As demand for content has exploded in the past decade, driven by an increasing appetite from streaming companies, the need for studio space in L.A. has skyrocketed.
Developers and property owners have taken note, and many have jumped at the opportunity to own or develop properties that companies like Netflix Inc. and Amazon. com Inc. may call home. While some studio owners are relatively new to the game, West Hollywood-based Quixote Studios is a veteran player in the industry.
The company was founded in 1995 by Mikel Elliott and Jordan Kitaen, who became friends while attending UCLA. Elliott serves as Quixote’s chief executive. Kitaen, who is now a vice president focusing on studio space at CBRE Group Inc., remains a minority shareholder in the company.
Both had Hollywood aspirations and started the company to get in on the action. Rather than wait tables, Kitaen said, the two decided to customize and rent RVs to productions while pursuing their interests in film.
“We were working hard. We were owners and operators, and we had a better product than what was out there at that point in the early ’90s,” he said looking back on Quixote’s early success.
“At one point we looked up, and we had seven or eight motorhomes and 10 employees and a parking lot we had rented and were like, shoot, this is our job now,” he added. “I always intended to go back to writing at some point, but we never looked back, and we kept growing this thing.”
The company also acquired soundstages, including the purchase for its West Hollywood headquarters in 2001. In 2014, Quixote grew dramatically with the acquisition of Sun Valley-based Movie Movers Inc., which provided trailers to the entertainment industry. Financial terms of the deal were not disclosed.
Quixote Studios now has a fleet of 450 trailers and 150 trucks. It also rents out lighting and other equipment.
Today, 35% of Quixote Studios’ revenue comes from photo shoots and commercials, while the rest comes from film and television productions.
Quixote Studios has 15 stages in Los Angeles and six more are due to come online by the end of the year. “Quixote has done very well,” said Carl Muhlstein, international director at Jones Lang LaSalle Inc. “Being a service company, they are not just landlords. They also probably have the largest fleet of technical trucks, which they lease to all the production companies,” he added.
The additional stages planned for this year will be in Pacoima, where Quixote already has five soundstages.
It also has three studios in New Orleans with two more on the way. In addition, the company operates in New York and Atlanta.
Quixote Studios leases some of its studios and owns others.
Some of the company’s growth comes from a collaboration with Bison Capital Asset Management, which acquired 29% of Quixote Studios in 2018.
“We wanted a capital partner to help us scale this business,” Elliott said, adding that they chose to bring in Bison Capital because they were “more collaborative than other private equity partners.”
Quixote said it is not looking for other private equity partners.
Quixote is far from the only player in L.A.’s evolving studio scene.
Historically, some of the largest production companies owned and operated the studios, but now private sector companies also own and operate and develop studio spaces, said Mike DeSantis, an executive vice president at Cushman & Wakefield Inc. “It’s gone from more corporate to more private real estate equity owned and operated,” he said.
Two of the big names in the business today are Brentwood-based Hudson Pacific Properties and Culver City-based Hackman Capital Partners.
Hudson Pacific made its first foray into studio space in 2007 when it acquired Sunset Gower Studios. It went on to buy the Sunset Bronson studio in 2008 and the Sunset Las Palmas studio in 2017. All three studios are in Hollywood.
Last year Blackstone Property Partners purchased a 49% interest in the portfolio. Hackman Capital, meanwhile, entered the industry in 2014 with its purchase of Culver Studios. The company went on to acquire CBS’Television City and MBS Studios in Manhattan Beach.
It partners with Square Mile Capital on its studio properties.
“The traditional real estate investors and developers until recently did not understand or did not like the industry model, which is more short-term rental, a heavy turnover type of tenants. You did not get the five-year leases. Until recently the traditional landlords stayed out of our industry, which allowed Quixote to grab a fair amount of market share. That’s changing now. There’s a lot of groups coming in with a lot more money and seeing opportunity,” Kitaen said.
DeSantis said streaming companies are now interested in leasing large amounts of space for longer periods of time.
With a streaming model, “they have much more clarity on the amount of revenue they have coming in, and it’s all about providing content to those platforms,” DeSanits said. And with new streaming services like Paramount Plus debuting, experts believe demand for studio space will continue to grow.
Muhlstein added that streamers have “explosive media budgets” with which to go out and make new content. That, coupled with a backlog from the pandemic, makes the market for soundstages increasingly competitive.
‘In a really good spot’
Despite the Covid-19 pandemic, things have gone well for Quixote Studios.
“We gained market share,” Elliott said. “We’re in a really good spot coming out of Covid. We did a lot of protective things to help us be stronger when we came out.” And experts said a backlog of content means owners of studio space find themselves in a good position going forward.
Beyond L.A., Quixote is also adding stages in New Orleans and is interested in other markets like Vancouver and the United Kingdom but would need to make an acquisition to make that happen.
“You can’t go into there without acquiring somebody,” Elliott said.
He added that Quixote is also looking to do industrial conversions, like at its Pacoima studio.
For conversions, the company seeks properties with high ceilings, a lot of space and parking in a good location and at a good price.
“The demand is really high now, and we’re trying to meet that demand,” said Jake Ross, marketing director at Quixote Studios.
Other groups also have plans to add more studio space in L.A.
Already this year Atlas Capital Group has submitted plans for a $650 million project, 8th and Alameda Studios at the Los Angeles Times printing plant downtown. The company is looking to create a roughly 832,000-squarefoot campus with 17 soundstages.
Bardas Investment Group and Bain Capital, meanwhile, have submitted plans for the $450 million Echelon Studios, which would have four soundstages and a flex stage at the site of a former Sears store in Hollywood.
The Sunset Gower Studios is poised to double in size, adding 480,000 square feet and two soundstages. And a $1.25 billion proposal for Television City would build up to 1.1 million square feet of new office space, including up to 15 soundstages.
Muhlstein cautioned, though, that sites can take years to be developed into soundstages, “so it doesn’t help with the demands of today.” Still, he said, the industry is a high point for L.A.’s future.
“I’m excited,” Muhlstein said. “It’s the one industry that is truly bringing L.A. out of this reset or pause. It’s the one industry that is looking at office space, leasing soundstages, and the ripple effect is tremendous.”