Exhibitors Herald (1927)

March 19, 1927 EXHIBITORS HERALD 9 Ways and Means of Financing Theatres Financing is a problem that usually goes hand in hand with theatre building. The exhibitor who has the ready cash to swing his building proposition unassisted is a lucky one — and an exception rather than the rule. It is significant, in connection with the financing of a theatre that no one particular plan can be automatically designated as the best. Individual circumstances affecting the project are governing factors in determining which methods may be pursued to greatest advantage. A review and study of the various means of obtaining money for theatre construction should, therefore, prove of interest since such a review enables ready comparison of outstanding features of several plans and their adaptability to the problem at hand. For the financing of smaller theatres H. A. Moore, vice-president of the American Bond and Mortgage Company makes the following suggestions : * * A number who have come to us have made the mistake of starting their theatres, relying on the sale of stock to finance the entire cost. Almost invariably such plans have failed with results very disastrous to both the owner and the people who did purchase stock. An owner should be certain that his financing has been completed before starting his building. I feel it is a great mistake to try to finance it without getting a mortgage for whatever amount is possible, even though it be comparatively small, for it is a certainty that it is easier to raise money on a mortgage no matter what the amount might be, than it would be to sell an equal amount of stock. There are today throughout the country a great many companies who do not purchase outright stock issues, but who have worked up sales organizations which handle the sale of stock. It is my feeling that an owner is likely to be more successful in marketing his stock if he can get such an organization to handle it, than he will be if he tries to sell it through his own sales efforts. We have found that a rather common mistake which has been made is that of offering stock for sale on the installment plan. Unless arrangements can be made with a bank in advance to discount the notes, this plan is wholly unadaptable as it is necessary to have the funds come in faster than they come in under the partial payment plan. * ^ * We have found that in a great many cities theatre owners have been able to get quite a little support from local business men and merchants, who would profit by having a fine new theatre in the town, and I think the possibility of success would be much greater if these men could be lined up before the stock is generally offered to the public. If prominent business men and merchants can be lined up it is very helpful and we have found some propositions where these men have been given a good bonus of common stock to get behind such an enterprise where they have also agreed to act as directors, so that it gives the company standing and the investor feels that he has some very responsible men of the community looking out for his interest. Various methods of theatre financing were recently explained by N. E. Durand of the architectural firm of Frederick C. Foltz & Co. These plans, together with Mr. Durand’s discussion of them are set forth following: It must be remembered that in considering a loan to you your banker or bond house is thinking terms of security and resale with the minimum of resistance. What can you do to make your proposed mortgage or bond issue more attractive? The answer lies in diversification of income. In fact, it is the very keynote of successful theatre financing. Diversification of income means adding to your theatre proper, other sources of rental such as stores, shops, offices, apartments, etc., local demand and conditions to govern which combination is the best. * * ^ In doing this you are placing yourself in a position to say, “Mr. Banker, here is my record, I have made a success even in my present quarters which are inadequate. I am ready to graduate and give this community a theatre which will fill its needs. Not unmindful of the uncertainty of the human element, I have directed my architect to produce a plan so well balanced as to proportion of stores, shops, offices or apartments to the theatre proper that a change of personnel through death or sale would not be disastrous to the security of this loan. For from rentals other than the theatre itself, all interest and prepayments on the loan will be met.” Your banker will see the soundness of a project of this kind and you have put yourself in a strong position in his estimation. Now you may reasonably expect from him a loan of sixty per cent of the reasonable value of the lot which you must own clear. plus the cost of the building plus furnishings. For example, let us assume the following case : Value of land owned clear $ 50,000.00 Cost of building 150,000.00 Cost of furnishings 30,000.00 Cost of mortgage or bond issue items, such as commission, 6 months’ interest in advance during construction, taxes, re cording fees and insurance 24,000.00 Total $254,000.00 Total value $254,000.00 Less land value 50,000.00 $204,000.00 Less mortgage or bond issue based on 60% of total value.... 152,000.00 Total cash to be raised in addition to loan _...$ 52,000.00 The above example will apply to your own problem by simply changing the various figures to fit your case, taking the same proportion. ^ It is not reasonable to expect that your banker or bond house will loan you the entire amount of money necessary to completely finance your building project as this would eliminate the margin of safety that their investors demand. Therefore, you will have to supply the difference between the net proceeds of the first mortgage or first mortgage bond issue and the actual cost of the building and furnishing as shown in the example outlined in box on this page. Now comes the question of how to {Continued on page 14) One of the interesting features of Schoenstadt’s new Piccadilly theatre in Chicago is the playroom for children pictured above. It is ingeniously equipped and decorated to appeal to the juvenile imagination.