Silver Lake to Invest $500 Million to Build Soundstages

Private-equity investor Silver Lake is investing $500 million in soundstages, hoping to capitalize on a supply issue that has emerged as studios and streaming services shell out billions of dollars in film and TV production: There isn’t enough space to go around.

The half-billion dollars is going toward the expansion of Shadowbox Studios, a production-facility company with stages in London, the Los Angeles area and Atlanta, where movies such as Walt Disney Co.’s “Jungle Cruise” and Sony Pictures Entertainment’s “Jumanji: The Next Level” were made.

The companies said the investment is helping Shadowbox expand to dozens of soundstages across more than 4 million square feet of leasable space in the cities, which have become production hubs thanks to tax-credit programs that subsidize film and TV work. Silver Lake’s investment in production facilities speaks to the continued dearth of available real estate for producers, a supply-and-demand issue expected to continue for several years despite Wall Street recently cooling on the streaming boom.

Across Hollywood, producers say the need for physical space has emerged as one of the key challenges in competing against rivals. As entertainment companies struggle to attract and retain subscribers for their streaming services, they are making a torrent of movies and TV shows to keep viewers hooked. But as the number of movies and TV shows skyrockets, the supply of soundstages has “simply not kept pace with the demand,” said Shadowbox director Peter Rumbold.

Shadowbox’s deal with Menlo Park, Calif.-based Silver Lake, which is leading a $1.5 billion capital investment, is the latest in a string of private-equity firms eyeing the production-space market.

Over the past several years, investors including Blackstone Group Inc. and Bain Capital Real Estate have also poured billions of dollars into the sector. For Silver Lake, moving into production real estate follows its investment strategy targeting production spending across Hollywood. The firm already has stakes in Endeavor Group Holdings Inc., the entertainment company encompassing the Ultimate Fighting Championship and Hollywood representation business, and Cast & Crew, a payroll company specializing in entertainment productions.

Shadowbox, which previously operated under the name Blackhall Studios, launched with its facility in Atlanta in 2017 before expanding to the U.K.

There, “our first phase was leased before we put a shovel in the ground,” said Mr. Rumbold, who is also head of real estate at Shadowbox’s majority shareholder, Commonwealth Asset Management. The Los Angeles expansion is in the Santa Clarita region north of the city, where a significant number of soundstages are already operational.

Mr. Rumbold said his company projects a total of about $90 billion in production spending from streamers, studios and other companies this calendar year. Companies such as Netflix Inc. have been known to secure yearslong leases to keep a hold on available space.

In recent months, investors have grown more skeptical toward such spending, as Netflix saw its stock price plummet after executives there announced a slowdown in subscribers that analysts expect to continue through the summer. Mr. Rumbold said he doesn’t see the recent turn of events as denting the demand for space.

Shadowbox will finish the Silver Lake-led expansion with a total of 68 soundstages, about half of which will be based in Atlanta.

The city has become known as “Y’allywood” since Georgia’s lucrative tax-incentive program lured productions including “Avengers: Endgame” and “The Walking Dead” to the state. Over the past decade, tax-incentive programs such as those found in Georgia and the U.K. have led to a diaspora of productions to such regions, where developers are now converting existing space or constructing new soundstages.

The need for production space has also stretched to far-flung locales such as Oklahoma and Illinois, and led some developers to consider abandoned malls and office space for conversion into the cavernous stages that most movies and TV shows require.