By Konrad Putzier 

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (June 30, 2020).

Real-estate investors at Blackstone Group Inc. are getting into show business.

They are doing it not by making movies or TV shows themselves, but by acquiring stakes in the production facilities and other real estate where companies like Netflix Inc. and the Walt Disney Co. are creating content.

Blackstone on Sunday took its biggest step in this direction when the New York investment firm signed a deal to take a 49% stake in a venture that will own three film-studio lots and five adjacent office buildings in Hollywood, Calif., valuing the properties at $1.65 billion.

The studios' current owner, Hudson Pacific Properties Inc., or HPP, will keep a 51% stake in the venture and will continue managing the properties, which include the Sunset Bronson, Sunset Gower and Sunset Las Palmas studios, the companies said. Netflix, CBS and Walt Disney are among the facilities' customers, according to HPP.

Film studios and production facilities have become hot commodities as Netflix, Inc. and Apple Inc. compete for streaming customers and race to produce more original movies and shows. Blackstone also owns a portfolio of office buildings in Burbank, Calif., with media tenants like Disney, Warner Bros Entertainment Inc. and NBCUniversal Media LLC.

Blackstone sees content production as a booming industry in which supply is highly constricted, said Nadeem Meghji, Blackstone's head of real estate for the Americas.

"We think this is really a long-term trend," Mr. Meghji said. "We're thematic investors and focus on sectors with strong tailwinds, and content creation is a prime example."

Blackstone's partnership with HPP is the latest sign that one of the world's largest real-estate owners is expanding beyond traditional bricks-and-mortar buildings, embracing properties more closely tied to online commerce and content creation.

The firm has already been loading up on industrial warehouses that often serve as distribution centers for e-commerce. Logistics represented about one-third of Blackstone's global real-estate portfolio in the first quarter, up from only 2% in 2010, according to the firm.

It has been moving in the opposite direction with retail properties and hotels, which in the first quarter accounted for less than 15% of the global portfolio, compared with about half in 2010, Blackstone said.

Those shifts are in line with how some of Blackstone's peers have also been recalibrating their property investing. But the firm's move into production facilities is effectively carving out a new and untested category for large global real-estate investors.

"There just aren't that many people in the studio game," said John Tronson, a Los Angeles-based principal at real-estate brokerage firm Avison Young.

Some say that is for good reason. The business is far from easy. Studio owners are expected to offer a range of services, such as security and information technology, often on short notice. Contracts with production companies can be as short as one month, meaning revenues can fall quickly if customers stay away.

"This is not really real estate," said Doug Steiner, chairman of Steiner Studios, a film studio in Brooklyn. "We like to say it's like a boutique hotel serving a particular industry."

Still, Mr. Tronson said he expects demand for film studios to continue to increase while supply is limited.

There is little land to build on in cities like Los Angeles and New York, and studio owners often struggle to compete for the few available sites with apartment or office developers. Film studios are typically single-story buildings, and some properties have been torn down to build multistory office or apartment properties.

"There is actually an attrition of a lot of these studios," Mr. Tronson said.

Outside of Hollywood, the market for production facilities has heated up as tax-incentive programs drive crews to new states and countries, and the number of movies and TV shows made each year rises. A construction boom for production facilities followed the implementation of Georgia's popular tax-credit program, which offers a rebate of up to 30% on TV shows and movies that film in the state.

What's more, the rise of streaming services has led to a glut in programming -- and a shortage of available soundstages to make it in. Netflix has built its own production hub in Albuquerque to mitigate that shortage, and Disney in 2019 signed a long-term lease with Pinewood Group, outside London, to ensure it would have shooting space at the facilities for several years.

HPP chief executive Victor Coleman said about half the studio space is leased out to production companies for terms of three or more years. Rental income at his studios has been growing for the past decade, he added, and Blackstone and HPP plan to expand their joint portfolio and are eyeing investments in cities like Vancouver, New York and London.

For now, most film studios are closed because of the pandemic. But Mr. Meghji expects more companies will want to lease film studios once productions resume.

"There is pent-up demand to create new content," he said.

Erich Schwartzel contributed to this article.

Write to Konrad Putzier at


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June 30, 2020 02:47 ET (06:47 GMT)

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