Developer Plots New Story Line for Adult Movie Theater
An adult movie theater isn't everyone's idea of a good investment. When Juan Creixell, CCIM, president of CSA Realty Group in Austin, Texas, learned that the notorious Cinema West building was for sale, however, he jumped on the opportunity. In a little over one year, Creixell managed to turn a seedy, X-rated movie theater into an exciting new office building, consequently helping to lift a faltering neighborhood back on its feet.
A Theater's Decline
The Austin Theater opened on Aug. 18, 1939, and for decades it showcased the latest Hollywood blockbusters. As multiscreen cinemas rose in popularity and residents moved to the suburbs, however, the Austin Theater fell into disuse, and in 1977 a new owner turned it into an adult movie theater. The new proprietor changed the name from Austin Theater to Cinema West.
Over the next 21 years, Cinema West attracted an increasing number of undesirable and unsavory characters. Crime rates in the neighborhood rose dramatically, and residents placed the blame entirely on Cinema West.
Finally fed up, residents spearheaded a campaign to close Cinema West. In June 1998, the Travis County district attorney's office sued to declare the theater a nuisance. Cinema West lost, and the building was sold to a group of investors that attempted to renovate it. The project failed after several months, however, and the group put the property up for sale.
A Project Is Born
During the last 10 years, the office market in downtown Austin has experienced unprecedented growth, fueled by the ever-increasing number of high-tech firms moving into the area. Creixell realized that this growth soon would affect the areas surrounding the central business district, so he began searching for properties that met CSA Realty Group's investment criteria, which include long-term growth potential and equity investment between about $500,000 and $1 million.
Creixell stumbled upon Cinema West in January 1999 and immediately was entranced by the building's “high ceilings, its openness, its flexibility of space, and the potential for redevelopment to a new life.” The building was just one mile from the CBD and had an excellent view of the State Capitol. Despite the theater's checkered past, Creixell knew he was looking at a winning property.
After seeking the assistance of Elliot Silverstone, CCIM, of Silverstone Real Estate Services in Austin, in March 1999, Creixell purchased Cinema West for $450,000 using 100 percent equity. Soon after, he began researching ways to renovate and market the building.
The biggest obstacle he faced was the perception of South Congress Avenue as an unsafe area. Creixell was worried that this “stigma could influence the marketability of the project.” When comparing the crime rate of the area against competing office markets in Austin, however, Creixell learned that the South Congress neighborhood had a lower crime rate than the CBD and other surrounding areas.
More surprising but pleasant discoveries followed. After structural inspections, the exterior of Cinema West was found to be in perfect condition, despite being built 60 years earlier. Environmental studies detected no asbestos or other contaminants in the building. Also, the property included a 34-space parking lot — a rarity in the area — which allowed room for Creixell to expand the approximately 8,000 square feet of interior office space, since the City of Austin allows 300 sf of office space for every parking space.
The inspections did uncover several potentially costly problems. The roof was rotted and leaking and needed to be completely replaced. The plumbing, electrical, and mechanical installations had not been updated in decades and had to be brought up to current building codes.
Before beginning any work on Cinema West, Creixell contacted all of the neighborhood associations with an interest in the building's future. They all reacted encouragingly, although many voiced a preference for converting the building into some sort of artistic venue. The city planning and development office also was excited about the project.
After meeting with neighborhood and city associations, Creixell started looking for an architectural firm whose ideas matched his vision for the property. He says he wanted to “create a very exciting and dramatic working and/or shopping space based on the loft style native to New York City.” Creixell hired Juan Miro Architects.
From XXX to WWW
Despite how smoothly the project had run so far, Creixell hit a roadblock when he tried to obtain financing to begin renovations. The lender, Wells Fargo, would not finance the project until a tenant had signed a long-term lease for the building. Creixell once again turned to Silverstone, who set about finding a tenant. Within 70 days, two companies were competing for the lease: Future Protocol, an Internet and networking-services provider, and the Dance Umbrella, a modern dance company. The Dance Umbrella made a very attractive offer, but it needed six months to launch a fund-raising campaign to raise the money. Future Protocol, on the other hand, was ready to sign the lease immediately. After agreeing to a seven-year lease with renewal options for the entire building, in June 1999, Future Protocol announced its plans to move into the building with the slogan, “From XXX to WWW.”
Future Protocol was involved intimately with the renovations, because the company had “very specific needs for high-tech gear, installations, and future growth requirements,” Creixell says. At one point, Creixell adds, “I had to stop them because they wanted to install a fireman pole to slide down from the second floor to the kitchen area.”
To meet Future Protocol's requirements, Creixell and the architects had to get creative. Instead of using concrete or dirt to level the main floor, Miro designed a raised metal floor with a crawl space underneath it. This allowed access to the wiring so the company could change the configuration of the office. Approximately 1,000 sf of office space was added, not counting the crawl space. Also, a 450-sf roof terrace was built for Future Protocol's frequent office barbecues.
Although the interior of the theater was almost completely gutted, Creixell wanted to maintain some of its original character. The architect incorporated the main stairwell of the theater into the design to give access to the new metal mezzanine. The projection room also was kept intact for use as Future Protocol's think-tank room.
In May 2000, only a little more than one year after Creixell first noticed Cinema West, Future Protocol moved into its new office.
A Unique Vision
Since Creixell purchased Cinema West, property sales prices in the South Congress neighborhood have doubled. Based on recent office building sales prices, the renovations to Cinema West increased the building's value around $1 million, he says. Class A lease rates in south central Austin have risen to an average of $28 per square foot, and vacancy rates dropped from 14 percent one year ago to 5 percent at the end of third-quarter 2000. High-tech companies have followed Future Protocol into South Congress, creating more high-paying jobs. The area once again has prospered.
Creixell says that the large and complex scope of this project taught him so much that he “feels like [he] did a master's degree in real estate project management.” Creixell also says he learned professional skills such as different construction techniques and how to budget for the unknown.
Creixell believes that all real estate professionals could benefit from projects that challenge old perceptions. But one such as the Austin Theater takes a unique vision. “I think that properties are a little bit like people,” Creixell says. “If you really want to know them you have to look deep inside, beneath their skin, beyond their appearances, and you will find their true value.”