Lights, Camera, And Production Space–How Hollywood Real Estate Is Developing (And What it Means for Investors)

Lights, Camera, and Production Space–How Hollywood Real Estate is Developing (and What it Means for Investors)

Growing demand for production space is changing the way real estate developers and investors look at and develop Hollywood.

For many, the idea of Hollywood’s commercial real estate conjures up a stroll down the luxury retail shops of Rodeo Drive. For real estate developers and investors, however, Hollywood commercial real estate goes far beyond even the most extravagant retail shops, extending to movie production spaces like sound stages green screen studios and more.

This niche corner of commercial real estate may not always get the red carpet treatment, but it’s arguably the backbone of the entertainment industry.

Even as the number of people leaving Orange and Los Angeles counties outnumber those moving in, the entertainment industry's footprint in L.A. is increasing. According to CoStar, studio and stage occupancy rates range from 90-96%, forcing commercial real estate developers and sponsors to quickly find, build, and develop new properties to meet industry demand. PricewaterhouseCoopers has valued the streaming entertainment industry at $23B and projects that by 2020, the valuation will jump to more than $30B. Driven by the rise in streaming services, the demand for new production space is growing by leaps and bounds.

The owner of Triscenic Production Services, a production services company, Vince Gervasi, says, “I’m building seven stages up here [Santa Clarita Valley], and I’m renting them out faster than I can build them. There’s a waiting list four or five deep on just about every stage.” The higher the occupancy rate and the greater the demand, the higher the projected cash flows for investors.

Amazon.com, Inc. AMZN Studios has plans to move into The Culver Studios, a 100-year-old film studio in Downtown Culver City in March 2021. The $620M expansion project will add 413,000 square feet of rentable space to the existing 14-acre campus, increasing the total footprint to more than 720,000 square feet. The company also leased the entire office portion of an adjacent Culver Steps development, for an additional 600,000 square feet of space.

Netflix Inc. NFLX, meanwhile, leases multiple properties around L.A. and recently closed deals on two new spaces in Hollywood, including 300,000-square-feet at Hollywood’s Sunset Bronson Studios.

Gervasi said that in the L.A. market, “Netflix is pretty much coming in and taking everything, renting entire studios and deciding later what they’re going to do with them…Then, if Netflix decides not to do a particular show and another production calls and wants to rent a stage, [they] now have to go through Netflix to get access.”

In addition to leasing existing production space, streaming giants are turning to non-traditional commercial real estate spaces, converting them to suit their needs. YouTube even transitioned a historic airplane hanger into sound stages.

Compounding the impact that these streaming services have on the demand for space is the fact that, per union laws, production generally has to operate within a 30-mile radius of downtown L.A. This limitation was put in place to determine daily rates and driving distances for crew members. This means that, unlike warehouses or distribution centers that are moving to secondary metro markets to become more efficient, production space is stuck in an increasingly crowded (and expensive) area. Supply has become so sparse that Quixote Studios announced a $30M stage facility in Pacoima, traditionally an industrial neighborhood, 25 miles away from downtown L.A. The project is a 10-acre space that includes five soundstages totaling 75,000 square feet, plus 20,000 square feet of office space, and a cafe.

CrowdStreet’s Investments team looked at how the commercial real estate landscape of Hollywood is changing in our upcoming Market Views research report. While L.A. is not one of the 18-hour markets we have researched, this niche corner of commercial real estate captured our attention because of the incredibly high occupancy rates and seemingly ever-growing demand.

Most shooting takes place in major entertainment hubs like California and New York, but Louisiana, Georgia, and North Carolina are also offering incentives to increase tv and film production within their state boundaries. And with production space being created outside of L.A.–Netflix recently acquired ABQ Studios in Albuquerque, New Mexico–we’re excited to see how this subset of commercial real estate investment opportunity grows and changes other density unconstrained markets.

With low supply and high demand, these cash-flowing production properties are often extremely desirable as an investment to institutional partners. Hackman Capital Partners recently added to its entertainment portfolio by purchasing MBS Media Campus for $650MM. Industrial investment opportunities like production studios don’t come along very often, so individual investors who are interested in opportunities like this need to keep their ear to the ground so they can capitalize on these deals if and when they do come up.

Explore dozens of commercial real estate investments now on the CrowdStreet Marketplace.

CrowdStreet is a content partner of Benzinga.

This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. CrowdStreet is not a registered broker-dealer or investment adviser.  Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate.