The entertainment industry is no stranger to drama, but the latest labor disputes are proving costly for more than just the storylines on screen. Hudson Pacific Properties, a prominent player in Hollywood’s real estate landscape, has felt the economic sting firsthand, citing $100 million in losses due to ongoing labor strikes within the industry. The stark figure comes before interest, taxes, depreciation, and amortization are taken into account, signaling a tough year for the REIT, and by extension, the entertainment sector.
Victor Coleman, chairman and CEO of Hudson Pacific, articulated the gravity of the situation, with most productions coming to a halt amidst the historic strikes.
During a third-quarter earnings call, HPP President Mark Lammas delved deeper into the financial implications. Under usual circumstances, the company’s studio portfolio had the potential to generate an estimated $120 million in net operating income for 2023. However, the strikes have severely crippled this expectation, with the actual figure hovering around a mere $10 million in NOI for the year.
In a rare occurrence for Hudson Pacific, the strikes forced one tenant to vacate six soundstages at Sunset Las Palmas, leaving the studio portfolio with an 83.5 percent lease rate, a low for the company since its 2017 asset acquisition. The company does not perceive this drop in leasing activity as indicative of a long-term trend. Coleman expressed confidence, stating, “this is a moment in time,” and anticipates a resurgence of interest and activity once the actors’ strike is resolved.
Despite the downturn, there’s a flicker of optimism with the writers’ strike concluding in September. Attention now turns to the SAG-AFTRA strike, as Coleman notes a pickup in pre-production activities. Assuming a resolution by mid-November, Hudson Pacific expects a return to normal production levels by the second quarter of 2024.
In the meantime, Hudson Pacific plans to grow its studio operations amidst the turmoil. A joint venture with Vornado and Blackstone will bring a new Sunset Studios facility in Manhattan, showcasing the company’s dedication to expanding its market presence and fortifying its studio brand.
The studio segment isn’t the only area of focus for HPP. The company’s total net operating income and funds from operations have taken a hit, but the deleveraging strategy remains a priority. The office portfolio’s occupancy and lease rates have fluctuated primarily due to lease expirations and property sales.
The strikes have reverberated through the real estate market, particularly in Los Angeles, an epicenter for media and entertainment. Coleman noted the slowdown in the industry, with a particular impact on growth within the real estate sector.
