The haunts of Hollywood's Golden Era — studio backlots where such classics as “It Happened One Night” and “Gone With the Wind” sprang to life — are being sold for top dollar to investors dazzled by the availability of premium land in Los Angeles. But investors face resistance from some Hollywood veterans, who worry that the film capital will lose too much of its storied heritage.
Sunset Gower Studios, formerly the Columbia Pictures lot, recently sold to Hudson Capital of Los Angeles for $200 million, nearly double the $110 million the 16-acre lot fetched just three years ago. In June 2006, Oaktree Capital Management of Los Angeles sold Manhattan Beach Studios for $150 million to New York-based private equity firm The Carlyle Group. Tribune Co.'s property on Sunset Boulevard, housing KTLA-TV and Tribune Studios, is for sale. The property is the location of the former Warner Bros. studios, where the first “talkie” movie was made with Al Jolson in 1927. Meanwhile, in Culver City, the 17-acre Culver Studios, where Rhett wooed Scarlett, will be auctioned. “We thought it was a great time to sell a studio,” says CEO James Cella.
After decades of commercial real estate decline, Hollywood is hot. Across the continent, in New York and elsewhere, investors and developers are hungrily eyeing the old studios and surrounding property. “A ton of capital is looking at Hollywood,” says Kevin Shannon, vice chairman of CB Richard Ellis, which brokered the Sunset Gower sale. “They know the Times Square story. A lot of investors are out here from New York and see the potential for a Times Square-type situation.” At Times Square, property values soared after declining and seedy commercial sections were cleaned up.
Hotels, condos, apartments
More than $3 billion worth ofis slated within Hollywood's 1,107 acres, according to the Los Angeles Community Redevelopment Agency. At Hollywood and Vine, the former crossroads of movie and radio businesses, at least $1.2 billion in developments with more than 2,000 housing units are underway or planned, according to the agency.
Irvine, Calif.-based Legacy Partners and Gatehouse Capital of Texas are building a four-star, 300-room W Hotel, 525 condos and apartments, and at least 60,000 sq. ft. of retail development adjacent to the Red Line subway stop. Nearby, the Academy of Motion Picture Arts & Sciences plans a $200 million museum.
In a city where many condos sell for $500 per sq. ft. or more, interest in Hollywood is not surprising, says John Perfitt, Hollywood project manager for the redevelopment agency. The agency has authority to “upzone” projects, and allowed some developers more density than city rules specify. In Hollywood, some 4,500 residential units are being built or planned, Perfitt says.
“There is so much housing planned, we are concerned about other property types getting crowded out,” adds Perfitt. Condo and office developers vie for lots to develop or old structures to renovate, while retailers hunt for space.
Eateries and bars are opening to serve the new residents. The Hollywood Chamber of Commerce counts at least 15 dining spots opening in Hollywood through 2008. They include Opera & Crimson, diner Kitchen 24, and Crobar, a nightclub planned on the site of the old Fox Theatre on Hollywood Boulevard.
Obliterating the past?
Hollywood veterans worry that new development will crowd out studios and longtime residents.
“It would be unfortunate if the very thing which brought us here — the studios — were to be pressured out,” says Tom Greene, television producer and member of Hollywood Now, a group concerned about development issues. Two Los Angeles City Council members whose districts overlap Hollywood, Eric Garcetti and Tom LaBonge, have expressed similar concern about disappearing studios.
Investors are unlikely to be daunted by sentiment, however. Until the current credit crunch dampened some, Hollywood property values, and rents across all property types, were rising rapidly, in some cases doubling in little more than three years.
Office buildings in Hollywood — for decades, an office backwater — sold for an average of nearly $400 per sq. ft. in the second quarter of 2007, compared with little more than $200 per sq. ft. in the first quarter of 2004, according to a report byfirm Grubb & Ellis. Meanwhile, average asking rates rose more than 60% to $3.37 per sq. ft. monthly, up from $2.11 per sq. ft., according to the report.
“The past tells us the land will continue to appreciate, so buying studio lots is land banking with cash flow,” says Bob Safai, a principal at Madison Partners, which brokered the Manhattan Beach studio sale.
Although a number of studios have been sold or redeveloped, the film industry is alive and well, and as Hollywood the neighborhood revives, so does the business of Hollywood — making movies, TV shows and music videos. Film and television studios that only a few years back were being shuttered in the face of Canadian and other competition, are now nearly overbooked.
The 5,387 television-filming days registered in Los Angeles County in the second quarter, represented a rise of 19.3% from the same period last year, reports L.A. Film Inc., which tracks shooting schedules. Movies recorded 2,514 days, up 29.2%, while commercials and music video shoots climbed 17.2% and 14.1% respectively. After dropping in 2005, U.S. box office sales figures rose 5.5% to reach $9.5 billion in 2006, according to the Motion Picture Association of America.
Still, some brokers and financiers say it is only a matter of time before rising land values force large lots into traditional uses, such as housing, office and retail. Earlier nontraditional land users such as Marineland or Gilmore Field, a stadium where midget autos raced in the 1940s, fell under the developer's bulldozer.
While executives have slated Culver Studios for auction, CEO Cella says the lots might not be redeveloped because of Culver City zoning regulations, and Culver could be run as an independent studio.
But in the area, there is strong temptation to redevelop such properties. The MODAA Lofts development on Washington Blvd., not far from the studios, caused a stir because of the steep prices recently when live-work units sold for more than $1 million, atop a wine bar-restaurant.
Among other plans on the drawing boards:
Universal Studios: NBC Universal Inc. has proposed a massive residential development at its 400-acre Universal Studios lot and theme park east of Hollywood. Under the plan, 125 acres would be sold to a residential developer, says a Universal spokeswoman, and nearly 3,000 houses and townhomes would be built. The theme park and studios would be upgraded. A developer has not yet been selected, and terms have not yet been released, according to Universal.
Tribune Studios.-based media firm Tribune Co. spent heavily to upgrade its real estate on Sunset Boulevard, where KTLA-TV Channel 5, Tribune Studios and Tribune Entertainment are located. The popular television shows “Judge Judy” and “Judge Joe Brown” are produced on the site. According to the Los Angeles Times, which Tribune also owns, brokerage firm Cushman & Wakefield has been hired to market the property to large potential buyers such as CIM Group that could potentially close a deal by the end of the year.
Columbia Square. Developers Apollo Real Estate Advisors and Molasky Pacific are building an $850 million mixed-use development called Columbia Square on Sunset Boulevard. It will have 400 housing units, office space, retail and a boutique hotel, according to the Hollywood Chamber of Commerce. The ground-breaking is targeted for 2009.
Safai of Madison Partners questions whether the market for unconventional properties like studios will stay strong. Studios once sold at a discount, but appreciated in the recent real estate boom, says Safai.
They looked appealing while other properties traded at low, single-digit cap rates. But when demand surged, cap rates compressed on studios to rates recorded at other, less exotic properties.
Barring a major recession, Hollywood's acreage will likely continue to attract investment capital. Even in this credit market, Safai last week brokered the $50 million sale of an empty 12-story office building at 7060 Hollywood Blvd., one of the last hulks left vacant from the days of Hollywood's decline. The seller was a local high-net-worth family, and the buyer was New York-based LeFrak Organization, which paid a hefty $286 per sq. ft. for the 175,000 sq. ft., property on Hollywood Boulevard.
Protecting Hollywood's charm
But credit limitations are halting other deals. “I have Hollywood transactions on hold due to lenders requiring additional equity from the borrower, which will affect the buyers' return on investment. I do believe once the dust settles, transactions will be completed, especially in strong markets such as Hollywood,” says David Ghermezian, vice president with Grubb & Ellis. “But for now, we are stuck.”
Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., says the Hollywood scenario is playing out in many cities where commuters are returning to city centers to avoid long commutes. “Historically it has been true worldwide,” he says. “Now, it is happening in America.”
But Greene, who produced such television standards as “Magnum, P.I.” and “Nightrider,” cautions that too much of Hollywood's charm, history and traditional job base may be pushed out of town.
“You have to save places for sound stages. It shouldn't be all condos and bars,” Greene says. “We need to protect the reason we are here, we need places for people to work.”
Other Hollywood observers are concerned not only about the film culture, which drives the healthy tourism industry, but also about potentially inflated land values, which could prove prohibitive for local residents who want to make a change.
Veteran Los Angeles developer Kate Bartolo, founder of Kate Bartolo & Associates, strongly urges developers to exercise caution. “In Hollywood, land prices have soared beyond all reason, they are way out of reach. Some people are willing to pay, but it doesn't make sense, and we may see some fallout from that going forward.”
Benjamin Cole is based in Los Angeles.