Inside the Private Museums of Billionaire Art Collectors

Tucked down a leafy road in Potomac, Maryland, the private museum Glenstone has barely a sign in the area to guide visitors, but it does have a beefy security guard at an imposing booth, from which the names of each hour's reservations are relayed, one by one.

Up, with each confirmation, goes the gate at this 200-acre estate owned by Mitchell Rales, age 60, billionaire co-founder of a conglomerate called Danaher. Along with his wife Emily Rei Rales, 39, he has amassed some 800 works by the greatest names in modern and contemporary art: Willem de Kooning, Jackson Pollock, Mark Rothko, Alexander Calder, Henri Matisse, Brice Marden, Jasper Johns, Robert Rauschenberg, and more.

A curving drive leads past Split-Rocker, a huge sculpture by Jeff Koons of a head bedecked with 50,000 live flowering plants and an undulating work by Richard Serra. So private is Glenstone that it has no parking lot; we members of the 1 p.m. group leave our cars on the grass beside the French limestone–clad museum, which was designed by the late Charles Gwathmey. Across a lawn and a duck pond stands the Raleses' capacious, Gwathmey-designed home, sleek and rather severe.

Eagerly we head into the gallery, to find empty walls. None of those modern masters, no paintings or sculptures at all. Only taut lengths of yarn from ceiling to floor, delineating trapezoids and rectangles.

This, in fact, is the work of the late minimalist Fred Sandback. It has filled the gallery's seven rooms and 9,000 square feet of exhibition space for 15 months, while most of the Raleses' $1 billion collection remains in storage. Before that the museum was closed for nine months.

Private museums get whopping tax breaks, which gives a taxpayer the right to ask: Is this a fair exchange? The U.S. Senate Finance Committee, under chairman Orrin Hatch, wondered the same thing. Last summer it concluded an investigation of 11 private museums, including Glenstone. The senator's staffers seem more perplexed than when they started.

Private museums get whopping tax breaks, which gives a taxpayer the right to ask: Is this a fair exchange?

There's a lot of good to be said about most of the new American private museums, they acknowledge. A lot to be said for Glenstone, too. Whether Glenstone merits those tax breaks—worth hundreds of millions of dollars—is yet to be resolved. Hatch has relayed his concerns to the IRS, whose commissioner has the last word on whether to tighten the rules.

Whatever the IRS decides, it's safe to assume that Mitchell and Emily Rales will not let taxes deter them. The couple have enough money and ambition to carry through with their plans even if the IRS were to disqualify some of the museum's tax benefits. Just beyond Split Rocker is proof: a vast construction site where New York–based architect Thomas Phifer is overseeing a 170,000-square-foot addition set into the hillside. When it opens in 2018 it will make Glenstone the largest private museum in America.

For the world's 1,810 billionaires, so many of them freshly minted, private museums are the new ne plus ultra: rooms of utterly impractical beauty that only the wealthiest can afford. Of the 236 private contemporary art museums totted up globally last year in the BMW Art Guide by Independent Collectors, more than 80 percent have arisen since 2000. The United States has 43 of them, second only to South Korea.

Private museums come in two basic sizes, big and small, which has a lot to do with how they're different in other ways, too. In Paris nearly 1 million visitors a year now tramp through the Fondation Louis Vuitton, the Frank Gehry–designed dazzler in the Bois de Bologne that opened in 2014—financed by one of France's richest men, LVMH chairman Bernard Arnault. America's latest entry is the Broad in downtown L.A., a private museum founded by real estate magnate Eli Broad and his wife Edythe that has drawn 800,000 visitors a year since its 2015 opening.

Crowds cheer; the cognoscenti mutter that obvious art choices fill too many walls of those big private museums. The small ones are quirkier, the fingerprints of their founders more evident. The small ones also stir more debate, both about how involved their founders should be with their operation and how public a private museum needs to be to justify those tax breaks. "At first you don't know how much public you want," says Mera Rubell, who with her husband Donald 23 years ago opened Miami's Rubell Family Collection, which is now one of the best—and biggest—of the private contemporary art museums. "But you can't be half pregnant. You're either welcoming the public or you're not."

You can't be half pregnant. You're either welcoming the public or you're not. —Mera Rubell

Jeffrey Deitch, longtime dealer, curator, consultant, and former director of L.A.'s Museum of Contemporary Art, puts the new museum founders in a continuum of art culture that goes back to wealthy patrons like Henry Frick, J.P. Morgan, Duncan Phillips, and Albert C. Barnes. All built museums for their private collections and later let in the public; those institutions live to this day. The difference, if there is one, is in the relationship between the new founders and the artists they collect.

"These collectors are engaged in a dialogue with the best artists of today," Deitch says. "They want to get involved." The epic scale of so much contemporary art, he adds, makes that dialogue essential. (Split-Rocker, for example, is 37 feet tall.) "If the best artists today were making easel paintings, there would be much less of a need to build private museums."

Tax breaks, says Jason Kleinman, tax and estate adviser to high-net-worth clients for the Herrick, Feinstein law firm, are never the point, or at least not the main point, of building a private museum. If a collector is in the art game for profit, he won't start a museum. "He'll sell the art and go to Vegas," Kleinman says, "because he gets more from Sotheby's than from the charitable donation."

A wealthy collector who decides to donate art rather than keep it on the wall or sell it has already made a financial sacrifice. The question is whether to give it to a public museum or start one of his own. And that, in turn, is a decision that often comes down to power. "If he gives a painting to the Museum of Modern Art," Kleinman says, "he'll never have control over it again. He'll never be able to say what type of lightbulb to shine on it. Or when it should it be pulled up from the basement and displayed. Also, let's say he wants to give 100 pieces. Very hard to find a museum that says, 'I'll take all 100.' Museums have limited space, so they'll be picky."

By definition a public museum is funded mostly by the public—which is to say government at one level or another—and is steered by its trustees to do what's best for the public, not what's best for a wealthy donor. Or so it goes in theory.

The money a founder spends to start his own museum is rarely offset in full by tax breaks. But those breaks do help. They come in exchange for contributions the founder makes, usually of cash, stock, land, or art. All are tax-deductible gifts (applicable up to 50 percent of the founder's adjusted gross income).

Often the weightiest of these are shares of stock and artworks, since a founder pays no capital gains on their appreciation when he donates them. The foundation gets the gift at its appreciated value and can spend it in ways that further its mission: building a museum, for example, or buying art—even traveling from one art fair to another, within reason, to shop for more art. Art purchased by the foundation is fully deductible. Any further appreciation of purchased art? No capital gains tax.

Strictly speaking, all these tax breaks benefit the foundation, not the founder, since the founder no longer owns it. But the founder—or members of his family—may sit on the board and help decide what a foundation should do or buy. Which means that billionaires who like spending money on art and the spaces in which it resides can spend a lot more of it if they have a private museum than they can as collectors on their own.

Marta Gnyp, an art adviser and author of The Shift: Art and the Rise to Power of Contemporary Collectors, says another appeal of private museums is the greater role the founders get to play in the art world. "Collectors certainly like to share their passion, show what they have, bring other people into contact with art, or even create their own artistic canon," she says. "There is also a market element in this passion. In today's art world there are so many new collectors. How do you get access to the hottest artists' work? Having a private museum helps. It gives you prestige and visibility; the galleries treat you differently. It may even get you the art at lower prices."

"How do you get the hottest artists' work? A private museum helps. Galleries treat you differently. It may even get you lower prices."

Overall, of course, the price of contemporary art has skyrocketed, in part because billionaires with private museums can outbid all comers, and that has pinched public museums. "We probably spend an average of $40 million to $50 million a year on acquisitions in total," says Thomas Campbell, director of New York's Metropolitan Museum of Art. "That could be spent on a single work of contemporary art." Campbell has to hope that private museum founders will work with him—buying pieces together, co-curating shows, serving on his board, and one day seeing the wisdom of giving their collections to the Met.

"The challenge of the private museums is twofold," Campbell says. "You have to have a really big endowment to assure their long-term stability. And the mandate to maintain the vision of the founder can be a straitjacket. If the mission is held too tightly, it can strangle the museum as things change." Case in point: Philadelphia's Barnes Collection, where a practical need to move and expand put the museum at odds with its late founder's will and led to a protracted lawsuit.

Another frustration private museums create for the rest of the art world is what longtime New York dealer Frances Beatty calls the "urge to control the narrative." Founders like to promote the artists they have collected. But that can distort the reputations accorded those artists by major museum curators. "They have the megaphone, because they have the money," Beatty says of the founders. "They understandably want their art seen. But a lot of what we see in these private contemporary art museums might not survive 30 years from now."

Robert Storr, former dean of the Yale art school and one of the country's most trenchant critics, goes further. "Most collectors have a limited grasp of curatorial practices…and tend to be impatient, even impulsive, where museum professionals would take more time thinking around corners. It's hard to name a great collector ho became a great museum director, even of their own museums."

Mitchell Rales likes to say that de Kooning and Pollock are kindred spirits of his: rebels in the art world, as he and his brother Steven were in leveraged buyouts. Throughout the bull market '80s, the Rales brothers piled up debt to buy boring companies that made unglamorous things (fuel pumps, dental appliances), squeezed out waste, and made a killing: $4 billion each. Mitchell bought art to fill his walls, but not with any grand intent.

Then came a fishing trip in Russia in 1998 that changed his life. His helicopter had touched down in a village to refuel, and as Rales and his friends walked away from it, a plane on the tarmac exploded. "We were 10 feet away," Rales told theNew York Times. "Flames shot more than two stories high. I was lucky to have escaped. I left Russia barefoot, with only a torn T-shirt and gym shorts. From then on it was no longer about making money."

Rales divorced his wife the next year. In 2008 he married art curator Emily Rei, of Manhattan's Gladstone Gallery. Working closely with New York dealer Matthew Marks, Mitchell and Emily set out to build a world class collection spanning the whole postwar era.

"This is not just buying what they like," says Jeffrey Deitch. "This is a very systematic program to encompass the history of great art from the New York School period on up. It's an amazing thing they're doing."

Glenstone opened as a private museum in 2006, though with barely a peep. Long press-shy, Rales gave no interviews and did little if anything to promote the museum. He kept the museum's hours to a minimum, required all guests to make reservations well in advance, and, instead of extending broad invitations to art critics to see shows, often actively discouraged journalists from visiting.

Between 2006 and 2013, just 10,000 visitors came to Glenstone. Yet the Raleses drew enormous tax benefits from the museum and its foundation. Even more extraordinary was the stock play. Between 2012 and '14, Rales donated more than $450 million in Danaher stock to Glenstone, according to the foundation's 990 federal tax forms.

Rales paid no capital gains on the stock, while the Glenstone foundation got it all tax-free, to spend in full, presumably to buy more art.

Was this legit? In late 2015, Senator Hatch sent a letter of detailed queries to 11 private museums in the U.S. The institutions ranged from L.A.'s Broad and Miami's Rubell (two of the largest, collections that clearly provide great public benefit by welcoming tens or even hundreds of thousands of visitors a year) to small ones, among them Glenstone, where the benefits were harder to judge.

Education was a key point: How much of it did Glenstone provide? Enough to justify those tax breaks? "They do make a lot of effort to bring in kids from the outside," one of Hatch's investigators concedes about Glenstone. "But I don't know what a bunch of eighth-graders will take away from that Fred Sandback show."

The investigators also wanted to see for themselves how close each museum was to its founder's home. On the same property? A stone's throw away? Might the founder be tempted to host a private dinner in his museum, or haul art across the lawn to hang for guests in his home—art no longer his—and so try to have it both ways? The proximity of Glenstone to the Rales residence did appear questionable to members of Hatch's team. "It seems like what you don't want," one investigator says. "It's on the property, right by the house."

Ralph Lerner, co-author of the classic textbook Art Law, says the Raleses need not worry. As a private operating foundation, Lerner says, Glenstone isn't obligated to open its doors to visitors at all, much less worry about measuring the distance from museum to house. "It's in black letters, clear-as-day regulation," Lerner says. "If you lend art on a rotating basis to other institutions as one of your purposes, you don't have to open your private museum to the public." The Senate Finance Committee is just misguided, he says, and he should know: He's the one who set up Glenstone as a foundation in the first place.

As for Hatch, he has passed along his findings to the IRS commissioner, clearly less than reassured. "Tax-exempt private museums have a duty to provide a benefit for not just their benefactors and the well connected but the public as a whole," he tells Town & Country. Without naming which ones, he adds that some of the 11 museums he investigated "appear to have the ability to exploit gray areas of the tax code to overly benefit their founders."

Deitch takes strong exception to Hatch's assertion. "I personally know all the people who are on that list," he says, "and they are all very public-spirited people. They're completely committed to sharing their passion with the public, and ultimately it costs them much more to have this public side rather than stay private."

One prominent collector has taken a more modest approach to showcasing his artwork. J. Tomilson Hill, 68, is vice chairman of the Blackstone Group, a billionaire in his own right, one of New York's most dapper dressers, and an avid buyer of both Renaissance bronzes (he has 34) and modern and contemporary artworks (at least four each by Roy Lichtenstein, Francis Bacon, Andy Warhol, Agnes Martin, and Christopher Wool).

Art fills his Peter Marino–designed homes in New York, East Hampton, Telluride, and Paris, but Hill puts on no airs about it. "Our collection is totally personal," he says of his and wife Janine's acquisitions. "A museum implies knowledge not just of the history of art but trying to be scholarly in a way that I don't have to be." So instead of erecting a monument to the work they have amassed, he's moving it into a 6,400 squarefoot gallery space in Manhattan.

This fall the Hill Art Foundation will open on two floors of a new condo building on West 24th Street, in the heart of Chelsea. Like Glenstone it is a private operating foundation that will allow Hill to receive a tax deduction for anything he donates to it (up to 50 percent of his adjusted gross income), but the goal is not to create a permanent repository. Education, he says, will be its primary mission. "I'm on the board of Our Lady Queen of Angels school in East Harlem," Hill says. "When we had our show of bronzes at the Frick, we had our eighth-graders come down to see it. These were students who had never thought they could enter the Frick. It looked like a private home to them. They spent two and a half hours talking about mythology and antiquities."

The beauty of the gallery setup, Hill says, is its impermanence. Whenever he chooses he can easily close the temporary exhibition space and find other ways to execute the foundation's mission. For example, if he likes he can give the art to a public museum—one like the Metropolitan Museum of Art, on whose board he sits. Like other collectors, he winces at the thought of a museum cherry-picking his paintings after his death and putting the rest in storage.

But unlike people who have built museums to prevent that in perpetuity, Hill can still negotiate. "Look at what Donald and Dora Fisher of the Gap did with the new wing of the San Francisco Museum of Modern Art," he says. The museum got to house the Fishers' collection by pledging to devote the space exclusively to the works for one year out of every decade over a 100-year period. "I could see negotiating something like that."

The Raleses, who declined to be interviewed for this article, are taking a different approach, building an addition that, according to Glenstone estimates, 100,000 people will visit every year. That level of attendance should eliminate any talk of unfair tax breaks, but the new, more accessible structure will reportedly cost at least $125 million—a big commitment, even in capital-gains-tax-free dollars. Discrete pavilions, one for each of the Raleses' favorite artists (among them Brice Marden, Charles Ray, Michael Heizer, and Cy Twombly), will be a key feature of the new addition. "Each time visitors to the pavilions exit an exhibition space," the couple announced in a statement, "they will come across a water garden or the landscape before going back inside, allowing for a serene and contemplative art viewing experience."

And that is, to be sure—after the temple building and tax deducting—what it's supposed to be all about: the art itself.

This article originally appeared in the February 2017 issue of Town & Country.