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Y'Allywood Is Catching The Eyes Of Investors After Blackstone's Big Studio Deal

Blackstone's eyebrow-raising investment into a large film studio complex has shone a spotlight on one of the country's fastest-growing film and TV production markets: Georgia, or as the burgeoning industry is known locally, Y'allywood.


In June, Blackstone Group paid $1.65B for a nearly 50% stake in Hudson Pacific Properties' Hollywood production campus, a 2.2M SF collection of soundstages and office buildings. Last month, another major investor got into the act when Los Angeles-based Hackman Capital Partners purchased Silvercup Studios, a famed New York production facility where The Sopranos was filmed,  for $500M. The megadeals opened the eyes of the institutional investor community as to the potential of studios as a real estate asset class, industry experts told Bisnow.

“Anytime Blackstone makes a move, it creates headlines,” CBRE Research Director Eric Willett said. “It caused other institutional investors across the U.S. to say, 'Let's take a look at this asset class.'”

Now, there is a flood of interest among institutional investors into production facilities, which has some Georgia studio heads considering expansion.

“We've talked to multiple parties about our future expansion,” said Cary Goldman, the co-owner of Cinelease Studios — Three Ring in Covington, Georgia.

Formerly known as just Three Ring Studios, Goldman and his partner, Rahim Charania, entered into a management partnership with Herc Rental's Cinelease Studios division after the 250K SF campus opened in September.

“We believed that this industry would become an institutional-quality asset,” Goldman said. "Now, it happened a lot faster than we anticipated."

This interest comes as global audiences have shown an insatiable appetite for new streaming content, pushing the studio system to ramp up new productions at a furious pace after months on ice during the coronavirus pandemic. Since the start of the pandemic, consumers have binged on eight hours of streaming content per day, according to an August survey by the website Tubi, with the average viewer watching at least three shows per week.

This demand was a major driver for Blackstone's investment in Los Angeles, Blackstone Head of Real Estate in the Americas Nadeem Meghji told Bisnow in an interview in August.

“Our business comes down to identifying themes we believe in, and then finding ways to invest in those themes,” Meghji said. “Content creation is a megatrend, and there has been explosive growth in both the demand for content and the spend among traditional media companies and the big film studios.”

Rendering of Cinelease Studios — Three Ring in Covington, Georgia.

Right now, Hollywood is playing catch-up after a collection of Hollywood unions came to an agreement on protocols for the best ways to film during the pandemic. Studios are now racing to refill their content pipelines after viewers binged the movies and shows that were filmed prior to the pandemic, but social distancing restrictions prevented filming new content.

Investor interest in buying studios “dovetails to a return-to-work and a return-to-production and the realization of pent-up demand for that space,” said Carl Muhlstein, a JLL International Director based in Los Angeles who specializes in studio real estate.

Georgia, which was one of the first states to reopen its economy after vast shelter-in-place orders were lifted, has been one of the early beneficiaries of the Hollywood restart. Twelve feature films and 29 television series are in some stage of production in the state as of October, according to the Georgia Film Commission, including Netflix's film Red Notice, CW's TV series Black Lightning and AMC's The Walking Dead.

Georgia never officially required studios to shutter during the pandemic, but the system went dark for months anyway. Production began as a trickle in July and August with commercials, a couple of independent films and Tyler Perry completing two series, Sistas and The Oval, according to the GFC.

Despite the pandemic, production companies are slated to spend $2.2B on filming in Georgia this year, commission officials said. 

Metro Atlanta studio facilities are booked again, studio owners tell Bisnow, in some cases through next year.

“We're at the same level of demand, pre-COVID. Probably more than pre-COVID because of the backlog,” said Blackhall Studio Chairman Ryan Millsap, adding that his Atlanta facility is booked for the next 18 months.

Blackhall Studios CEO Ryan Millsap

Millsap said the Blackstone investment was the major catalyst that shifted the attitude among investors to look more favorably upon soundstage and studio space investment.

Blackhall, which is backed by Los Angeles-based hedge fund Commonwealth Asset Management, has a $1B expansion pipeline in Atlanta, London and Los Angeles, including a 500K SF planned studio facility in Burbank, California.

Blackhall is now fielding potential investment offers from other institutional firms to invest in part of that expansion, Millsap said.

“Two years ago, nobody in the institutional space knew anything about this and looked at me as if I were crazy to consider this a commercial real estate space,” he said.

Blackhall and Three Ring are not the only studios expanding in Y'allywood. Earlier this month, owners of Trilith Studios — formerly Pinewood Atlanta Studios, co-owned by Chick-fil-A CEO Dan Cathy — announced plans to expand its Fayette County hub into a massive mixed-use campus that will include 220K SF of new soundstages, as well as new residential, retail and a hotel. 

Raulet Property Partners partner John Raulet, whose firm owns and manages nearly 1M SF of studio and soundstage space in Metro Atlanta, said he's been fielding calls from investors who are just wanting to learn more about the industry as they consider future investments. He has leased his properties to Warner Bros. and CBS over the years.

“All these big players are starting to look at production space as a new asset class, right along with industrial, retail and office,” Raulet said. “I don't know that there's been any concrete investment other than dipping the toe in the water in Atlanta, but I think that's going to change.”

But even the most well-heeled investors have trepidations about investing in studios. For one, most of them are owned by local entrepreneurs and developers, who then lease out their spaces to major studios for leases that typically span six months to a year. That is hard for some investors to get past when they are used to investing in properties with long-term leases, Raulet said.

“It's hard for us to consider selling stuff in a traditional sense, in that you can't put a cap rate on a five-year deal that has one-year terms,” he said.

Demand is also severely limited, CBRE's Willett said. There is only 12M SF of major studio space in the U.S., with owners primarily small-business owner-operators, such as Silvercup in New York before it sold for a half-billion dollars.

Institutional investors like Blackstone will only eye properties owned by seasoned, well-run operators, especially in markets like Georgia, where state politics can hurt business, Millsap said.

In July 2019, many major studios threatened to boycott filming in Georgia after the state passed a controversial anti-abortion law that prevented the termination of a pregnancy once a heartbeat was detected. That law was rejected a year later by a federal court.

Georgia's lucrative tax incentive for film and television production — an incentive that has propelled the state to be among the most popular global filming locations — also faces periodic political opposition.

“You are not going to show up and say, 'I'm going to build soundstages,' just like you can't show up and say, 'I want to build cold storage' and have institutional money flowing to you,” Millsap said. “There is a limit to the number of soundstages that are needed in the world, and that demand is going to be met by the guys in the world who know what they're doing.”