Carlyle Group Is Going to Movies

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Manhattan Beach Studios, a 580,000-square-foot studio and office facility in its namesake South Bay city, is changing hands. And the buyer is one of the largest private investment firms in the world.


The Carlyle Group is paying in excess of $155 million for the 22-acre property at 1600 Rosecrans Ave. in a deal that has not yet closed, according to real estate industry sources. The seller, Oaktree Capital Management LLC, bought the property three years ago for about $105 million.


The purchase of the studio represents the first foray into a Hollywood-related property for the Washington D.C.-based private equity firm, which has been steadily diversifying its holdings and moving away from defense and government-related investments. However, a company executive maintained that Carlyle is not particularly eyeing the entertainment industry for further investments.


“We’ve always invested in all different types of property types,” said Edward Samek, a principal at Carlyle. Samek declined to comment further, except to say that the deal “closes in the next couple of months.”


The company owns other Los Angeles properties, including downtown’s One Wilshire office building. Long known for shunning publicity, Carlyle has counted former presidents and powerful politicians as advisers who have assisted it in buying and selling companies that do government business.


However, with the flood of capital that has entered the world markets as interest rates have remained at historic lows, Carlyle has expanded its investment strategies. It owns almost 200 companies, and Business Week reported Feb. 12 that the firm plans on raising $85 billion by the end of the year.


Eric Sussman, a lecturer at UCLA’s Anderson School of Management who has studied Carlyle’s investments and sits on various mutual fund boards, said the private equity firm is simply looking for “future cash flow.”


“They’ve got a tremendous amount of capital that their investors are expecting them to put to work,” he said. “These are guys that made their wealth on inside connections .some of that is being lost in the fever of excess liquidity.”


The studios are managed by Raleigh Studios and the property will continue to operate as a studio. Such television shows as “Boston Legal” and “CSI: Miami” are filmed there. Officials at the studio could not be reached for comment.



Carlyle strategy

The studio buildings are selling for about $267 per foot.


Sussman said that the purchase doesn’t seem like a “screaming bargain,” though there is space at the site for more development. However, that could be a tough battle because of a watchful and development-weary Manhattan Beach community.


What’s more, in era of excess spending by private equity firms, Sussman wonders whether firms like Carlyle are paying attention to risks involved with purchasing real estate at such a premium, when property values could fall.


“I think a lot of buyers of real estate have lost sight of the bell-shaped risk curve,” said Sussman, who teaches finance and advanced accounting at UCLA’s Anderson School. “You have a blip and suddenly you are having crow for dinner and that’s the problem.”


Indeed, that sentiment has not gone unnoticed at Carlyle. In a Jan. 31 memo that has circulated on the Internet, Carlyle founding partner William E. Conway Jr. said that cheap debt has made the company move quickly to seize investment opportunities but cautions this era of greater liquidity will not last forever.


“The fabulous profits that we have been able to generate for our limited partners are not solely a function of our investment genius, but have resulted in a large part from a great market,” Conway wrote. “And I know the longer it lasts, the worse it will be when it ends.”


The expansive studio property includes 14 sound stages and eight office buildings. It was developed by Shamrock Holdings Inc. in 1999. Shamrock, the investment company of Roy E. Disney’s family, sold the property to Oaktree in November 2004.


The investment group Oaktree declined to comment.


Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate, said that the studios have changed the Manhattan Beach community for the better.


“Home prices went up a lot as a result of the studio coming,” said Conway, a longtime Manhattan Beach resident, adding that many producers and directors who work at the studios have bought homes nearby. “Also, office space started to take off along the Rosecrans corridor.”


Bruce Moe, finance director for Manhattan Beach, said that employees of the studio have helped build up the local economy. “They like to spend the money locally and that is good for sales tax revenue,” said Moe, who was unaware of the sale to Carlyle.


Madison Partners and Staubach Co. represented Oaktree on the deal. Madison Partners declined to comment and Staubach did not return calls seeking comment. Carlyle represented itself in-house.

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