Blackstone Flexes Its Muscles in Hollywood
November 17 2020 - 8:29AM
Dow Jones News
By Peter Grant
A Blackstone Group partnership is planning to develop a new
office tower near the sprawling Burbank and Warner Bros. studio
complexes in California, where television programs such as "The
Ellen DeGeneres Show" and "Days of Our Lives" are produced.
Blackstone's plan with Worthe Real Estate Group to build the
500,000-square-foot tower represents one of the largest U.S. office
developments to move forward this year.
The project, which will be positioned to attract employees in
the entertainment business, is a sign that space serving the TV and
film industries is one of the few bright spots in the office sector
during the coronavirus pandemic, which has forced many employees to
work from home.
"Content creation is one of our highest conviction themes," said
Nadeem Meghji, Blackstone's head of real estate Americas. "We're
seeing long-term demand growth."
Like data centers and cold-storage warehouses,
production-related facilities are niche property investments that
have performed well of late. They are attracting more investment
dollars as property owners sour on traditional holdings such as
hotels, retail space and office buildings during the pandemic.
The virus that causes Covid-19 has prompted Hollywood to close
theaters, postpone film releases, lay off workers and cut costs.
But the high consumption of streaming content by hundreds of
millions of people sheltering at home is translating into strong
demand for studios where it is produced and the office space that
supports it.
Starting in August, casts and crews began returning to their
studio sets. Several of California's largest leases signed since
the pandemic hit have been in Burbank, including one for 170,000
square feet that Netflix Inc. agreed to in September.
"The studio parking lots are full again because people are back
filming, " said Jeff Worthe, president of Worthe Real Estate and
the largest owner and developer of office space in Burbank.
Mr. Worthe said the decision to move ahead with the new building
was made recently at a meeting of the venture that he formed with
Blackstone in 2017. The venture owns 13 buildings and five
development parcels, acquired for a total of $1.7 billion.
"It's very difficult to produce a television show on Zoom," he
said. "You need the writers together in the writers' room. You need
to cast it. You need to film and edit it."
Blackstone has been involved in other entertainment deals since
the pandemic began. The firm in June purchased a 49% stake in a
venture that will own three film-studio lots and five adjacent
buildings in Hollywood, in a $1.65 billion deal. Netflix, CBS and
Walt Disney Co. are among the facilities' customers, according to
Hudson Pacific Properties Inc., which kept a 51% stake.
Blackstone and Worthe are likely to break ground on the new
building in 2022 on a site adjoining an existing office tower. That
480,000-square-foot property is fully leased thanks partly to
demand from the Burbank Studios, which is across the street.
Burbank Studios is a 35-acre complex, and includes the site of
the former NBC Studios where Johnny Carson hosted "The Tonight
Show." Warner Bros. said last year that it would expand into two
new Frank Gehry-designed office buildings and other properties in
the complex.
The new development comes at a difficult time for the Los
Angeles office market, which has suffered during the pandemic. With
many employees working from home, leasing volume has fallen sharply
and sublease space on the market swelled to 6 million square feet
in September, up 46% from a year earlier, according to CBRE Group
Inc.
But most of that sublease space is coming from startups and
other smaller companies. "We're not seeing large offerings from the
studio players," said Eric Willett, a CBRE research director.
At the same time, the pandemic has fueled demand for Los Angeles
studio space because actors and crews are reluctant to travel to
shoot scenes for fear of the virus.
"The potential of another uptick puts renewed attention on sound
stages locally," said Carl Muhlstein, an international director
with real-estate firm JLL.
Office buildings located close to studios are considered
especially healthy. For example, in July, DBRS Morningstar issued
new ratings on some $660 million in debt, most of it backed by four
of the buildings in the Blackstone-Worthe partnership. The ratings
showed no deterioration from ratings on the bonds before the
pandemic.
The ratings report says that leasing risk in the portfolio is
limited by the properties' proximity to studio headquarters. One of
the buildings "is considered a mission-critical location for
Disney, which has invested over $40 million in the building's
infrastructure," the report states.
--Joe Flint contributed to this article.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
November 17, 2020 08:14 ET (13:14 GMT)
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