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Not sure any of you have dealt with this, but I figured I’d ask.

A buddy and I both own theaters in the area. We have been asked by a small community to build a small multiplex (actually, they want us to renovate a large, existing building). They have said they can get the urban renewal funds to finance the operation. What they want is for us to come up with a biz plan so they can submit it for loans secured by government funds, then they want us to over-see the construction of the project. In exchange for this, they are offering to let us have the theater at below market price or lease it to us at a very low rate.

The problem we’re having is that we are being asked to put our combined 50 years of exhibition experience and a huge chunk of our time into supervising building them a building, then when it’s done, we don’t own it – or even have any real control over it. Add to that, neither of us is too keen on owning a multiplex.

The question is, has anybody out there ever been involved in something like this? Is it standard protocol to be asking for some form of compensation for our time and knowledge during the building phase? We have told them outright that it is a risky venture and to expect a huge pay-back was a little silly. We all agree that the best chance for this to fly is with our involvement. Is it unreasonable to ask for some compensation for our time and effort during construction? Any input would be appreciated. Thanks. Paul

So they want a theater that they control so it can compete against your existing theater? Sounds to me like they don't like your theater and want one of their own.

I think you should stay far away from this project---sounds like problems just waiting to happen.

Thanks for your comments, Ken. The new theater wouldn't compete with mine in anyway. My biz partner is willing to close his hard-top in exchange for running this one. You're not the first person to suggest there are many problems waiting to happen.

If you leased the place, what's to stop these guys from jacking up the rent or deciding they're tired of the way you run it and toss you out in favor of a competitor. They could even start charging fees like malls do or demanding a percentage of ticket sales/snack bar sales.

This plan stinks to high heaven. Time to say NO-NO-NO.

Only way I would consider it was to have an agreed upon sales price and ownership rights prior to developing it. Like Ken said, too many problems waiting to happen. If they want the theatre bad enough they will cater to you.

Greg Borr
RTS

I do not know the entire situation, but it sounds like the city's business "leaders" are trying to squelch someone and build their own theatre. Talk about not-so-subtle agendas. I would echo the previous advice and tell them to go it on their own. The last thing you need to do is help someone else build another theater.

Did I miss something here? You said that you would be leasing the finished theatre... right? You also said that they are willing to lease the theatre to you at a "very low" rate. It seems to me that they would be compensating you for overseeing the construction. Isn't that very low rate what they are giving to you for your expertise during the building phase. You say "that we don't own it - or even have any real control over it", but you would have a lease. A lease is as good as owning a property. You would be the lease owner. The important thing is to get a "good" lease. You need to have the lease period long enough to satisfy your investment, whether that investment is in dollars, your time and knowledge or both. Is this a turnkey deal? You didn't mention who was paying for the equipment. If that is included in the lease, this sounds like a pretty good deal.

The only real important consideration left is do you think the theatre will be profitable, and do you really want to run it? If it doesn't look like the community can support the theatre to the extent that you will make a return on your investment, even if that investment is only your time, then it doesn't matter how good of a sweetheart deal it is, then it isn't worth it. Even if you think it will make money and you have no real interest in running a multi-plex then still don't do it. If you're satisfied with your present operation, and don't want additional headaches, and don't feel that this new theatre is in any way competitive to your present theatre, then why get involved?

But if you're looking to expand and you feel that this situation could be a money maker, it looks like a good deal to me. You get a new theatre and it costs you nothing. Maybe I should come out there and take this deal. The bottom line is the lease. If you are interested and have a good lease that protects you, then it sounds like a good deal.

We were once involved in something like this but only after it was open. It has been a miserable failure for nearly a decade. My advice to you is consider where all the finger pointing will be if it fails. Find out who will be responsible for all those loan payments if it doesn't work.

Your situation will undoubtedly be different from our experience, but we did observe a few things: People promoting the project were not really putting up their own money, didn't have any actual experience with theaters and didn't really live in the town. They hired people who DID have experience but who also had nothing invested in making it work and also didn't live in the town. Historical buildings that require you to build around architectural details can send the budget out of control and saddle you with a theater that is not quite finished at the end. Parking decks promised but never materialized - Number one problem at this theater today is PARKING!

I will also say that if you WANT to do this it can be done. If you invest yourself into ensuring that it will work and that the economics for everyone make sense then it can fly. But you have to really want to do it and not just be standing around on the sidelines looking for the safest exit when things get bad.

I would look at it as if someone were making it easy for me to build the building that I wanted for my theater. I don't have to worry about the financing - they are worrying about it. I need only make sure that the payments can be made and the theater will be built as I want to run it. Then I get the chance to prove that my plans were accurate and that I can make money here.

Roxy is correct that you must be very careful in how you structure your lease. Don't help them build it and then lease it to someone else because they will pay more. Don't lease it for less time than you will need to get your investment out - be it cash or time. Don't do the project if you can't make the business plan work on the numbers that you are comfortable with. I second Roxy again - Don't do it if you don't really want it.

(P.S. - Can I come out there and do it?)

[This message has been edited by BECKWITH1 (edited February 13, 2002).]

I know of a small town who took over a one-screen theatre I believe from tax default---they have a unique leasing agreement that has been working for about 12 years and 2 different operators---They started a 99 year reasonably priced transferrable lease on the building, equipment is owned by the operator. The transition between the old operator and new one was very uneventful as the lease automatically transferred and the agreed upon price of equipment was handled between buyer/seller.

just thought the input would help in the thought process when/if you start finalizing terms.