Cinema Woes Likely to Curtail New Valley Theaters

The San Fernando Valley has relatively few state-of-the-art movie theaters for its size, but it isn’t likely to see many new screens until well after troubled theater operators emerge from bankruptcy.

Retail and real estate consultants say that, except for a Pacific Theatres complex under construction at the Sherman Oaks Galleria and an AMC project proposed in Burbank, no cinemas are on the drawing board locally.

“The San Fernando Valley is underserved in terms of state-of-the-art theaters, and it doesn’t look like anybody is going to be building any more any time soon,” said Cal Hollis, a principal in the Los Angeles office of Keyser Marston Associates, a real estate planning and consulting firm.

The bankrupt theater chains include Edwards, United Artists, General Cinema and Carmike. WestStar Cinemas Inc., the parent of Mann Theatres, filed for bankruptcy in 1999 and was acquired this year by a partnership controlled by Warner Bros. and Paramount Pictures.

The chains got into trouble for a variety of reasons, including their stable of older theaters faced with dwindling attendance.

Hollis and other experts say the movie chains hope to emerge from their Chapter 11 reorganizations in better shape because bankruptcy law enables the theater operators to cancel any leases they don’t want and keep the ones they want.

That means the chains can keep theaters that are profitable and close those that aren’t. General Cinema, for example, has closed its 10-screen complex at Fallbrook Mall.

Still, the shakeout is expected to slow down any new construction.

“Until the operators straighten out their core business, I don’t think anybody’s going to be building any new theaters,” said Chris Wilson of West Los Angeles-based Wilson Commercial Real Estate, which specializes in finding tenants for shopping center owners, primarily in the San Fernando Valley and Simi Valley.

Pacific Theatres is building a 16-screen, 4,000-seat, stadium-seating complex at the Sherman Oaks Galleria that is scheduled to open next summer, according to Amy Wood, marketing director for the Los Angeles-based chain.

The new screens will replace a Pacific complex that was razed as part of extensive renovations underway at the Galleria, Wood said.

In Burbank, AMC plans to build a 16-screen, stadium-seating project to replace a 14-screen complex, according to Richard King, a spokesman for the Kansas City, Mo.-based chain.

Hollis said that despite strong demand for stadium-style theaters in the Valley, the troubles of the bankrupt chains mean that no movie houses are likely to be built by anyone--including the healthy chains.

The movie exhibitors’ troubles have stamped them with a stigma that will stymie theater development, said Al Gobar of Alfred Gobar Associates, a Placentia-based retail real estate consultant.

“I think you’re going to see fewer theaters going into new shopping centers, even in the case of theater operators whose signature on a lease still has bankability,” Gobar said.

Developers and shopping center owners typically spend $2 million to $3 million to build the basic shell and sloped floor of a movie house, according to Wilson, while theater operators spend an additional several million dollars for seats, carpeting, runway lights, concession stands, sound and projection equipment, speakers and everything else inside the building.

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Developers and operators also will fund financing harder to come by. “Financing will improve after the bankruptcies are straightened out, but the underwriting standards will be a lot tougher,” Wilson said.

According to Hollis and Wilson, lenders will most likely require developers and theater operators to put more of their own money into projects and may also require the borrowers to put money in reserve accounts to pay for converting the movie houses to other uses if the theaters fail.

“A theater is the only retail use I can think of that has no secondary use after it goes out of business,” Wilson said. “A drugstore or a supermarket can be converted to some other type of retail pretty easily, but when a theater goes out of business, the landlord is stuck with an empty shell that isn’t really suitable for anything else other than another theater.”

During this intermission in the era of theater-anchored shopping centers, Wilson said, developers will turn to other tenants as anchors, like the many supermarkets, discount stores and other large retailers that are “extremely interested in pursuing sites in the Valley,” he said.

“You might not see another theater-anchored shopping center built in the Valley for anywhere from several to many years, because it could be a while before that industry straightens itself out to the point that someone will build a center around theaters again,” he said.

If new theaters are built, operators are hoping they last longer than some of the now-obsolete movie houses built right before the stadium-seating boom.

“Most of the theaters built in the 1970s, 1980s and 1990s were expected to be viable for 20 years [the length of a standard theater lease], but they turned out not to be,” King of AMC said. However, he said, operators believe stadium-seating theaters “are so strong that they are likely to have extended life spans.”

As evidence of the demand for stadium seating in the Valley, Hollis cited figures from the box office tracking firm ACNielsen EDI showing that the Pacific Theatres Winnetka Stadium 21 in Chatsworth generated $500,000 in ticket sales per screen in 1999, one of the highest per-screen figures in the Los Angeles region for the year.

He also cited the 16-screen AMC at the Promenade shopping center in Woodland Hills, which generated $466,000 per screen in 1999.

“Competitors who see that kind of revenue per screen would love to come in and grab some of it, but they can’t do it right now because you can’t get financing for a movie theater complex,” Hollis said.

However, Hollis added, when the smoke clears and the theater chains put their bankruptcies behind them, “the Valley will be an attractive market” for new, state-of-the-art theaters.