Anderson, who specializes in malls and theater properties, recently compiled information for an in-depth report on behalf of Colliers. His report lists six theater chains that have already filed for bankruptcy, including five of the top ten. According to Anderson's report, bankruptcy laws allow the companies to "reject all under performing leases (typically those with smaller, older theaters) and emerge with their biggest and best, newest multiplexes intact."
No one knows for sure how deep the cut in the Seattle area will go. "Every owner is nervous at this point," says Anderson. His belief is that any theater property with fewer than 10 screens is at risk of being closed.
Just last week, Loews Cineplex Entertainment Corp., the US's second-largest operator, said it would close 675 screens, or about 23% of its 2,965 screens in North America. It is also rumored to be filing for bankruptcy protection itself. Lowes had already shut down its two-screen City Centre property in Downtown Seattle this January. With this latest announcement, its single-screen properties at the Northgate and Southgate malls (in Tukwila and Everett, respectively) and its eight-screen Factoria Cinemas in Bellevue could be next.
So, what's a theater owner to do? "It's going to be really challenging," says Anderson. Many of the cinemas subject to closure are the anchors of their respective malls, and often the leases of the other tenants are written with a clause predicating their commitments on the theater being open. The expectation is the theater will attract customers, especially in the evening, which is vital to food services and other entertainment-related tenants. As Anderson puts it, no business wants to be next to a "big, dark, lifeless area." In late 1999, the International Council of Shopping Centers conducted a study, which concluded that theaters generate an average of two additional mall-trips-per-customer over a 90-day period.
Even if a retail area can withstand the loss of its theater, many properties are too small to be converted for use by a replacement anchor, the square footage of which needs to be at least 25,000 sf to 30,000 sf according to Anderson. Most theaters with six or less screens can't measure up. Many property owners are already looking at negotiations with existing theater tenants that include rate cuts and concessions. The alternative, he says, could be "big, vacant spaces."
Remodeling a theater comes with its own set of problems. For one, all have sloping floors that would need leveling--an expense that would be borne by the building owners. For its City Center property, Bellevue-based owner Bentall US LLC is expected to spend in the vicinity of $500,000 remodeling the space to make it functional for a non-theater tenant. The one bright spot is that some theaters are older tenants with a long-term leases reaping well below market rates.
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