Empty Theaters Stand as Latest Challenge to Malls.

WHAT do you do with a cineplex that nobody wants?

That's the problem facing many L.A. malls now that a number of theater chains are battling bankruptcy and shutting down screens.

The problem is that cineplexes are hard to reposition. They have sloped floors and high ceilings. In addition, the venues are often located in parts of shopping centers that are not as heavily trafficked as the main concourses.

As a result, retail landlords basically have two choices: Get creative with the empty space or tear it down and start over. Neither option is especially attractive, and both carry financial challenges, said Sandy Sigal of Tarzana-based Newmark Merrill Cos., a company that develops, acquires and manages shopping centers.

"As an owner, all of a sudden I have to worry about how I can re-tenant," Sigal said. "Projects that once sold for premiums are selling at discounts."

Sigal said one shopping center managed by his company lost a theater to bankruptcy and replaced it with a child-care center. (He declined to name the center.)

"The space we're leasing is typical theater space," Sigal said. "It doesn't have street visibility. So you have to think of some unconventional uses."

With mergers and acquisitions expected to pick up among theater chains, Sigal expects such unconventional uses to become more common. And one of the many companies likely to have a lame duck or two on its hands is CIM Group, which tends to buy multiple properties in focused street retail areas such as the Third Street Promenade in Santa Monica.

The company recently bought the Hollywood Galaxy 6 as part of an acquisition spree in Hollywood. But operator GC Cos. Inc. and its subsidiaries, including General Cinema Theatres Inc., recently sought bankruptcy protection.

With GC expected to now focus on properties in other parts of the nation; the fate of its theaters at the Beverly Connection, Glendale Central, Sherman Oaks and Hollywood Galaxy 6 has come into question. None of those venues have stadium seating and are thus likely to stumble in their competition for movie patrons.

Move toward stadium seating

Officials at CIM Group said they knew about the problems faced by theater circuits before they acquired Galaxy 6. Still, they have plans to build a street-front retail project down the street that includes a six-screen Laemmle theater, a joint venture with the Eisen Family Trust.

So what will happen to the Galaxy 6 theaters?

"We'll see," said John Given, senior vice president of CIM Group. "We had no illusions about the difficulties of that property. But we recognize that the environment in Hollywood has changed substantially. Opportunities to reposition the buildings are different today."

In recent years, as theater circuits built new multiplex theaters with stadium seating to meet strong enthusiasm for the new layout, older theaters have been forced to turn to discount showings or even shut down entirely.

In some cases, companies have simply demolished underperforming theaters. AMC Entertainment is tearing down older theaters in Burbank as it moves forward with new construction. And Pacific Theatres Corp. tore down theaters at Sherman Oaks Galleria in preparation for a replacement 16-screen complex.

Until now, many outdated theaters have survived in L.A. because space to build new multiplexes is so limited, compared to suburban areas, said Howard Wong, vice president of retail consulting for Jones Lang LaSalle.

"Those have survived in the past because of the density of the area," he said.

But the accelerated pace of theater construction, combined with the steady march to bankruptcy court by many leading theater chains, has most observers expecting the situation to get worse. Greg Andrews, an analyst with Long Beach-based Green Street Advisors Inc., said many property owners are being left at the mercy of theater circuits.

"Probably, operators will exact rent concessions on the (screens) that remain open," Andrews said. "Landlords are not in much of a bargaining position. They won't be able to say, 'Screw you, I'll get someone else."'

In Los Angeles, a number of new developments will be anchored by L.A.-based Pacific Theatres.

Officials at the chain, which operates in California and Hawaii and is a subsidiary of Decurion Corp., say they're in a position to do well in the current crisis. Indeed, Pacific is moving into many of L.A.'s most promising projects, including The Grove at Farmers Market in the Fairfax District, Stats on the Green in Pasadena, Sherman Oaks Galleria, and the Cinerama Dome Entertainment Center in Hollywood.

Table, please

In Pasadena, Pacific will introduce its ArcLight Cinema concept, an upscale theater that includes stadium seating, a cafe, reserved seating, and tables with leather seats in one on the theaters. Such a trend toward providing a more upscale experience has been seen in other parts of the country.

"Our plan has always been to focus on what we thought were the 'A' sites and the 'A' projects, rather than going willy-nilly into projects we didn't know as well, or over-expanding," said Neil Haltrecht, vice president of real estate and development for Pacific Theatres Realty Corp. and a spokesman for the theater chain.

Still, the hard times among theater chains have left many other developers in tough spots.

Now that two separate theater chains have apparently pulled out of the planned Queensway Bay retail project in Long Beach, a decision will be made soon on whether to reduce the size of the project from 18 acres with major bookstores and restaurants to a downscaled four-acre undertaking.