Adaptive Reuse: The Movie

Article excerpt

This year, movie theater owners are expected to close hundreds more under-performing theaters across the United States. But not all of these properties have to sit dark and empty.

The real estate industry has a long history of breathing new life into seemingly 'dead' assets, most recently--and notably--in the adaptive reuse of surplus bank branches. The wave of mergers and consolidations in the financial services industry beginning in the 1990s and continuing today has resulted in a vibrant market for discarded bank branch assets and very creative adaptive reuse of these facilities. Bank buildings have been repositioned as retail shops, office buildings, Internet cafes, and even medical centers.

Now the real estate industry is faced with another major area of opportunity, one that will result in even more creative reuse of specialized buildings and also, perhaps, in the establishment of an entirely new industry for the 21st century.

The rapid growth of multiplex cinemas in the 1990s created a glut of movie theaters--leaving some theater companies struggling to survive. According to the industry's own trade group, the National Association of Theater Owners, between 1990 and 1999, the number of theater screens nationwide increased 56 per cent from 23,814 to 37,185.

But demand has not kept up with this increasing supply. In 1999, the number of theater admissions totaled 1.5 billion - the same number as in 1948. And the cost of operating theaters has risen even faster than ticket prices. Industry analysts conservatively estimate that as much as 15 percent of the 7,500 existing movie theaters in the U.S. will have to close. Many of these will be smaller, marginal theaters but even the major national theater chains are facing a major economic crisis that will require the closing of many of their theater properties. Recently, Loews Cineplex Entertainment Corp. announced plans to shutter 112 of its theaters--some 676 screens--nationwide. Loews is not unique; many other major chains will have to adopt similar plans.

The fact of these closings delivers two clear opportunities to the real estate industry. Clearly, the chains owning their own screens will have to adopt fairly aggressive disposition programs to move these redundant assets off their books and potentially recoup some value from their investment. As assets sitting on their books, these theaters are already tying up valuable capital. Disposition strategies will have to take into account the other portfolios sure to hit the market around the same time.

Other properties are leased from third-party owners. Several chains have already filed for bankruptcy, and in some cases are attempting to break leases and return the properties to the owners. So the issue of surplus theaters could have broad impact, encompassing not only the chains themselves but also other owners of theater properties. To the right real estate experts, these properties may no longer have value as theaters, but they could have value as other types of facilities. The good news is that since real estate is all about location, and these theaters typically are in prime locations in large population centers, the same theaters that once drew movie-goers could attract a diverse new base of consumers, like students, shoppers, or fitness buffs seeking a whole new range of goods and services. …