When movie theaters first closed due to COVID-19 the immediate thought was how is Hollywood going to circumvent this one? People overlooked that there could be far reaching consequences in the commercial real estate world if movie theaters aren’t able to recover.
To be more specific, about $31-Billion are bound to the woes of properties that heavily rely on its movie theater tenant.
“Bank of America Securities outlined a list of more than 400 commercial mortgage backed security loans where cinemas are among the five largest tenants by square footage, totaling the $31 billion in loan value. And a similar list of loans compiled from CoStar data shows the reliance on chains: More than a third of loan values tied to properties with a theater among their top five tenants, about $11 billion, have a cinema run by AMC Theatres, the largest U.S. chain with more than 550 locations.”
Movie theaters serve as anchors for commercial shopping centers due to their ability to attract massive crowds which then increases the chance of people trickling into neighboring businesses. They are high foot traffic generators that provide waves of people specially around new movie releases.
The novelty of attending a movie is losing its lure, however. In reality they have been experiencing a decline in attendance since the advent of streaming platforms. Now more than ever, with social distancing at the focal point, streaming providers are stepping up.
“Theaters and their retail property landlords are beginning to face property distress or loan defaults tied directly to the closing of cinema chains in the pandemic. Moves by Hollywood studios to put high-profile films, which historically drew robust crowds into theaters, directly on their streaming services could create an even more challenging recovery ahead.”
We are beginning to see double narratives (COVID & Streaming) coupling against the recovery of movie theaters. When streaming providers first started popping up it would take months for a new movie to reach Netflix, for example. You still had the incentive to go to the theater due to ‘fear of missing out.,’ or spoilers.
Where the pandemic has made it impossible to go see a movie in person now, streaming services are launching all the high-profile films. Warner Bros. recently announced that all of its 2021 releases will be launched on their streaming channel, HBO Max, in an effort to minimize crowds—counterintuitive to the premise of a movie theater.
“If you were operating a mall and didn’t have a lot of problems with anchor vacancies before the pandemic, then the loss of a movie theater is not going to be a death knell,” said Jellinek, vice president and head of research in DBRS Morningstar’s Philadelphia office. “But if a mall was already dealing with vacancies before the pandemic, what’s happening with movie theaters is only going to add to the pain.”