In Arizona, Plans and Construction for New Movie Theaters

High growth in Southwest as movie theater companies expand

The second and third tiers of movie-house chains are likely to expand just as fast as the giants. Kerasotes ShowPlace Theatres LLC in Chicago, for example, the nation's sixth largest operator with 685 screens in 81 theaters, opened two suburban Chicago facilities in November, one with a dozen screens and the other with 14. It has started construction on another theater that will include an I-MAX auditorium in the suburb of Bridgeview.

There will be two more theater starts by Kerasotes this year. In addition, the company inked a deal to acquire Colorado Cinema Group LLC in Denver, the city's largest movie operator with 125 screens and 11 theaters, for an undisclosed price.

"A lot of theaters still haven't modernized," says Anthony Kerasotes, the president and CEO of Kerasotes. "We see holes in the marketplace everywhere we look."

Lenders join supporting cast

Financing all these deals doesn't seem to be a problem. Kerasotes taps credit lines at both Providence Equity Partners Inc. in Providence, R.I., and Deutsche Bank AG's New York office.

Executives at Muvico Entertainment LLC in Fort Lauderdale, Fla., agree. The company is a breed apart, erecting splashy movie palaces with ornate chandeliers, adults-only auditoriums, bars and restaurants and even plush sofas for seating.

Muvico, with 247 screens in 13 locations, is taking aim at Kerasotes's home market of Chicago, with construction underway on an 18-screen complex in suburban Rosemont. It's part of a sprawling entertainment hub that will include a hotel and water park. The construction cost in Rosemont will approach $40 million, says Michael Wilson, Muvico's vice president of real estate. He's seeking more sites in Chicago for similar facilities.

Wilson says theaters like his are being viewed as an entertainment anchor in the upscale lifestyle shopping centers that are being built in so many places. But he also recognizes that AMC and Cinemark have set their sights on some of the same venues, and he expects competition from them to heat up soon. "Shareholders are going to demand steady growth from these chains once they're public," he says. "There will be pressures on management to go out aggressively and secure new construction sites."

Theater chains go full circle

For their part, many developers are pitting the movie chains against each other as they erect new shopping centers. Last fall, Cleveland-based Forest City Enterprises erected its new Shops at Northfield, a lifestyle center on the site of the old Stapleton Airport north of Denver, with an 18-screen Harkins Theatre as anchor.

Forest City has also begun construction on shopping centers in Richmond, Va., and Tampa, Fla., with pads reserved for theater operators, but nobody has signed on just yet.

"We've talked to several operators and find there is a lot of competition right now for good shopping center sites. We expect to have deals by the fall," says James Richardson, vice president of commercial development at Forest City.

Movie houses increasingly are built adjacent to clusters of restaurants. "They feed off each other," Richardson notes. And yet theater tenants aren't without their drawbacks: they require gobs of parking, which raises the hackles of adjacent restaurant operators. "You've got to position a theater carefully in your center to avoid conflicts," Richardson admits.

As for the operators, they're also facing off against newly hatched chains in some places. One of the most prominent is Sundance Cinemas LLC, based in Los Angeles and associated with the actor Robert Redford (an investor), which has one theater open there and another in Madison, Wis., with yet a third planned on the site of a shuttered old candy factory on Chicago's west side. In Illinois it will butt heads against another new chain, Chicago-based Eagle Theaters LLC, which has acquired an old theater in suburban Park Forest and is constructing a new facility in the small downstate town of Clinton.

Renovation rollout

Not every chain is plunging headlong into the search for new construction sites. Marcus Theatres Corp. of Milwaukee, owner of 52 theaters with 629 screens, is opening up just one new facility this year in the Milwaukee suburb of Brookfield.

The company in March paid $76 million in cash for 11 theaters with 122 screens, most of them in Iowa and Minnesota, owned by Cinema Entertainment Corp. of St. Cloud, Minn. The price computes to about $620,000 per screen, far lower than the average of $1 million per screen for new construction.