Netflix Studio in Hollywood Secures $165M Refi

The owners of a Hollywood studio leased mostly to Netflix have closed a refinancing package for the property, which is outperforming the overall market for renting soundstages in Southern California.

Raleigh Studios, a 314,940-square-foot film studio on Melrose Avenue in Los Angeles, is backing a three-year, $165 million, interest-only, fixed-rate loan with a 7 percent interest rate, according to a pre-sale report from Morningstar DBRS. 

Wells Fargo Bank and Barclays  provided the financing for sponsors Hackman Capital Partners (HCP) and Affinius Capital. Representatives for each of the lenders and sponsors did not return requests for comment.

Newmark‘s Jonathan Firestone and Blake Thompson, in collaboration with Jordan Roeschlaub, negotiated the debt.

The financing will be used to repay $135 million of existing debt, with $26.9 million of equity being repatriated  to the borrowers.

The property has been 100 percent occupied since 2018, with Netflix taking 94 percent of the space on a landlord-friendly lease deal. The streaming king is nearing the middle of a 10-year lease that includes no termination options, 3 percent annual rent increases, a “must-take clause” on any available space at the property.

The lease also includes a minimum equipment guarantee that requires Netflix to spend a minimum amount on lighting and grip equipment each year, and it just so happens that Hackman’s production service and equipment provider affiliate MBS Group manages the property.

Raleigh Enterprises has owned all or some of  the property since 1979, and has invested $40 million on renovations and expansion. The firm retains a 30 percent ownership but is not a sponsor on the new financing. An affiliate of Raleigh Enterprises leases 10,050 square feet, and Technicolor Federal Credit Union and Sunshine Kids have smaller leases making up the rest of the tenancy.

Over the decades, Emmy– and Oscar-winning projects have been filmed on the lot with legendary talent from Charlie Chaplin to Al Pacino. Netflix uses the studio as a global hub for its highest-budget deals, including those with Shonda Rhimes’ production company, Barack and Michelle Obama’s production company, and Prince Harry and Meghan Markle’s production company. 

Raleigh Studios is the oldest continually operating film studio in the U.S., now with 13 sound stages totaling 135,349 square feet of office and support space, which includes both permanent offices and flex spaces that are used on a shorter-term basis by productions filming at the property, per Morningstar.

HCP and Affinius (then named Square Mile) acquired 36 percent and 34 percent ownership stakes, respectively, in the 110-year-old studio as part of a post-pandemic buying spree when demand for film space was at an all-time high during what now looks like the peak of the early Streaming Wars that ushered in a new era for Hollywood. They drove a new era for the business of renting space for film and television production, as institutional-level investors and out-of-state developers pounced at new soundstage opportunities in L.A. 

But the high was short-lived. The end of pandemic lockdowns (and the captive audiences they brought), historic labor strikes, the threat of AI, historically destructive wildfires, and the rapid expansion of dozens of new alternative markets outside of California and outside of the country have turned the entertainment industry upside-down. Market analysts and leasing experts claim production levels have been cut in half since their peak six years ago.

Indeed, Hackman — the world’s largest independent owner of studio assets with 19 studios — failed to repay a $1.1 billion loan behind Radford Studio Center in Studio City that matured in June. However, Bloomberg reported the landlord has almost completed talks with lender Goldman Sachs to refinance.

California lawmakers in the summer raised the annual cap on the state’s film and television tax credit program to $750 million from $330 million, and increased the percentage of a production’s qualified expenditures that can be offset by tax credits to 35 percent from 20 percent. The changes are expected to help the state compete with other markets that provide much lower costs of doing business, though many argue the ship has sailed on the demand seen before the strikes.

Affinius is a real estate investment firm with $63 billion in assets under management. Hackman also has 11 non-studio-related properties, including office, industrial and mixed-use assets, for a total of more than $10 billion in assets under management.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.