Converting Shuttered Theaters To New Uses.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 21, 2001

This year movie theater owners are expected to close hundreds

of under performing movie theaters across the United States,

but not all of these properties have to sit dark and empty

"The real estate industry has a long history of breathing new life into seemingly 'dead' assets, most recently in the adaptive reuse of surplus bank branches," said Dale Reiss, global leader of Ernst & Young's Real Estate Practice. As a result, "Theater owners now have real opportunities to partner with real estate developers and investors in finding new uses for some of their defunct properties," she noted.

The rapid growth of multiplex cinemas in the 1990s actually created a glut of theaters -- leaving some theater companies struggling to survive. Between 1990 and 1999, the number of theater screens nationwide increased 56% from 23,814 to 37,185, according to the National Association of Theater Owners.

But demand has not kept up with supply. In 1999 the number of theater admissions totaled 1.5 billion -- the same number as in 1948. And the cost of operating theaters has risen faster than ticket prices. Analysts estimate that 10% to 15% of the 7,500 existing U.S. theaters will have to close, including many smaller, marginal theaters. Loews Cineplex Entertainment Corp. recently announced plans to shutter 112 theaters with 676 screens nationwide.

Reiss points out that some of these theaters are owned by theater chains, but others are leased from third-party owners. Several chains have filed for bankruptcy, and in some cases are attempting to break leases and return the properties to the owners. So the issue of surplus theaters could have broad impact, encompassing not only the chains themselves but also other owners of theater properties. "These properties may no longer have value as theaters, but they could have value as other types of facilities," she noted. "The good news is that since real estate is all about location, and these theaters typically are in prime locations in large population centers, the same theaters that once drew movie goers could attract a diverse new base of consumers, like students, shoppers, or fitness buffs seeking a whole new range of goods and services. In fact, they can be renovated and repositioned for a variety of community, educational, recreational, commercial, retail and other uses," Reiss said.

In Raleigh-Durham, N.C., a former theater is being converted into a huge fitness center. In other communities, developers are looking at opportunities to convert theaters into big box retail outlets, storage facilities, supermarkets and many other uses. Alternatives are impacted by the type of theater and its location. And in some places, community leaders, theater owners, real estate investors and government agencies have partnered in the renovation and conversion of historic theaters to new uses such as performing arts centers. One of the most promising uses for theaters could be in education -- distance learning, to be more precise.

"The trend towards lifelong education is increasing demand for training facilities outside the traditional classroom, and theaters offer a new venue. Theaters equipped with high-definition video, satellite and Web technologies could be transformed into learning centers," said Tom Wade, president of Enterprise Broadcasting Corporation (EBC). In addition to looking at creating a new breed of learning centers, the Scotts Valley, Calif.-based company is currently moving ahead with plans to use high-definition video to sell high-end luxury items and services -- by broadcasting to specially equipped theaters in upscale malls throughout the U.S. "We have noticed the fact that many of these theaters are adjacent to, or part of, the community center mix," said Wade.

"High-definition video has broad applications not only in commerce but in education," Wade noted. As a next wave messaging platform, broadcast cinema could also be used to educate and train students in a range of subjects from computer basics to advanced surgical techniques. "It has enormous power to increase the retention of viewers -- people remember in stark detail what they saw. They feel as if they have actually experienced what they've seen." Over the years properties that no longer served their original purpose have found new life in a different venue says Reiss. The same could be true of theaters. Owners could partner with real estate developers or owners in evaluating alternative uses for shuttered theaters, developing reuse plans, finding equity capital to finance renovation projects, and structuring transactions such as sales, sale-leasebacks or joint ventures that would enable theater owners to cash out or retain an interest in repositioned properties.

"Although real estate is a fixed asset, it can be highly adaptable," Reiss commented. "Owners should explore their options and consider the opportunities in finding new uses for their properties. They won't be the first to see an opportunity in the challenge. Ask the bankers."

About Ernst & Young:

Ernst & Young, a global leader in professional services, helps clients to quickly and confidently make financial decisions designed to enhance value. Its 77,000 people in more than 130 countries have the industry and financial experience to provide fresh perspectives on operating successfully in the new economy. Ernst & Young offers traditional audit and tax services, as well as customized services in corporate finance, online security, risk management, the valuation of intangibles and e-business acceleration. In addition, legal services are available in various parts of the world where permitted. A collection of Ernst & Young's latest ideas on the new economy can be found at www.ey.com/thoughtcenter. Ernst & Young refers to the U.S. firm of Ernst & Young LLP and other members of the global Ernst & Young organization.

About Enterprise Broadcasting Corporation:

Enterprise Broadcasting Corporation (EBC) is headquartered in Scotts Valley, Calif. During the past five years the company has developed a new commercial broadcasting network. Early next year, using a new combination of technologies, EBC will begin broadcasting a wide array of commercial programming to a network of luxurious high-definition theaters it is opening in upscale malls and city centers across the nation. www.ebc.cc.