Nadeem Meghji: Three Reasons Why Blackstone Is Investing in Content Production
Content consumption has grown dramatically in recent years—a trend that has only accelerated during COVID-19. Recent data collected from surveys show that Americans are streaming twice as much content during the pandemic, as individuals and families spend more time at home and on their devices. That statistic has made headline news, but we see a bigger story taking shape in the world of real estate investing.
Blackstone Property Partners (BPP) recently purchased a 49% stake in Hudson Pacific Properties’ (HPP) Hollywood Media Portfolio, the largest full-scale independent studio operation in the U.S. The portfolio is a 2.2 million square-foot collection of film studios and “on the lot” office buildings in the heart of Los Angeles’ entertainment industry and is anchored by Netflix and Disney.
Here are some reasons why we’re big believers in content creation and studio real estate.
A supply shortage has resulted in enduring high occupancy
Demand for studio space in Los Angeles has been strong, but rising land values have made building new facilities very expensive. As a result, new supply has been virtually nonexistent. In fact, there has not been a new purpose-built studio facility of scale in LA since 1999, and for the past four years, studio occupancy there has remained above 95%.
What’s more, the majority of studios within our portfolio have experienced 95% same-store occupancy since 2017. Even during the COVID-19 shutdown, studio tenants renewed and even expanded their leases on the lots—underscoring their desire to secure space to produce content.
The lack of supply coupled with secular tailwinds has also benefited Blackstone’s 3.2 million square foot office portfolio in Burbank—which is anchored by major global studios including Disney and Warner Brothers—as we have increased occupancy there from 89% to 97% since our acquisition in 2017. The outperformance of our Burbank investment further reinforced our belief in the secular tailwinds in the content creation business. This is a great example of how our scale and active investing approach helps us to “see around the corner” and identify areas we should be targeting for new opportunities.
Los Angeles is exceptionally well positioned
Los Angeles is the global capital of the film and television industry, representing over half of all film and TV wages in the United States and nearly half of all sound stages in the U.S. and Canada.
LA is also a “drive-to” location for most talent, which should strengthen studio demand in the region amidst reduced air travel and mobility. In fact, many studios have already announced plans to move on-location filming to studio lots in LA, including Amazon, which has announced that all domestic filming will take place in LA for the foreseeable future.
For example, HPP recently signed with a major television production to shoot its next season on its studio lots—despite the tenant historically shooting on-location—because of the need to create a controlled setting for cast and crew given the current environment.
Growth in content volume and spend is accelerating
Underpinning LA’s real estate dynamics is the secular growth in media entertainment and content creation. Annual spending on content production by the seven largest global studios is expected to be up 77% over the last three years, while the number of scripted shows produced annually by major studios has doubled since 2011.
The top tenants in our portfolio, Netflix and Disney, have established themselves as leaders in content production and rank first and second globally in terms of content spend. Netflix’s global subscriber base has rapidly grown to 193 million, including 26 million new subscribers in the first half of 2020. Meanwhile, since rolling out its Disney+ streaming platform in December 2019, Disney has amassed 60.5 million global subscribers, nearly reaching its 2024 target within its first eight months in business.
Both companies now benefit from strong recurring revenue streams and each plans to spend over $17 billion this year on developing and producing original content.
By leveraging our scale, expertise, longstanding relationship with HPP, and insight from our investment experience, we’re building on our conviction in an industry that we believe has substantial upside. Our intent is to deliver value for our investors with a long-term perspective on this portfolio—and continue to grow our partnership with HPP so content creators have the space they need to continue producing great entertainment.
DEAL SPOTLIGHT
Hollywood Media Portfolio
Details: A 49% stake in Hudson Pacific’s Hollywood Media Portfolio, a 2.2 million-square-foot collection of studio facilities and “on the lot” Class A office buildings $1.65 billion
Portfolio valuation: $1.65 billion
Portfolio assets:
- Properties include Sunset Bronson, Sunset Gower and Sunset Las Palmas Studios, which collectively comprise 35 stages or 1.2 million square feet of production and support space in Hollywood
- Approximately 1.0 million square feet of Class A office properties developed on or adjacent to the lots
A look forward:
- Venture includes rights to build another 1.1 million square feet of office and production space at Sunset Gower and Sunset Las Palmas Studios
- Hudson Pacific and Blackstone will also look to partner on future studio acquisitions in Los Angeles and other key markets
Nadeem Meghji is a Senior Managing Director in the Real Estate group and Head of Real Estate Americas.
