- Brookfield Property Partners is in talks to take a stake in Blackhall Studios, a production facility with nine sound stages in Atlanta, according to three sources with knowledge of the deal.
- The deal talks mark the latest sign that investors are eyeing the red-hot market for studio space, as the pandemic keeps people at home and eager to consume content.
- In August, Blackstone purchased a 49% interest in three Los Angeles production facilities in a deal that valued the properties at $1.65 billion.
- Last month, a group of investors, including Hackman Capital Partners and Square Mile Capital Partners, purchased Silvercup Studios in New York City for $500 million.
- Business Insider spoke with studio owners, private-equity executives and brokers, to learn what’s been driving a flurry of investing activity into studios like Blackhall.
- Visit Business Insider’s homepage for more stories.
The surge in investment in film and television production spaces is heading south.
Giant publicly traded real-estate firm Brookfield Property Partners is in talks to take a stake in Blackhall Studios, a production facility with nine sound stages in Atlanta, according to three sources with knowledge of the deal.
“There’s definitely a handful of qualified parties that want to be a part of this and we’re working through those details,” said Ryan Millsap, the CEO of the studio, who declined to comment on whether Brookfield specifically would invest in the facility.
As part of the deal, Blackhall is seeking to secure about $50 million of new financing, a sum that would value the studio at around $80 million, two of the sources said. At the start of the year, the private-equity firm Commonwealth Asset Management purchased an ownership interest in the studio.
The transaction with Brookfield, if it is completed, would be the latest instance of a major investment company jumping into owning studio space. Demand for such facilities has grown amid a proliferation of streaming content from digital channels such as Netflix, Amazon, Apple, and Disney. The data-tracking firm Statista estimated that the US video-on-demand market would grow to over $37 billion in 2025 from $24.2 billion in 2019.
The Covid-19 pandemic, while it has interfered with and complicated production, has only appeared to stoke the consumption of content as theaters remain shuttered and lingering concerns about the virus have encouraged viewers to watch more from home.
Like other recent acquisitions, the deal includes the prospect of growth, offering Brookfield the opportunity to potentially sink hundreds of millions of dollars into the emerging market for studio spaces as observers expect viewers to continue to consume more content and production to grow.
Blackhall is planning to more than double the size of its Atlanta complex from about 850,000 square feet to over 2 million square feet in the coming years, an expansion that would include a mix of new sound stages, support spaces, and offices.
The studio is also seeking to build a $250 million facility in Los Angeles, near Burbank, Millsap said, and has plans to expand into other markets that have become hubs for film and television production, including Vancouver and London. In total, Millsap said he expected Blackhall and its partners to invest over a billion dollars, a sum that included both equity and financing, into its acquisition and development plans.
“We’re looking for a partner that wants to not only help us expand our Atlanta property, but also elsewhere,” Millsap said. “We plan to keep expanding in the markets where we have success.”
Blackstone and other big investors have been snapping up studio space
Other major investors have been active recently in snapping up studio spaces. In August, Blackstone purchased a 49% interest in three Los Angeles production facilities in a deal that valued the properties at $1.65 billion. Last month, a group of investors, including Hackman Capital Partners and Square Mile Capital Partners, purchased Silvercup Studios in New York City for $500 million.
After California and New York, Georgia is the third-largest destination for film and television production in the country, in part because of the lavish tax breaks it has offered productions.
While California and New York also offer tax incentives, Georgia, unlike the other two, has no annual cap on the amount of available credits. In the 12 months preceding August 2019, a total of 391 television and film productions, commercials, and music video shoots with a combined budget of $2.9 billion were filmed in the state, compared to 284 such productions with a total budget of $2.7 billion for the same period the year prior.
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Marie Hodge Gordon, a spokeswoman for the Georgia Department of Economic Development, said that about $2.2 billion of film work has been shot in the 12 months preceding August 2020, despite interruption in production.
The market’s growth is now catching the eye of investors just as New York City and Los Angeles have.
Trilith Studios, formerly known as Pinewood Studios, for instance, which is located just outside Atlanta in Fayette County, said it has received growing interest from both potential partners and lenders in its efforts to raise over $200 million to build two new sound stages totaling 220,000 square feet, 120,000 square feet of production offices, and a 60,000 square foot “smart stage” used for superimposed effects. It plans to break ground on the projects next year.
“You have players like Hackman and Blackstone and others that have said this is a good space to be in,” said Frank Patterson, the president and CEO of the studio. “Now you have others waking up and wanting to get in too. That’s the big change from 12 months ago.”
Patterson said he wasn’t ready yet to announce who would invest in the expansion or any lenders attached to the project.
Los Angeles and New York City have generally dominated the production market for television programming. But Georgia has had success attracting tentpole films such as “Avengers: Infinity War” and “Black Widow” and big-budget shows such as HBO’s “Lovecraft Country” because it is seen as a more accommodating location for the complex logistics of shooting a major production.
“One of the reasons why Atlanta is booming is the places we compete against are expensive and higher density,” Millsap said. “Where do you park trucks in New York? There’s no room to move.”
Patterson remembered the colossal sets built for “Ant-Man and the Wasp”, which was shot at Trilith, that required an industrial-sized gantry in one of its sound stages to be repositioned for different shoots.
As bigger investors have crowded into the studio business, several have expressed broader ambitions to create footprints that span multiple markets to cater to customer demands for particular locations or to accommodate productions that have been bumped from other hot markets because of the upswing in production activity.
“The world has gotten smaller in the content business and productions increasingly want the flexibility to film in Europe, do the post production work in Los Angeles, and then handle distribution out of New York,” said Jeff Pion, a vice chairman at CBRE who focuses on entertainment business tenants. “These multi-property studio owners want to build long term relationships and accommodate customer needs around the world.”
Investors are looking to establish new film hubs overseas
Alex Vouvalides, the chief operating officer and investment officer at Hudson Pacific Properties, said that part of the company’s reason for recently selling a 49% interest in the Hollywood studios Sunset Gower, Sunset Bronson, and Sunset Las Palmas to Blackstone was to join with a capital partner to help it pursue further studio investments across the country and internationally.
“The strategy is to capture the value creation and generate liquidity to grow the studio and office business,” Vouvalides said, noting that the transaction raised about $1.2 billion for Hudson Pacific, both in proceeds from Blackstone and new financing. “The idea is to do more deals together in other markets and grow the business together.”
Craig Solomon, the chief executive of Square Mile, which just purchased Silvercup Studios with Hackman Capital and other investors, said that he and his partners are seeking to expand to other film hubs as well, including London.
Last year, Square Mile and Hackman bought Manhattan Beach studios in Los Angeles from The Carlyle Group in a $650 million deal that also included MBS Services, a leading provider of film equipment to productions.
“London, the UK, and Europe have a lot of the same dynamics that we do here,” Solomon said.
Los Angeles and New York City, in particular, have a limited number of studio facilities relative to the level of demand, making assets in those markets particularly valuable and coveted.
“It’s hard to find large plots of land in LA to create new studio facilities,” said Nadeem Meghli, a senior managing director at Blackstone who led the company’s investment into the three Hudson Pacific studios. “That’s part of why there has been no new studio supply since 1999 in LA. So you basically have a sector that benefits from extraordinary supply and demand fundamentals.”
That scarcity has caught the attention of real-estate investors who previously hadn’t focused on the studio business.
The investment firm Clarion Partners, for instance, recently completed building six warehouses in Santa Clarita, an industrial park called the Center at Needham Ranch. The company leased two of the spaces and is negotiating to lease a third property to warehouse tenants. But the remaining three, which together total about 500,000 square feet, have received interest from studio users who would repurpose the buildings as production facilities.
“We have seen the highest level of demand from entertainment related uses in all three buildings,” said Nicole Welch, a senior vice president at Clarion who helps manage its industrial investments. “As an industrial owner, we have to follow demand and if entertainment is a huge driver, then that’s where we will be looking.”
Some industry insiders warn about the dangers of overexpansion
Despite the activity, some in the studio business have a more cautious perspective on the boom, pointing to past upswings in production that eventually waned.
“Everyone wants to be the next HBO, but it’s very hard in the long run to be a successful content creator and distributor as witnessed by the rise and fall of so many studios,” said Doug Steiner, whose family real-estate firm owns and operates Steiner Studios in the Brooklyn Navy Yard.
Steiner also pointed to the expiration of New York’s tax credits that are so key to luring productions to that market as another potential concern. The state’s film and television tax credit program sunsets in 2023, when it will be subject to extension by state legislators, who have chosen to renew it when faced with past expirations.
“There’s no assurance it will be renewed this time and that’s the highest risk for the business here, which is nomadic,” Steiner said.
Still, Steiner just won a bid process arranged by the city to develop a new $350 million studio complex in the Brooklyn neighborhood of Sunset Park and is continuing to expand the company’s 780,000-square-foot studio at the Navy Yard, which he is planning to eventually grow to 1.8 million square feet.
“We might get partners,” Steiner said of the Sunset Park project. “This business only got institutional acceptance in the last year or two, but that’s a big turning point. It will give us the chance to take some money off the table.”
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