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TOPIC: Did you sell your theatre?

Did you sell your theatre? 11 Dec 2007 18:51 #16989

  • Mike
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Did you ever sell or buy a running theatre? I bought one running on a few cyliners short and another one that had been run down and out. These days I have the Temple Theatre for sale without a lot of action after I got burnt out on casual shoppers asking questions I got tired of giving. I am interested in how your purchase or sale went.
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Re: Did you sell your theatre? 12 Dec 2007 15:20 #16990

  • rdetzler
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Like you Mike I bought one that was running and needed help. Now its for sale like your beautiful little Temple theater. I put alot into the IOKA, and there is certainly a lot of potential there but with the loss of my manager and too many other responsibilities I decided to find a new caretaker for the place. Like you, I am not seeing a lot of action. There seems to be a surplus of theaters for sale right now. My biggest problem is getting potential buyers to see like beyond movies. The IOKA is a stage theater with full production capabilities and a liquor license but most of the people that show interest are movie-folk who realize that they cant make it with two screens and seem overwhelmed at the prospect of having to do more than movies to make a living.

Roger
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IOKA Entertainment Inc
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Re: Did you sell your theatre? 13 Dec 2007 12:07 #16991

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<BLOCKQUOTE><font size="1" face="Verdana, Arial, helvetica">quote:</font><HR>Originally posted by rdetzler:
There seems to be a surplus of theaters for sale right now.<HR></BLOCKQUOTE>

Where??? Maybe on the East coast, but certainly not on the West coast! I've been in the market for a theater to purchase in the Pacific Northwest for nearly 3 years now and nothing is promising. It's extremely frustrating given all the time and money I've spent on educating myself, attending ShoWest, reading forum posts, subscribing to theater publications, etc. I've seriously considered three, but in all cases, the owners want a fortune for a theater that isn't making money. They always say there is "potential" to do better or make more, but from a buyer's perspective, it's only heresay and guessing. No bank loans money based on potential.
...most of the people that show interest are movie-folk who realize that they cant make it with two screens and seem overwhelmed at the prospect of having to do more than movies to make a living.

How can you blame them? How many other businesses that cost in the $300k-$1M range can't support the owner? Why bother? The prospects of making such a large purchase and knowing that you still have to work as an employee would turn off any intelligent shopper.

In my experience, the problem for us potential buyers is that the sellers are so attached to their theaters because of all the work they've put into them, they base the asking price on emotion. From a buyer's perspective, we have no interest in lining the seller's pockets so they can retire, we're looking for a good deal. If a theater costs $400k, it only breaks even, and the new owner would have to continue working elsewhere as an employee, we can't run fast enough away. Wouldn't you?

We take the tour, normally get treated to a show and concessions, and things look good. Then we see the financials and everything falls apart. It's frustrating to potential buyers too, not just the sellers.

If you really want to sell your theater, PLEASE look at it from the buyer's perspective and make it attractive to them! Ask yourself if YOU would purchase your theater. Update it, make it easy to run (no paper tickets that require hours of bookkeeping- get RTS!), cut $100k off your asking price, make it profitable for heavens sake- whatever it takes to make it so attractive to those potential buyers, they will ask you, "Where do I sign?". Otherwise- and this happens so often- a theater will sit for sale for years and is finally turned into a parking lot or church. Only THEN do you realize how much money you've really lost.

What some sellers don't understand is that even though they may have purchased their theater for $100k 5 years ago and fixed it up, you're asking a new owner to pay 4-10X that with a mortgage loan 2-6X higher than what you're paying. So if you're barely breaking even or making a little profit, that higher mortgage payment each month will force the theater to run in the red.

Sellers need to realize that it's their responsibility to make their theater sellable- don't blame the perspecive buyers for not seeing your vision. What we're looking for is an updated theater that makes money (we're not looking to get rich, but a $30k/year salary isn't too much to ask), has a good following, and doesn't cost a fortune. Buyers like myself are ready to move NOW when a good deal on a theater pops up. I've been looking for 3 years......... <sigh>.

[This message has been edited by Cinemateer (edited December 13, 2007).]
"In a place like this, the magic is all around you. The trick is to see it." -Martin Landau
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Re: Did you sell your theatre? 13 Dec 2007 12:25 #16992

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Pay for what its worth not what you can make it into....
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Re: Did you sell your theatre? 13 Dec 2007 12:36 #16993

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Nice discussion and thoughts. I think many buyers forget that they will actually have to put some down payment money on the business in order to complete the purchase. Just as sellers should price realistically buyers should have some capital of their own to invest. Twenty per cent down is not unreasonable though I am sure many potential buyers would balk. Few theaters are available that will make money with 100% financing.
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Re: Did you sell your theatre? 13 Dec 2007 12:42 #16994

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narrow...so true buyers should have some cash....lol...sounds funny but alot of people want 100% finance.
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Re: Did you sell your theatre? 13 Dec 2007 12:50 #16995

  • Mike
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My theatre... which has nearly two acres (just sold one for 100,000.00) 2 screens, and 7000 square feet of 2nd floor office space 80% rented and which could serve as an owners home is for sale for about the same as a tractor trailer rig. You can't live in a tractor trailer. Unlike the tractor, you have an industry creating multi mill movies which people want to see. If you are looking for a cheap money making investment buying a business is a dream. Why would anyone sell it? Financing is leverage: if you don't have 100 minimum to 250K cash in your pocket you should not even be thinking about buying a movie theatre.

My first theatre, we spent 175,000.00 between down pay and improves we want to do. The second theatre +/- 200,000.00.

Along comes someone with 10,000.00 and they want to pry open my books but they can't buy it because they're not qualified.

As any regular visitor here will tell you: the dream of owning a movie theatre burns bright but it has no relationship to their actual ability to buy-own and operate a theatre.

Small business is a wonderful world.

Michael Hurley
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Re: Did you sell your theatre? 13 Dec 2007 14:23 #16996

  • lionheart
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Some very good points in this discussion. We are seeing both the sellers and buyers perspectives.

I tend to think that everyone has been right on target. If you are selling, then it must make sense for the buyer. If you are selling for a significant amount of money, the buyer wants to start making a return on his investment right away. Either that or there must be some other value that is obvious to the buyer, such as real estate value. That way the buyer knows they are getting something for their money even if the business tanks.

If you are buying, then you should be realistic on what you can afford. Twenty percent down is very realistic in my mind. If you don't have that kind of cash, keep looking for something less expensive, or maybe you have to give up for a while.

Some business owners require someone to be pre-qualified before they will even show the property. That seems reasonable for a large purchase. I personally don't like it as a buyer because I have to give out lots of personal information without even knowing if I'm all that interested. But then again, from the sellers viewpoint, it makes great sense.

Another alternative for the prospective buyer is to consider doing something that Mike and Roger seem to have done. That is consider buying a diamond in the rough. Many a successful businessman or real estate investor knows that their preferred way of making money is not by buying the nicest house on the block (or the most successful business available). Sure, you can make money that way too, if you have deep enough pockets and are prepared to stay in it for the really long haul. But I tend to agree with the philosophy that you should buy the ugliest house in the nicest neighborhood that you can. Then you fix it up and "whammo!" you have just made yourself some money, at least on paper.

Now, if you were in it just to "flip" a theater, you might have a hard time selling for that profit, especially since you run into people who say they don't want to buy something that isn't showing a profit. And of course, the industry appears to be the wannabe refuge of dreamers and romantics, so it will likely be a pain in the butt to wade through the lot and find the guy who has a vision to take the theater to the next level. But the fact is that if you have enough money to spend a hundred grand or two to put a down payment on a theater, you likely aren't going to drop it into a place that will only bring you 30K a year, or that you have to build up to start making 30k a year. It takes a special kind of person to want to do that. Either he is wealthy enough to not need big bucks right away, or he is brilliant and a true visionary, or maybe he is not very bright. That last type probably can't get financing, and maybe not the second type either. That leaves you looking for somebody with deep pockets who doesn't want to make a living from the place, just enough to make it interesting. But, then there are usually better investment vehicles out there, so Mr. Deep Pockets may not even be interested after all. So, if you are a seller intent on selling, then the best way is indeed to make your operation profitable before trying to sell. That way, Mr. Deep Pockets will be interested, and the brilliant visionary might be able to get financing, and even the not so bright guy might have a chance.

Can't show a profit and don't know how to? Then how is the next guy going to do better with an even deeper pile of bills on top of him? The clear choice in that case is to reconsider your asking price. Is it justified by real estate and other tangible assets, or is it largely based on blood, sweat, tears, and potential?

Do you owe too much to consider reducing the price? Then, I guess you are going to have to get creative to sell for the amount you need. You are going to have to go out and find Mr. Deep Pockets who is also a dreamer with an interest in your town or your theater. Any other Mr. Deep Pockets Dreamer will probably be looking elsewhere.

Sorry if this sounds harsh, but that is the way I see it.

Me-- I tend to think I'm a bit of a dreamer, but not necessarily in love with the movies or theaters. I suspect that may be where some of the dreamers get started-- with a bit of a love affair for movies and/or theaters. I dream of owning my own business that can turn enough profit to support me and my family comfortably. I don't dream of being a chain or making 6 figures. I just want to do it myself. I want to be independent and self-employed. And, I would like my business to interest me.

I've bought what I tend to think is a little diamond in the rough. It's still early in the process, but I'm working on refurbishing and updating it. I don't expect it to make me rich. I couldn't afford to buy a good income stream, so I bought potential based on my own research and on the hopes of getting it going for minimal investment. I bought an "ugly house" in a decent neighborhood, but I'm not looking to flip, just to make my dream of independence come true.

I recently heard that the 3 most basic reasons people buy real estate are: 1) Location, 2) Condition 3) Price (not necessarily in that order). If your property is fairing poorly in any category, then how are you going to compensate the buyer for those shortcomings? Or, how are you going to eliminate the shortcomings?

Good luck to all the buyers and sellers who took the time to read this!
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Re: Did you sell your theatre? 13 Dec 2007 19:29 #16997

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Pay for what its worth not what you can make it into....

Excellent point! It's one thing to come to the table with 20% down payment. Getting financing for the balance is the tough part. No lender will fork over hundreds of thousands on potential. Threee years of audited financials and they better show that the place can pay a living wage to the owner as well as covering the debt service.

Now, lets say I had enough to buy a place all cash, the return on the investment still needs to be worthwhile otherwise why wouldn't you just invest in something less risky than running a theatre!

I would love to buy, preferably a diamond in the rough. Working on making that happen with a place right now. Getting all the pieces to fall into place is quite a challenge.
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Re: Did you sell your theatre? 13 Dec 2007 20:33 #16998

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One of the other issues is that some owners have put a lot of money into the theaters and are still not getting the money back. They then try to sell with the improvements but there is no gross to back those numbers up.
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Re: Did you sell your theatre? 13 Dec 2007 20:57 #16999

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slap - That's true enough. What's a buyer to do though? It's like overimproving a house and expecting the next buyer to pay for the excess improvements. I'd feel bad for the guy selling but I wouldn't pay more than the place is worth.
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Re: Did you sell your theatre? 14 Dec 2007 00:17 #17000

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There i think lies the problem theaters are so hard to sell ...I dont think i would buy a theater with the real estate .Long term lease is the way to go....
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Re: Did you sell your theatre? 14 Dec 2007 00:19 #17001

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It's true that just having a 20% down payment isn't enough to get a loan. Of course, you still have to have a viable business and/or a viable business plan to get a loan. It's been discussed more than once on these forums before that it can be hard to get financing for a theater.

Mike's suggestion that he has space in his theater that can be used as a residence actually opens the door for another kind of financing. If you have a home with lots of equity, you can sell it and use the money to buy a theater with a residence and live in it. I wanted to do that, but it didn't work out that way. There are definitely pros and cons to living in the theater though. Putting all your eggs in one basket comes to mind, among other things.

In the case of a theater that has income producing space, I'm not sure I would want to convert it to a residence, but it does make it more attractive as an investment if rent is coming in.

I didn't end up living in the building I bought, but I did sell my house to provide funding. I downsized and bought a much older, less expensive home too. It's adequate for now. Sacrifice is all part of the deal if you are serious about buying. If you don't give up a nice new house, then maybe you will give up the interest when borrowing the money you could have gotten from the sale. I'd rather have the cash up front. Cash is king.

If I was having a hard time selling and wanted to promote a space as a potential residence, I might consider converting it up front, if it doesn't cost too much. If it does cost a lot, it might not sound too viable to a buyer either. If you don't sell, then maybe you will want to rent out the place or even live there if your personal situation allows. If you convert up front, then you can gladly show potential buyers how they can finance by selling their home and moving into the penthouse suite. Just a thought.

It's evident from all the comments here that many buyers are looking at the whole concept of buying a theater as a business first. It goes back to making a theater profitable before selling it. If you are selling based on potential, then you should be able to suggest things that can be done to improve the bottom line. It makes no sense to suggest a place has potential if you have already done everything you can think of to improve the bottom line and it still needs a lot of improving.

I remember reading an article where an Indian motel mogul said he looked for motels to buy where he could see the things he could do to improve the place (and the bottom line). He wasn't interested in places that were already polished and still not very profitable. Hmmm. I guess I'm saying the same as I said before. He was looking to buy the "ugly house in a good neighborhood." I'm just trying to think of this from the seller's perspective now. How can you make a buyer see the "ugly house" inside your theater? You don't want it to seem like it's in bad condition, but you do need to help him see what he can do to make it better. Suggesting he live upstairs is a good start. What else can you do to make it seem like there is more that can be done?

If you can generate income from live performances, great. Then, you should do some of those and show how much money they bring in (which you may have done). If it is an intimidating part of the business for buyers, then you need to find a way to make it not so intimidating. Can you hire a manager that will run that side of the business and still make extra profit there? Then a buyer may not only be less intimidated, but also think that there is a person that can help them through the transition, and that may be eliminated later to save money. Sorry, if that sounds cut-throat to the manager, but plenty of businesses are advertised for sale with the phrase, "needs hands-on owner". I don't know that I would put that phrase in a listing, but a smart buyer will be looking at layers of fat he can cut anyway. It's hard to find a good manager, but maybe it's easier than finding a buyer? That manager will also appeal to people who don't want a job, just an investment. Think about listings with phrases like "perfect for absentee owner" ,or "absentee owned".

If the theater is truly suited for absentee ownership, then maybe it is suited for corporate ownership. You can try sending sales letters to corporations who operate similar theaters around the country in hopes of selling it to one of them. I don't know if such a tactic is a good idea, but maybe there is a way to bring it to their attention without seeming desperate. Something to think about.

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Re: Did you sell your theatre? 14 Dec 2007 16:53 #17002

  • Mike
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As my realtor said to me: "if they don't like the price they can make an offer. In writing. With a check as a deposit." My experience is that far too many unqualified with little in their pocket want to waste my time talking big while asking for all my financials. Did I learn to ask to qualify them? You bet. And do they go away when they have to prove they have the ability to buy? So far.

My point to those of you who say the sellers are unrealistic: put your money on the table. Make an offer. And prepare to get to work if they take you up.

Michael Hurley
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Re: Did you sell your theatre? 15 Dec 2007 10:54 #17003

  • rdetzler
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I was referring to the East Coast market where I am seeing new screens for sale about every month recently.

There are many great points here but the bottom line is that in most cases where I have looked at buying the sellers are not overpricing their 'property' but they are overpricing their 'business'. I have seen this time and time again. Owners get out of businesses that they acquired 20 or 30 years ago, made a great living on movies during their heyday before the cineplexes can to town. Now the margins are gone but the real estate has gone up 8 fold. The agents come in and tell them what the real estate is worth, plus they throw on some equipment value and 'goodwill' and TADA you have a purchase price. Unfortunately its a price that will never make anyone (even with a decent down payment) any money because the overhead is so incredibly high. No one would ever buy it for cash because the return would be too low. And so it ultimately gets sold off to be something else. The simple fact is that unless you are in some back water market, real estate has appreciate far faster than the profitability of the movie industry making these sales untenable.

The agents know this and so they try to sell interested parties on 'potential' when the fact is that most of these properties never have a chance at expanding their revenue base. Unless you can bring in alternate programming like live events and get a liquor license and know what you are doing in that arena, there is little to do.

My case is basically no different. I have a large well maintained building in the center of a historic downtown area of high demand. My asking price is the value of the property, plus a percentage of my upgrades. Thats it. But I will have a hard time selling it to anyone that simply intends to run movies. I do have a liquor license, a great stage, in house production and a 90 year history of entertainment, but finding that type of 'multi-faceted' buyer is proving near impossible. I am surprised at the reluctance of 'movie people' to take on alternate programming, when it is so vital to these historic operations today.
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