Trend Of Mixed-Use Projects With Premium Movie Theaters Will Continue, Experts Say

The early box-office success of the monster mayhem flick Godzilla vs. Kong reinvigorated two of the country’s biggest movie theater chains, AMC and Regal, which had suffered closures and uncertain futures only months earlier due to the coronavirus pandemic. But a chain of premium theaters, ArcLight Cinemas, will not be cashing in. The parent company of the movie house announced on April 12 that after a year of being closed, the theaters would not reopen.

Luxury and premium theaters — the ArcLight, Alamo Drafthouse, Cinépolis — were popping up in mixed-use projects from Washington, D.C., to Boston to Los Angeles. These theaters were selected for large, mixed-use projects where the other components — housing, retail — were also higher-end, experts say.

In developments where these theaters have gone dark, property owners will likely be rushing to find a suitable replacement to recapture the foot traffic these theaters bring to the rest of the project. Despite the disruption of the pandemic, industry watchers anticipate theaters with high-end offerings will continue to be in high demand in mixed-use projects.

Between 2010 and 2019, entertainment square footage had increased by almost 45% at malls and by almost 69% in non-mall retail settings, JLL data from 2019 indicated. In terms of space occupied, movie theaters were driving that boom, and, anecdotally, these more premium theaters were leading the way, Bisnow reported.

Movie theaters in general are not, in and of themselves, desirable additions to a tenant mix from a financing standpoint and can be hard to finance, Ocean Pacific Capital Senior Vice President Mark Hasegawa said.

“[But] if you have a financially sound developer and strong operator-tenant, it doesn’t matter,” Hasegawa said. It’s likely why these theaters have found themselves in projects with big-name developers.

For developers and retailers, it is a different story. Movie theaters in general have been seen as very desirable tenants because their customers spend money at the other businesses in the development, retail brokers and consultants said. These premium and luxury theaters offer an experience beyond the traditional cineplex and the fuller experience they offered was a hot commodity.

“Pre-Covid, retail was already evolving and entertainment was quickly and drastically becoming the new anchor for a lot of these mixed-use projects,” said Russell Glen CEO Terrence Maiden, who develops mixed-use projects that include theaters.

Developer preference was shifting toward smaller format theaters with more offerings and services. It was a trend that larger chains had pivoted to emulate, Colliers Executive Vice President of Capital Markets, Retail El Warner said.

“Developers saw that the theater industry was changing and they needed to provide a new concept in order to get moviegoers into that space,” Warner said.

The more amenitized, premium and luxury theaters also have a wider pool of potential customers because they offer amenities — some serve food and alcohol or have upscale seats in smaller theaters — or show different films than a traditional multiplex, said Greensfelder Real Estate Managing Principal David Greensfelder, who consults on retail projects, including mixed-use projects with theater components.

All theaters suffered in the pandemic but many of these luxury and premium spots hadn’t been open long before the pandemic shut them down, increasing the chances that any investments that the property owner had made to the space to suit the theater weren’t paid off yet.

"That’s a real hit to the landlord — if the [theater] tenant goes away and the landlord hasn’t recouped the contribution they made to the tenant’s build-out,” Greensfelder said.

In Boston, the ArcLight in the 1.5M SF, transit-oriented development Hub on Causeway had only just opened in November 2019. It closed its doors for good along with the rest of the chain this month. The Hub on Causeway developer Boston Properties did not respond to a request for comment for this story.

But the most worrying loss to the project overall is the draw of the upscale movie theater, retail experts agreed.  

“These theaters weren’t built alone,” JLL Executive Vice President, National Agency Retail Lead Chris Wilson said. “You’ve got a full-blown organic environment where your lead tenant has closed. In a lot of cases, it’s a disaster. These property owners are extremely anxious to figure out how to re-occupy the theaters.”

Most property owners are going to explore every possible theater replacement or entertainment user that can use the space as it is, Willson said.

In Los Angeles, real estate developer Rick Caruso told Bloomberg his company, Caruso, was looking at other theater operators to replace Pacific Theater locations at two of his mixed-use complexes in Los Angeles. Caruso also said he wasn’t ruling out running the theaters himself. Pacific and ArcLight are owned by the same parent company, which announced that locations of both chains would not be reopening post-pandemic.

“There is no doubt in my mind that the theaters will reopen,” Caruso told Bloomberg. “Whether we, Caruso, gets in the theater business or we re-lease the properties is being studied by our team.”

The company shared a statement from April 12 with Bisnow that noted that “moviegoers across the country can rest assured knowing that there will always be a place on our properties to revel in the shared experience of watching a film together,” but declined to comment further. The two locations had ranked among the top 20 highest-grossing theaters in the Los Angeles market before the pandemic, movie industry website TheWrap reported.

Caruso’s most recently opened LA-area property, Palisades Village, includes a luxury Cinépolis theater that offers in-theater dining with alcohol service, plush recliners and curated revival screenings. The theater is still listed as “awaiting reopening” on the theater company’s website.

Maiden’s Texas-based company has had discussions with upscale Studio Movie Grill about possible collaborations.

Entertainment is still a vital part of what Maiden’s doing as a developer, he said, but his company is looking more toward a diversification of entertainment that could include other things, like arcades or bowling. As for the pre-pandemic frenzy for mixed-use projects to add a theater, “as a development company we are thinking of more creatively about methods to drive traffic to our developments [now],” Maiden said.