Rising Rents Will Help This Movie-Studio REIT’s Bottom Line
This is a free preview of Porter & Co.’s Distressed Investing. In the full issue, analyst Marty Fridson details the movie-studio landlord who is finally seeing profits return after three years of stagnation and decline. To get the full issue, click here.
Office buildings were once widely perceived
To be on the short road to irrelevance,
Now, though, their agony’s being relieved,
Thanks to thriving artificial intelligence.
– Martin Fridson
“Quiet on the set” is not a cry a movie-studio landlord likes to hear.
The grand soundstages of The MBS Group, owned by Hackman Capital Partners, once hummed with the electric energy of peak Hollywood. For years, “quiet on the set” meant filming was set to begin.
The streaming wars fueled an insatiable demand for content, and Hackman’s portfolio – including the historic CBS Television City and its massive acquisition of the former Sony Pictures Animation campus – was the bustling epicenter. But by 2024, silence didn’t precede filming. No. The silence was deafening, a stark metaphor for the financial pain rippling through the industry.
The decline started subtly, a ripple from the 2023 strikes, but it became a crashing wave as studios, struggling from a decade of overspending, began slowing down. Hackman Capital, which had bet big on the perpetuity of the streaming boom, was suddenly finding its state-of-the-art facilities running at half-capacity.
Consider MBS Media Campus in Manhattan Beach, outside Los Angeles, where the massive stages once housed blockbuster franchises. In 2021, this was the home base for the final season of a major Disney+ tentpole series, with director Jon Favreau orchestrating hundreds of crew members, and producer Kathleen Kennedy frequently seen on set, planning the next phase of the sprawling cinematic universe. The rental income was phenomenal, secured by long-term leases and a constant need for overflow space for visual effects and post-production.
By late 2024, MBS’ largest stages and studios, previously booked solid for 18 months, were dark. The series had wrapped, and the anticipated immediate follow-up was stalled, not by creative differences, but by a "re-evaluation of global content strategy." Hackman Capital's steady, high-margin revenue from this facility evaporated, forcing management to offer aggressive, short-term lease incentives – something unheard of just two years prior.
The pain extended to the high-profile CBS Television City acquisition. Hackman had purchased the complex, an industry legend, for a reported $750 million in 2018, intending to modernize it for the streaming age. It succeeded wildly. In 2022, actress Zendaya was shooting a much-anticipated drama pilot for a premium cable network on one lot, while across the campus, director Greta Gerwig (below) was prepping a secret feature film. The atmosphere was one of competitive urgency, with every available office and stage snapped up.
Now, those same facilities are mostly empty. A major Netflix original movie, which had been slated to start production and had committed to six soundstages for three months, was suddenly canceled in a brutal wave of cost-cutting. The space remains empty. For Hackman, the financial model depends on consistent, high-occupancy usage to justify the massive investment and the debt servicing associated with it. When a studio like Netflix pulls a large commitment, the impact on Hackman's quarterly earnings is immediate and painful.
The most tangible example of the downturn’s financial toll came not just from empty stages, but from the ancillary businesses. The MBS Group includes equipment rental and lighting services, providing everything from cranes to lighting rigs. When actor Leonardo DiCaprio was on location for a high-budget Apple TV+ movie – a project that required a full city block to be redressed – the demand for MBS equipment was enormous. Today, those same trucks sit idle in the MBS lot. Every idle day is a lost revenue opportunity, directly translating into lower cash flow and increased pressure on Hackman Capital's balance sheet – waiting for the inevitable recovery to begin.
And that recovery might now be starting. Hackman Capital is not the only real-estate investor struggling to fill stage and studio space following the pandemic and writers and actors strikes. We look at one real estate investment trust this month that has also seen its revenue and profits sag – but that is also seeing light slowly beginning to appear on the horizon.
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