Earthmovers are groaning across Sony’s Culver City lot these days as they grind up the ground to get ready for construction of two big buildings that will rise above the studio’s sprawling site.
And that’s not the only studio work going on behind the cameras in Los Angeles.
There’s a flurry of construction activity at the city’s studios from Hollywood to Santa Monica. Faster than Rhett told Scarlet to bug off, a new landscape is forming on the industry’s storied lots. Hardhat workers are riveting steel beams. Executives are looking at blueprints. Leasing agents are planning to get tenants for office space.
This backlot building boom is driven by several engines. Primary among them are low office vacancy rates and high rents in surrounding areas. The studios plan to lease out office space regardless of whether the new tenants are show biz folks.
“It’s a good way to have money coming in,” said John Tronson, a principal at Ramsey-Shilling Commercial Real Estate Services. “It’s better to buy land with studios on it now and add other buildings so it generates income and is not just sitting there.”
Another factor: Some studios need to upgrade and get wired for the digital era. Those tend to move into the new office space instead of leasing it all to outsiders.
Also, private equity companies that have recently acquired several independent production facilities are pressing for the cash that they could make off real estate development.
Major building projects are in the works or planned at studios including Sony, Tribune, NBC Universal, Sunset Gower and Fox.
“These are great pieces of land on prime locations,” said Ann Gray, an architect who headed Paramount’s on-lot development from 1987 to 1994. “Right now there is massive interest in looking at these lots and modifying them for income purposes.”
Among the studio projects:
– Two four-floor buildings are being built on Sony’s Culver City lot that will bring about 600 employees from other locations around Los Angeles onto the campus, eliminating the need for costly rental space.
– NBC Universal’s $3 billion expansion of its Universal City property, including the construction of 2,900 apartments, lofts and condominiums, additional office space, and an upgrade of its studio and entertainment facilities. The proposal is currently working its way through the city entitlement process. The studio’s new facilities will be located next to the subway connecting Universal City to downtown Los Angeles and across the street from Universal Studios.
– Tribune’s lot is for sale and the company plans to build office, mixed-use and production space on the Sunset Boulevard property.
– A five-story office building opened on Fox’s Pico Boulevard lot last year and the studio is nearing completion on another office building and parking facility.
– A six-story, 96,000 square foot building to house Technicolor’s postproduction facilities is under construction on Sunset Gower’s 15-acre lot in Hollywood.
Money play
With office space throughout the Hollywood area and Westside scarce and pricey, studios with available on-lot space are maximizing the potential for real estate income. The sky-high rents office space is edging toward $4 per square foot in areas like Hollywood and the Westside and low vacancy rates make the conversions very appealing financially.
Sony’s development will allow the company to bring employees back onto the lot, and save money by vacating rented space elsewhere.
The studio’s 125,000-square-foot Fourth Avenue building will be the new home of Sony Pictures Television and the 96,000-square-foot Culver building will serve as Sony Pictures Television International’s headquarters. The project includes office space and a courtyard with a total of about 44,000 square feet, as well as a new 1,000-vehicle parking lot. Construction is to be completed by the summer of 2009.
The studio maintains it will recoup the costs through environmental initiatives and eliminating rentals.
“There are multiple benefits to this construction for one, we’ll see a long-term savings on leases,” said Jim Kennedy, a Sony spokesman. “Our leased office space is currently in Westwood, and that’s not an inexpensive place to rent.”
Also, private equity has recently entered the studio ownership game with plans for real estate development. The investments underscore the value of studio land.
The listing of the former Columbia Pictures headquarters in Hollywood was the most recent in a handful of studios that changed hands or went on the block: Carlyle Group paid $150 million for Manhattan Beach Studios in June. Sunset Gower Studios was sold by GI Partners for $205 million in August. Culver Studios was put up for sale by ownership group, PCCP Studio City Los Angeles LLC this summer and is expected to fetch about $150 million.
“We feel we will be very successful in applying our office expertise and transferring that to the studio world,” said Howard Stern, the managing partner of Sunset Gower studios. “Production office space has much shorter term occupancy than a traditional office building, but productions are drivers of demand.”
Sunset Gower is nearing completion on a six-story building to house post-production operations of Technicolor Inc, a division of France-based Thomson. The company signed a long-term lease last year to occupy the entire building. The $40 million project, slated for completion early next year, is on a former parking lot at the northeast corner of the 15-acre Sunset Gower Studios lot, between Gower and Gordon streets.
Digital technology is another driver of the developments, since high definition digital facilities are now the industry standard. The last time most studio lots saw significant upgrades or construction activity was in the mid- 1990s. After more than a decade, the need to bring facilities into the digital era is a key component in some of the work.
“We’ve got to keep up,” said Vinnie Malcolm, KTLA’s general manager. A new, hi-def station is part of the plans for the Tribune lot. “Everyone will have upgraded over the last three to five years, so it’s important to stay on par.”
It’s sometimes easier to design and build production facilities than it is to retrofit old ones.
Technological upgrades are part of NBC Universal’s plans, which call for the sale of part of the 35-acre studio lot in the Burbank Media District. The new building will include virtual studios, interactive graphic capabilities, a glass-walled newsroom and other digital upgrades.
“Some of the studios have these dilapidated old buildings limping along and need to upgrade the technological aspects, so they might as well build new from the ground up in the interest of modernizing it all,” said Tronson of Ramsey-Shilling.
Content factor
Changing entertainment content is a factor, too. The preponderance of reality programming has changed the use of studio space. With fewer sitcoms and dramas in production, less studio space and more offices are the order of the moment. With the three-camera stages used for sitcom-style production going empty, underutilized production space is being transformed for commercial use.
Some are apprehensive that the conversion trend could go too far, and office uses will overwhelm the traditional use of studio campuses.
What’s more, runaway production is also seen as an underlying reason for the shift to office use.
“It’s criminal that that our state does not offer any production incentives, and they take Hollywood production for granted,” said former Paramount executive Gray.
But executives say even with new development popping up, the studios themselves are largely unaffected and will still be used for entertainment production.
“It’s great to bring in office space,” said George NeJame, Tribune’s vice president of operations. “But if you lose stage space there’s no reason for the offices, so you really have to strike a careful balance. We are a production lot first and foremost.”
