INTERVIEW—Wooing Hollywood Home

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The CEO of Raleigh Enterprises, Mark Rosenthal, has diversified his real estate investment company and in the process become a leading advocate for keeping film production centered in Los Angeles


Mark Rosenthal:


Title:

Chairman, CEO


Organization:

Raleigh Enterprises


Born:

Los Angeles, 1959


Education:

UCLA and Berkeley, undergraduate business school; J.D., USC


Career Turning Point:

Reaching a legal settlement with the state of California in a dispute over the real estate assets of Executive Life Insurance Co., with which Raleigh had been a partner.


Person Most Admired:

His father and Antarctic explorer Ernest Shackleton (captain of the Endurance)


Hobbies:

Flying single-engine planes, mountain biking, hiking, skiing


Personal:

Married; one child

Though Raleigh Enterprises has a diversified set of holdings that include hotels, a winery and commercial real estate, it’s through Raleigh Studios the largest independent film, television and commercial studio group in the country that the company is having its greatest outward impact.

The company’s chairman and CEO, Mark A. Rosenthal, has become a strong advocate of keeping films in California and halting runaway production to Canada, speaking out recently for the state’s Film California First initiative.

Before taking over a business that his father began with tract homes in Orange County in 1955, Rosenthal worked in a private law practice, marketing, advertising and the hotel management industry. From his headquarters at 100 Wilshire in Santa Monica, Rosenthal oversees six operating divisions within his ever-expanding organization.

The company now has more than 400 local employees and generates annual revenues in excess of $50 million. Its key assets are the Sunset Marquis Hotel and Villas, the Avalon Hotel, the record storage firm File Keepers, Malibu Hills Vineyards and Raleigh Film and Television Studios.


Question:

How did Raleigh Enterprises get involved in the film industry what was the impetus for purchasing Raleigh Studios Hollywood?

Answer: We were going to rip it down and put up a Kmart. It was 1979 and also a period of concern about runaway production in Los Angeles. But Fred Jordan and another gentleman named Norman Barnett, who were running the studio at the time, convinced us that indeed there was a business in supporting the film industry. We revamped the studio it’s now the oldest continually operating studio in Hollywood through the late ’70s and early ’80s.

Q: That seems risky. Did your diverse holdings act as a hedge?

A: At the time, our lead bank looked at doing a construction loan for us. They asked us what we could do with the sound stage if it wasn’t successful. We told them about our business called File Keepers. It’s an archival storage business of boxes that thrives in a high cube building. So we said we could just fill the studio with boxes if it didn’t work as a studio. Fortunately, we’ve never had to do that.

Q: What was the impetus behind Raleigh Studios Manhattan Beach?

A: At the time, DreamWorks was looking to develop facilities in Playa Vista. There had been a migration of many of the core production products and commercial product line to the Westside, and we felt that a Manhattan Beach facility could help serve that market well. We leased the facility from its builders (an arm of Shamrock Holdings, Roy Disney’s investment group) for an extended period of time in order to see how the area might develop as a center for production support.

Q: Do these investments mean you’re committed to the future of film in Los Angeles?

A: We are. But we’re also an entrepreneurial company. Our assets are real estate. That means that they can be used as different things. We’re a great believer in recycling our assets.

But that’s not what we wish to see. There’s been a history of runaway production in Los Angeles ever since there’s been production in Los Angeles. Particularly today, as the production industry becomes more global and you have these major multinational companies that control the major studios. They’re interested in one thing: providing the best bottom line to shareholders, and we certainly understand that. They’re going to look to provide the low-cost product, provided that product maintains the same quality.

Q: So how can Los Angeles compete?

A: The talent base in L.A. remains unsurpassed. It’s the people that you don’t hear about: the key grips, the best boys, the focus pullers. There’s this huge talent base of people that exists in L.A. From our standpoint, it is a huge competitive base for L.A. and California, because you can go to Vancouver and you can go to Toronto but you may get huge delays associated with the production and you may have quality problems. We think that the infrastructure and facilities in L.A. are unsurpassed. I could take you up to Vancouver and show you the conditions under which everyone has to work up there.

Q: No frills in Canada?

A: Tough, tough conditions.

Q: Then why are people going?

A: There’s a perception and hopefully with Film California First we’re starting to look towards marketing to the producers that the benefits of filming in California have been taken for granted. The industry has just come through the late ’90s, which were a boom time. We’re right at the tail end of a time when you couldn’t find a sound stage in L.A. To some degree, the production support industry became complacent about the quality of that production. And now we’re going to have to work a little harder.

Q: What do you think of Film California First (Gov. Gray Davis’ initiative to provide the film production community with up to $45 million in reimbursements over three years for costs related to filming on public lands)?

A: Film California First represents a change in focus for the government towards our industry. I can market it to my clients and say, ‘Here’s a way to save some money.’ It helps. It’s not going to rise to the level of the 11 percent labor credit that you get in Canada. But it is a step especially if it raises some questions.

Q: Such as?

A: There’s the question of whether some of the aggregate value of foreign productions is being achieved at the level that some of the studio heads really believe. And I don’t think that’s really been looked at yet. You can have savings from the exchange rate and government incentives in Canada, but I’m not certain that on a retrospective basis the full level of savings that people think are being achieved are really being achieved. For example, the average MPAA movie’s filmed costs are $50 million. That’s $400,000 to $500,000 each month on an average cost-of-capital basis. So if you have a project that gets delayed some length of time, is that delay being factored into the efficacy of filming equation? If you have to delay your shoot a friend of mine had to stop his shoot in Texas to import dolly and tracks from California how is that calculated into the costs?

Q: So what’s the solution?

A: That’s one of things that we’re looking at in our operations. How do you enhance efficiencies for a whole range of productions? How do you provide production for any business, whether a cable or an Internet company? We’re looking at things in much more detail on all our properties in much more cost-effective ways in terms of time and expenditure of dollars in construction going forward. The question is, “How can our industry demonstrate to these multinational companies that they can save time and turn out a better product which will lead to savings overall?”

Q: What other steps can be taken by the government?

A: I don’t see the state of California or the federal government realistically rising to the level of subsidizes that you get in Canada. The other alternative would be trade barriers. And that’s going to be strenuously opposed by the major studios that believe there are savings to be had outside the U.S. I think that the benefits of California the infrastructure, the efficiencies I think that we really have to continue to focus on that and exploit it as an asset.

Q: Would Raleigh look outside of the Los Angeles area for new studios?

A: We have looked at facilities on a worldwide basis in Spain, Portugal, Canada and Florida. But one of the real challenges for the development of a studio facility is really the underlying economics of it. How do you finance it? Who’s going to pay for it? What is the depth of the talent pool? What’s industry support look like, wherever it is?

Q: What if the studio business in Los Angeles were to dry up?

A: That’s why we’ve adopted this very diverse portfolio. We’re, at heart, a real estate ompany trying to keep afloat.

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