Theater Construction Revives

After struggling to find uses for thousands of closed movie theaters, property owners say there are signs that newly reorganized theater operators once again are building cinemas--albeit on a selective basis.

“The majority of the closures are over,” said Chris Wilson, president of Los Angeles-based Wilson Commercial Real Estate, which represents retail landlords. “The theater business is nearly healed.”

Los Angeles developer Jerry Snyder said three chains have expressed strong interest in opening a 20-screen movie theater at Huntington Beach Mall, most of which is being torn down by his firm to make way for a new open-air shopping center

“They desperately want to be in my Huntington Beach property,” Snyder said. “AMC just called and said they want to be in there.”

Only a few months ago, Snyder couldn’t persuade a theater operator to build a cinema at his Rancho Mirage shopping center, which opened in December. He ended up building the theater himself and contracting with a chain to operate the 12-screen complex.

Renewed interest in theater development is good news for property owners who got stuck with empty buildings after many of the top chains--including Edwards Theatres Circuit Inc., Regal Cinemas Inc. and General Cinemas Theaters Inc.--filed for bankruptcy protection and closed thousands of poorly performing and obsolete theaters.

The nationwide number of movie screens, which had ballooned from about 27,000 to 38,000 during the 1990s, now is about 36,000 and continues to drop, industry observers say.

The chains’ retrenchment also foiled the plans of developers who had counted on movie theaters to draw customer traffic to their projects. In Long Beach, Developers Diversified Realty Corp. put much of its $100-million Queensway Bay project on hold after two operators, Edwards Theatres and later Resort Theaters of America Inc., filed for bankruptcy protection. The firm found a third operator, Crown Theaters, to commit to opening the 15-screen cinema.

Old theaters may continue to go dark but developers say interest in new projects has picked up in recent months as operators emerge from bankruptcy with the help of new investors.

Late last month, for example, Knoxville, Tenn.-based Regal Cinemas emerged from Bankruptcy Court as part of a larger company that also includes the United Artists and Edwards chains. The three chains were purchased by Denver billionaire Philip Anschutz, who has emerged as a major player in the theater business.

But developers and property owners should not expect a theater building boom soon, industry analysts say. For one thing, much of the new construction is to replace smaller, obsolete theaters that were closed. In addition, the new projects are expected to rise in the few densely populated neighborhoods that lack a theater or are served by smaller facilities.

“There are some pockets of the country where there is potentially demand for new screens,” said industry analyst David H. Allen at Morgan Stanley Dean Witter. But the pace of building will pale in comparison to what was seen in the 1990s, he said.

The slower pace of development and additional theater closures mean that property owners will continue to struggle to find new tenants or uses for their darkened cinemas. In many cases, the older theaters will need costly renovations and expansions to include many of the features--such as stadium-seating and cafes--found in successful new multiplexes, real estate broker Wilson said.

With little hope of finding a new theater operator, a former United Artists cinema in Granada Hills is being converted to a Stein Mart apparel store.

Meanwhile, the owners of a former Edwards theater in Simi Valley will demolish the 80,000-square-foot structure to build a new retail complex, Wilson said. Theater chains “are only looking at strong, urban mixed-use projects with all of the right components,” he said.