Happy Friday. This is The Shake 🤝: the weekly newsletter that dives deep into the real estate industry to uncover hidden gems.

Here’s what we got this week:

• The Birth of Movie Theaters 📽️ 

• Tax Abatements + Low-Interest Rates = The Perfect Storm 💸 

MARKET RADAR

The Birth of Movie Theaters 📽️ 

In the early 1900s, storytelling through film was a completely new form of entertainment. Like anything new, it was difficult for early adopters and filmmakers to gain traction.

In order to get people to watch a film, pioneer exhibitors would have to roll from town to town like traveling salesmen. Setting up projectors and screens wherever they could rent space - in community halls, church basements, legitimate theaters, and even under tents.

But real estate solely dedicated to movies? That idea didn't exist (yet) due to the lack of product-market fit for motion pictures.

Then suddenly, the movie industry changed the day Edwin S. Porter unreeled The Great Train Robbery to a New York audience in late 1903.

The commercial success and demand from a new generation of viewers led to the beginning of the Nickelodeon. These were initially vacant retail storefronts that were repositioned as theaters and charged five cents for admission - a nice lil value-add play!

Not only did the Nickelodeon attract new audiences to movies, but it also lured a new breed of opportunity seekers into a burgeoning business.

One of the most iconic early adopters was a trio of young brothers: Harry, Albert, and Sam Warner. You might’ve heard of 'em’ before. Their first theater show made $300 - more than their father ever made in a month.

By 1910, nickelodeons grossed $91 million in the United States.

Similar to the Airbnb arbitrage trend of today, everyone was looking to open one of these lucrative Nickelodeons up. I’d also compare it to modern-day vape operators calling every single vacant retail space they can find to see if it’s a permitted use.

Thankfully they didn’t have get-rich-quick course sellers back then… but if they did, they would share a playbook like this 👇️ 

What went into making a Nickelodeon business a success?

• Low-cost entertainment: The low admission price of five cents made movies accessible to the masses, attracting a large and diverse audience.

• Location, Location, Location (and Accessibility): Nickelodeons were typically located in dense urban areas, helping to increase their popularity.

• Short films and Continuous Showings: short 10-15 min silent films allowed for continuous showings throughout the day. This ensured a steady stream of patrons that could come and go at any time, allowing for flexibility in attendance.

• Programming and Film Selection: Carefully curated film selections attract audiences and keep them engaged. The choice of films (comedies, dramas, newsreels, and early forms of animation) played a crucial role.

• Entrepreneurship and Theater Ownership: Many were owned and operated by individual entrepreneurs or small business owners. These individuals seized the opportunity to establish theaters and profit from a new form of entertainment. The best operators went on to build larger chains of theaters as the industry expanded (If only they had BetterPitch to help raise capital back then).

• Licensing and Distribution: Owners had to negotiate licenses with film distributors and producers to obtain the films they wanted to screen. The film industry was still evolving during this time, and the distribution system was less centralized compared to later years. Theater owners had to establish relationships with film distributors and secure the rights to screen popular films.

Despite the initial success of Nickelodeons, the business faced challenges such as limited space, competition, and the need to continuously refresh the film program. 

As the industry grew, more theaters emerged, leading to increased competition and the need for theater owners to adapt and differentiate their offerings.

Over the subsequent decades, the big money flocked to developing upscale Movie Palaces for the upper class. Eventually killing Nickelodeons as these theaters now had amenities such as larger sitting areas, air conditioning, and even childcare services.

Theaters continued to evolve (and kill off prior business models) into the failing multiplex buildings we have today.

Overall, Nickelodeons played a significant role in cementing the movie industry as a viable business and igniting the appetite for the development of real estate that was solely dedicated to attracting large audiences for films.

Fast forward to 2023 and it exemplifies the circle of (real estate) life. What was once a hot niche sector is now a dying breed as streaming services take over market share.

Thanks, Netflix!

Tax Abatements + Low-Interest Rates = The Perfect Storm 💸 

I grew up listening to my parents (they’re 65 & 66) constantly talk about the ‘70s & ‘80s like they were some of the craziest times you could ever imagine, and I don’t just mean partying.

Maybe the best movie for portraying these decades is Forest Gump. I mean, have you ever seen a piece of cinema so perfectly cover every event that happened and so perfectly place a fictional character into it?

Met JFK after being named an All-American at the University of Alabama? Witnessed Watergate? Went to Vietnam and was awarded the Medal of Honor? It’s almost believable that this person could have very well been in the right place at the right time over and over again like in the movie.

Now imagine the same exact movie, but it’s about the ‘10s and ‘20s and the movie’s plot ends with 2023.

This movie would include a bunch of interesting stuff: The invention of Instagram, Drake’s rise to fame, but more so than anything: the pandemic and the craziest real estate crosshairs we’ve ever seen. The start of 2023 felt like we woke up after an insane party where no one knows exactly what happened but a bunch of people ended up rich.

I’m here for it if they ever wanted to take the basis of Forrest Gump and make it into a movie about real estate in Philadelphia during this time.

A couple of highlights from the pandemic as they relate to commercial real estate:

• We watched commercial office space absolutely tank

• Industrial real estate lit into an inferno with millions upon millions of square feet developed while rent growth exploded

• Interest rates dropped to where even 13-year-olds were making “money is basically free” comments

…and above all else, the tail end of the 10 Year Real Estate Tax Abatement on new construction properties. The Philadelphia 10-Year Tax Abatement was a helluva run.

In short, it inspired development throughout a city that needed a drastic change in many, many neighborhoods. It took areas of the city in Philly that people would have never expected to see new construction in and created entire new blocks and neighborhoods.

It didn’t just apply to brand-new construction either. Even rehabbed homes could apply for (and almost always received) the 10-year abatement. This abatement turned everyone and their mother into a house flipper or developer, and not every job was perfect, trust me.

I mean, did you see what happened to Bob the Builder?

There have been over 20,000 tax-abated properties in the city of Philadelphia since the abatement was enacted in 1997. 

JLL did a deep dive into the program in 2014 stating:

It’s extremely interesting to see how much incentives like this one can change the scope of certain areas of a city when +/- 3.5% of properties take advantage of an opportunity such as this one.

Ultimately the city will end up getting its money. The majority of these homes sold for much higher than they would have years prior because they were beautifully renovated (or brand new), in trendy neighborhoods, and rates were extremely low.

Now, with rates finally back to a more historically normal place:

I wouldn’t be surprised if we saw other cities follow suit.

FIN 🤝 If you enjoyed this week's edition, don’t be selfish — share with a friend!

^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.}