This Real Estate's Odd Configuration Is Helping It Resist The Commercial And Retail Downturn

The unique configuration of America's movie theaters is helping to make them resistant to the struggles that have hit the commercial and retail real estate industry. 

Think about the shape and interior layout of a movie theater. It's a large, dark room with sloped floors and stadium-style seating. If it has windows, they're heavily tinted and found only in the lobby. Projection rooms sit above the theater at the back of the room while a large movie screen dominates the front. 

Compare that theater to the traditional retail spaces that house stores or businesses. Most are rectangular or square with level floors and high windows designed to attract light and show off the products displayed inside. It's also relatively easy to switch out one retail operation for another. Many conversions can be accomplished in weeks and are unlikely to require extensive renovations. 

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Imagine reconfiguring a former movie theater for another commercial or retail purpose. The sloped floors would need leveling. The seats would need to be removed. The lobby, with its concession stands, ticket offices and dark windows, would also need remodeling. The entire endeavor would be expensive and take months to complete.

Because of these challenges, it could be a long time before the property owner finds a new tenant for vacant theater space, which means they may be more amenable to making rent reductions or other accommodations to keep their existing tenant than other retail landlords.

But that doesn't mean owning or operating a movie theater is easy. Unforeseen circumstances like the COVID-19 pandemic and simultaneous strikes by the Writers Guild of America and Screen Actors Guild-American Federation of Television and Radio Artists have put a severe squeeze on movie theater revenue. The advent of in-home screening and 80-inch home theater-style television screens has also taken a big chunk of their profits.

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Theater owners have responded by improving the theater experience. The B&B Theatres chain in Texas is a perfect example. Its newest complex features some interesting innovations, including one theater with a 70-foot-wide movie screen that is several stories tall. In another theater, B&B has installed wrap-around screens on three walls for a 270-degree viewing experience.

The new complex includes other entertainment draws, such as a video arcade, a 16-lane bowling alley and a rock-climbing wall. Outdoor areas for pickleball and bocce have been built along with three bars and a private patio. The motive behind these enhancements is clear: to make movie theaters less dependent on Hollywood blockbusters and give moviegoers an experience they can't duplicate at home.

In an interview with The Wall Street Journal about the new complex, B&B Theatres President Brock Bagby said he added the accouterments to help him get through the "slow movie months" by giving customers "something they can't get at home." This strategy of adding ancillary entertainment mirrors that of professional sports team owners, who have built fan zones with multiple attractions to lure more than just hard-core fans.

It remains to be seen whether the theater industry can weather the storm that has hit the commercial real estate sector. In the meantime, it appears as if being the odd ducks of the commercial real estate industry has bought them a new lease on life.  

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