled with guns and personal computers, Borro lends against luxury items. It's the pawnbroker to the 1 percent, Bloomberg Pursuits magazine will report in its Holiday 2013 issue.
So Kaye, an art collector, took a Picasso etching -- "Three Nude Women Near a Window" -- off the wall of his house in Long Beach, New York, and jumped on the Long Island Rail Road to Borro's offices in Manhattan. The next day, he had $39,500 in his bank account, and Borro had his Picasso in a secure art storage facility.
"I paid the loan back in six months, and I'm looking at the Picasso now," Kaye, 61, says in a telephone interview from his second home in Delray Beach, Florida. "People who own their own business are often cash poor."
London-based Borro is the creation of British technology entrepreneur Paul Aitken, who got the idea for an upscale pawnshop after depositors staged a run on Northern Rock Plc in 2007, concerned it would collapse. Until then, the world's wealthy had been snapping up Bentleys, pink diamonds and loads of expensive watches, often on easy credit. Soon, Aitken figured, folks would be looking to turn those assets back into cash.
His timing was perfect. Aitken opened Borro in August 2008 -- a month before Lehman Brothers Holdings Inc. went bankrupt. World markets swooned, and thousands of workers in the City of London stopped buying BMWs and started pinching pounds. He expanded into the U.S. in January 2012.
Since then, Aitken has made loans -- the standard term is six months, but borrowers can request an extension -- against Harry Winston diamond-and-ruby earrings ($315,000), a 2013 BMW M5 ($82,500), a Patek Philippe 5960P ($30,000) and a Salvador Dali watercolor ($20,000). He anticipates revenue of $17 million this year -- almost double 2012's take -- and expects to be profitable next year.
In September, he opened a sleek new office in midtown Manhattan, nine floors down from a smaller, outdated one.
To most people, pawnshops imply desperation. Aitken says it's different at the upper end. Many of his clients are entrepreneurs, entertainers and sports stars. They're accustomed to booms, busts and -- even more likely -- temporary cash shortages.
"People who consume luxury goods are risk takers," Aitken says.
Read the full article at Bloomberg Pursuits