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CINEMA SHAKEOUT CHALLENGES MIAMI DEVELOPERS

By Paul Gereffi

At a recent luncheon of ICSC members from South Florida, a question was posed to Patrick Burbank, assistant vice president at Miami-based Terremark Real Estate, the developer that plans to build Brickell Commons, a mixed-use complex near Brickell Avenue.

“Are you still planning to have movie theaters?” asked Beth Azor, president of Terranova, a real estate services firm in Miami.

After all, Terremark’s partner in the project, New York City-based Millennium Partners, typically anchors this type of urban center with movie theaters.

But Burbank’s answer, that due to the uncertainty in the movie theater industry they weren’t sure, surprised few: “Needless to say that can change and will probably change,” he said. “We’re all watching what’s happening with the movie-theater industry.”

Mired in debt, the U.S. movie industry’s major players are currently in financial trouble (Shopping Centers Today, December 2000). In 2000, United Artists, Carmike Cinemas, General Cinema Companies and Edwards Theatres all filed for Chapter 11 bankruptcy protection. Regal Cinemas has avoided bankruptcy but also has backed out of deals. The effect has trickled down to landlords and developers as exhibitors scramble to re-negotiate leases and withdraw from new deals. Often, properties are left with empty space and huge parking lots for theater operators who decided the show won’t go on.

The situation is reversing a trend of the last decade, which saw multiplex movie theaters pop up like mushrooms in South Florida and across the country. Nationwide, eager lenders were all too anxious to finance a building boom by theater operators and the industry added more than 5,000 screens since 1998 at a cost of up to $1 million each. For many landlords, movie theaters became the tenant of choice to bring entertainment into the retail-entertainment model.

But now that many screens will be gone, developers and brokers are improvising ways to deal with the void. What’s more, sentiments are mixed on whether the movie-theater formula was all that good to begin with.

“The loss of customer traffic when a theater goes dark and how to replace that is one problem,” said Greg Masin, associate director of retail services at Cushman & Wakefield. “But even where theaters are still viable there are operational issues to be solved.”

In fact, Masin said, developers and their lenders are now sometimes shying away from the entertainment-based centers, and some investors see a negative connotation with movie theaters. That’s because the typical crowds attracted to theaters are young, with 12 to 30-year-olds making up 53% of the movie going public, according to Moody’s Investors Services. In contrast, people over 60 account for only 8% of movie ticket sales.

“Some centers don’t want the teen-age crowd,” said Masin, “because they aren’t likely to shop at other retail businesses after a movie. Also, the older generation doesn’t want to walk hundreds of yards through a parking lot just because of stadium seating. In some cases, developers shot themselves in the foot.”

Certainly, some developers remain die-hard fans of movie-theater anchors. Among them is Stanley Whitman, who is seeking to build an upscale theater at his tony Bal Harbour Shops in Bal Harbour, since General Cinema pulled out of the project in the fall of 1999.

“I think it would be a real enhancement to the community,” Whitman said. “I’m not looking for the mass audience. Our customers will pay for parking, and we’ll serve alcohol. I think the industry is beginning to shape up and re-form. We’re looking for someone to build for, but the shoe has to fit.”

And Miami developer Jeff Berkowitz, who was left with a vacant 70,000-square-foot piece of land when Regal Cinemas pulled out of a 16-screen deal at Kendall Village, is considering building his own theater at the project, on Kendall Drive near the Florida Turnpike in Miami-Dade County. “The movie business is a great business,” said Berkowitz. “The West Kendall area is underpopulated with screens. We’re evaluating a number of options, but we may very well build our own if we don’t lease the spot to another operator.”

But others say it’s time to move on from movie-theater dependency. They are envisioning new kinds of shopping centers that would provide a different kind of destination. These would focus on lifestyle and convenience, which could be satisfied with other kinds of tenants.

Constructa, the French company that developed Cocowalk, South Florida’s first retail-entertainment center and one anchored by movie theaters, is now planning the Mary Brickell Village, a complex that will mix residential with retail use, to create an urban community near Brickell Avenue. Movie theaters were never considered for the project, said Philippe Labarre, development manager with Constructa.

“In the center of the Brickell area, there is a need for entertainment, but low-key, like looking at a book, walking in a nice environment, picking up a vegetable,” Labarre said.

To that end, Constructa is negotiating with a gourmet market and a bookstore to be anchors at the project. Further, Labarre said, an analysis of the market showed there were too many movie screens in the area. “We thought the way the movie theater was going, it was going to be difficult for the area to sustain a movie theater,” Labarre said.

For projects that were constructed with a movie theater, the problem is more complicated as they face the vacant space. Masin of Cushman & Wakefield, said alternative uses like fitness centers, community halls or municipal facilities may fill the voids of space of departed theaters.

But, that’s if property owners or new tenants are willing to pay to retrofit the space.

“Renovation of these spaces is going to be a big problem,” said Azor of Terranova, who predicts filling vacant theater space could take three to five years. “It could cost $300,000 just to fill in the sloped floor.”

At the Streets of Mayfair in Coconut Grove, the closing of a Regal Cinema last February left 30,000 square feet of third floor space to fill. If another theater operator isn’t found, the space may be used for another artistic venture, said Nancy Braun, the center’s managing director. According to Braun, there has been a resurgence in art organizations and a lack of space for alternative films, plays and operas.

“In addition to office use, we’re looking at a combination of live-and-work space,” Braun said. “For example, possibly artist’s lofts and space for display of works. The high ceilings would be suited for that.”

Returning to basic marketing concepts, such as filling in niches with businesses that are missing from an area and downscaling to make a center more reflective of the neighborhood, may be the best approach, said one consultant.

“Centers don’t necessarily need movie theaters to be successful,” said Sandie Witmer of Retail Estate, a management and consulting firm in Coconut Grove. “If a project can take on the personality of the location it’s in, it can come alive. What works in Miami might not work somewhere else.

“Look at the demographics and find out what’s missing in the area. Maybe a bookstore is needed, or a comedy club, or a restaurant with a piano bar or a dinner theater. Is the surrounding area conservative or trendy? Find things reflective of the local population and fill the void.”

Witmer added that if all else fails, gut out an empty theater and carve it up.

“You do what you have to do to regenerate traffic,” she said. “I think there may be some success stories in a year or two.”

This article is reprinted from The Daily Business Journal of Miami.

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