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CONDOS THRIVE; MOVIES SLUMP

The movie theater started with a bang; the condos down the street with a bankruptcy.

Little more than a decade later, Market Arcade Cinemas and City Centre find their fortunes reversed.

The 14-story condominium building turned out to be a success slow in the making: the last units sold this year.

The movie theater, meanwhile, is struggling back to its feet under its third operator in six years. Attendance, while increasing, is a quarter of what it was, and the city is picking up part of the overhead.

The two projects are perhaps the most dramatic examples of the ebb and flow of business fortunes in the Theater District. A rocky start works out in the end. Initial success turns sour.

Yet investors keep coming back. Sometimes they eventually succeed.

Joseph A. Petrella, part of City Centre's development team, is a case in point.

Petrella's group took title from the city to the abandoned Nemmer Building at 610 Main St. in the late 1980s for $1 and transformed what might have been downtown's ugliest building

By the time condo units were ready to sell, the bottom fell out of the real estate market. Only one buyer had moved in when the developer filed for bankruptcy in 1994. The developer defaulted on an $82,000 loan and needed help pulling through bankruptcy. The city took over construction of a parking ramp, at a cost of $220,000, money it later recouped by a subsequent sale of the facility.

In addition, the city, as part of the project's finance deal with the bank, was required to buy seven units in 1997 when sales fell below projection. The units resold over the past four years, but the city took a loss on six of them that averaged about $71,000.

The building, with 10 floors of condos and four floors of commercial tenants, pays $141,275 a year in property taxes. And the city has sunk less money into the project than the other large development projects on the block -- although it is still out more than $500,000.

Petrella has since tackled three other properties on the block, despite the investment climate.

"I think there still is good reason to invest there," he said. "It's still difficult to bridge the gap between the cost of construction and the prices you can charge."

And sometimes, even big government subsidies aren't enough to make a project succeed. Witness the Market Arcade Cinemas.

The eight-screen complex opened with much fanfare in 1987, and over the years received $4.4 million in city loans.

The theater, affiliated with General Cinema, initially did well, drawing between 400,000 and 500,000 patrons and taking in upward of $3 million annually during its first five years.

"Early on they were making some money," said Alan Dewart, general partner in the real estate part of the deal.

Business started to slump and attendance and revenues dropped by nearly two-thirds by 1998, when General Cinema exercised an escape clause.

Dewart attributed the decline to a number of factors: General Cinema wasn't adept at operating in urban markets; competition got stiffer as a number of new movie theaters opened, including Regal's 16-screen complex in North Buffalo; and tensions between younger, inner-city, and older, more-affluent, moviegoers.

After General Cinema walked away from the theaters, another operator failed to make it work as a foreign film venue.

The cinema has gained financial strength the past three years, after a nonprofit affiliated with Main Place, which maintains and promotes the Main Street pedestrian mall, took over. Attendance has grown by 42 percent, to 87,501 for the operating year that ended in April. But attendance per screen is one-quarter the national average.

As a result, the cinemas continue to rely on public subsidy. The city owns the building and its lease with theater operators calls for rent as cash flow allows; thus far, no rent has been paid. Moreover, the city covers utilities, which last year cost $41,909. The city also pays on the defaulted Section 108 loan, which this year is costing $390,484 in block grant funds. Main Place provides administrative staff.

The cost of utility and loan repayments last year came to $4.94 for every patron who walked through the door.

"It's been difficult, but we keep it going," said Michael T. Schmand, executive director of Buffalo Place. "We have to keep this open as we continue to build a downtown neighborhood. It's a matter of continuing to prime the pump."

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