Lights, Camera, Real Estate: Preparing For Film Facility M&A

Co-Chair of Olshan’s Real Estate Law practice Thomas Kearns and Corporate partner Kenneth Silverman authored an article in Law360 entitled “Lights, Camera, Real Estate: Preparing For Film Facility M&A.” In the article, Tom and Ken discuss the unique aspects of buying and selling film and TV production facilities. They write that while the financing of movie and TV studios may follow a traditional real estate development track, typically secured by a mortgage on the real property, there are some key differences in the sale or acquisition of a production facility. While typical commercial property sales are accomplished as asset sales, operating businesses such as studios are often structured as mergers. “Mergers do bring some complications,” they write. “For example, all liabilities of the existing business bind the buyer. A merger agreement can, however, provide extensive representations about the operations of the business, its financial conditions and statements and known or potential liabilities.” Obtaining representation and warranty insurance (RWI) “can significantly reduce friction between the buyer and the seller….” Production facility transactions often require due diligence regarding local economic development and tax credit regulations because municipalities generally treat film production facilities as local generators of wages and other income resulting in a net gain over the cost of the economic development program or tax credits. “Since a buyer will typically want to acquire all aspects of the business that takes place at the production facility, each separate property parcel and segment of the operating business and its ownership needs to be reviewed by all parties and an allocation of values must be done for several reasons,” Tom and Ken explain. “A property development idea gestated by a real estate investor may, over time, transition…into a full-fledged operating business with an exit strategy that has more in common with typical non-real estate operating companies than the usual real estate asset sale.”