Why Entertainment Industry Tenants Are Not Like Other Commercial Tenants
Overcoming Office-Production Space Flexibility Challenges of Entertainment Tenants
May 14, 2018
San Diego, May 11, 2018 - One of the most challenging tenants served by real estate brokers are entertainment production companies.
"What makes film and television tenants difficult to place is the need for flexibility in all aspects of their real estate: contractual, physical, and operational, said John Galaxidas," President/CEO of San Diego-based Synergy Real Estate Group, Corporate Advisory, Inc., a national real estate brokerage firm specializing in tenant representation.
Lease flexibility is a must for these tenants, but especially those producing TV series and shows, because there is no guarantee the series or show will be continued for another season, he explained. Production companies also require a combination of office and production space and work long hours, often until late at night and on weekends, so require flexibility in building operations.
The biggest challenge for tenant brokers representing these clients is developing extensive knowledge of buildings previously used by production companies, he continued, noting that it takes years to gain this type of knowledge and build the type of landlord relationships needed to negotiate favorable deals for studio and production clients. This is why there are few tenant brokers who specialize in representing this industry sector.
Buildings previously used by production companies have landlords with an understanding of the entertainment industry and are often agreeable to flexible terms and operational needs because the space is already configured to meet this tenant group's needs, Galaxidas said. While landlords generally spend about $50 per square foot on tenant improvements (TIs) for new tenants in shell space, he pointed out that only $10 - $20 per square foot in TIs is usually required for a new production tenant if the space was previously built out for this use.
For example, Galaxidas recently negotiated a deal for a 14,000-sf, off-campus office-production facility in Century City, nearby the CBS Studios lot, for a production company that produces a popular TV series.
The deal provided an 18-month lease term, with all utilities included and no pass-through for extraordinary operational expenses. The tenant also got three 12-month renewal options at the same rate, plus a fixed 3% annual increase. The landlord also will provide one month of free rent if CBS Studios commits to an additional two-year lease extension, which is uncommon in a strong upside office market, he noted.
This landlord also provided the CBS production crew use of three dedicated HVAC units on the roof on weekends and after regular business hours for no additional charge or increase in the rental rate for the first 18 months, even though utilities were included in the rent
This space previously had been occupied by a production company and required little in the way of TIs, but the client wanted to create a conference room by knocking out a wall between two offices. The landlord not only agreed to make this improvement, but also provided new paint and carpet cleaning.
"It's rare for a landlord to provide TIs or any incentives like free rent on a short 18-month lease, Galaxidas said, emphasizing that without a good relationship with this landlord or experience negotiating leases for production companies, a deal like this would not have been possible.