Reading lands $500 million Australian development project.

AFTER nearly a decade of wrangling, Reading International Inc. has cleared the highest hurdle to developing one of Australia's largest undeveloped urban tracts of land.

The L.A.-based cinema exhibitor and developer recently received zoning approval from the Australian government for a nearly 2.2-million-square-foot mixed-use project.

The 50-acre site east of downtown Melbourne will contain a mix of offices, residences, shops, restaurants and an 8-screen movie theater.

"The restrictive zoning has been lifted," said Andrej Matyczyncki, Reading's chief financial officer. "Now we can finally begin moving forward."

Burwood, the name of the site, is a $500 million project, and represents Reading's largest undertaking. The publicly traded company has a market capitalization of about $190 million, annual revenues of around $100 million and assets worth close to $250 million.

"These are exciting times for us," Matyczyncki said, "especially with a $500 million development on our doorsteps."

Andrew Shapiro, president of Mill Valley-based Lawndale Capital Management LLC, is betting that Burwood will be successful for Reading. The site is one of the reasons Shapiro made Reading the firm's largest investment.

"We feel this project will be a transforming event for this company," Shapiro said.

Now that Reading has the zoning that allows for a mixed-use development, the company must develop a detailed plan of exactly what it would like to build on the site.

Those plans also must be approved by the local Whitehorse City Council, and the process is expected to take about a year to complete, according to Wayne Smith, managing director of subsidiary Reading Entertainment.

"As long as we don't go outside the boundaries they have given us and our plans comply with Australian standards, we Carl start construction as soon as the council approves our plans," said Smith, who is overseeing the Burwood development.

Developer at heart

While Reading International may be a relatively unknown operator and owner of cinemas in the United States, abroad the company is quickly becoming a brand name.

By number of screens, Reading is the largest exhibitor in New Zealand and the third largest in Australia when the screens of three competitors under the same ownership are combined.

Unlike many of its competitors in the movie theater business, Reading International either outright owns or controls through long-term ground leases the land underneath its cinemas.

That has given Reading more control over its theaters' operations than its competitors, and it's also given the company a rare niche in developing entertainment centers around its cinemas. When Reading builds multiplexes, the company also constructs restaurants, shops and other complementary features that connect to the theater.

That experience has also thrust Reading to expand its development activities. In New York City, where it owns and operates several Off-Broadway theaters and small multiplexes, the company stands to gain from selling its properties to developers willing to give the company a stake in the project.

Using that formula, Reading sold its Sutton Place theater at 938 Third Ave. to The Clarett Group, which has built Place 57--a 68-unit condominium building. Reading has a 25 percent stake in the project, which presold 61 of its units before its expected July completion.

Projects like Place 57 and sales of other assets--like a movie chain in Puerto Rico--have been intended to get Reading ready to handle the Burwood development, Matyczyncki said.

"Husbandry of cash is big one for us," he said. "We need to make sure we have enough cash flow on hand to come up with equity to put into the (Burwood) project and to have a war chest of money anyway."

Smith, Reading's Australian executive overseeing the Burwood development, doesn't believe finding financing will be a problem for the company. "Lenders are chasing us down the street," he said.

Even before Reading has its final approvals, the company is already receiving inquiries from tenants who want to pre-lease space and from developers who want to work on the project.

"It's an unusual thing to happen," Smith said, "but because it's so large and so unique an opportunity all the big names are keen to get involved."

Moving ahead

The Burwood site is surrounded on the north, east and west by suburban neighborhoods of one- and two-story single family homes built in the 1950s and 1960s.

When Reading bought the site in 1995, residents surrounding the site worried a development would be an eyesore and swamp their community with traffic.

However, sentiment has changed, said Paul Kearsley, Whitehorse's general manager of city development. "Generally the residents want them to get on with it," he said. "A lot of the residents are tired of living next to a site that is derelict and vacant."

Kearsley said that doesn't mean residents don't have their concerns. Many residents participated in the extensive outreach Reading conducted for the project, attending hearings and Saturday workshops.

Beyond traffic, residents want to make sure the Burwood project is at its most dense and tallest in the center, and have the buildings slope down in size so as not to overwhelm the neighborhoods of homes the project will eventually border.

Smith said the center of Burwood will also contain its more active uses, while housing--which will make up about one-third of the project--will be pushed out to the border.

"The feedback we've received has given us a lot of confidence to move ahead," Smith said. "We've come up with a project that's good for the residents, the city and for Reading."