Krikorian: Instability of funding sources during pandemic makes theater construction 'a risk', creates more delays

Crews were assembling the foam blocks that hold concrete walls when work on the theater project stopped in April. Photo courtesy of Krikorian Premiere Theatres

By Doug Spoon, Editor

Menifee residents might never know or understand all the reasons it took so long to begin construction on the Krikorian Theater project in Menifee Town Center. It’s a mystery wrapped up in funding issues, building permits, and environmental studies.

One thing seems clear, however. The current delay is all about two things: COVID-19 and its resulting impact on finances.

In an interview with Menifee 24/7, owner George Krikorian of Krikorian Premier Theatres described a process in which large construction projects in the early stages rely on phased funding sources to move toward completion. The uncertain length of the COVID-19 pandemic and subsequent shutdown of movie production has made lenders reluctant to issue additional loans because there is no guarantee when the theater will be able to generate the revenue needed to pay off the loans.

This is Krikorian’s response to those who say he should complete the project as soon as possible, so it’s ready when theaters are allowed to operate again. It’s not that simple, he says. Lenders do not provide all the funding up front. They want to make sure they get a return on their investment in a timely manner.

And as we all know during the COVID-19 pandemic, nothing is a sure thing.

“You have significant money invested and you’re getting no return on your money,” Krikorian said about the theater project, which broke ground in December but halted construction in April. “And you’re not going to get any support from lenders as the project comes to completion if you can’t operate.

“Theaters are closed and have been since March. If you have a theater that was operating in March, you’ve just spent the last five months with zero revenue coming in. How many businesses can afford to go five months with no revenue? You’ve got payments, all the things you have to pay for.

“You have loans and obligations with no revenue. Unfortunately, a lot of businesses aren’t going to re-open because they can’t sustain months with negative losses. Why should we take that risk?”

Krikorian insisted the project is just delayed and that he is not pulling out. But giving an updated timetable on completing the project is difficult. In an interview with Menifee 24/7 in late April, Krikorian estimated the opening would be delayed until summer 2021. Now he’s estimating it will be fall of 2021.

“I’m not a scientist or doctor, so I can’t tell you when COVID will go away,” he said. “I certainly have an expectation that it goes away soon and they can find a vaccine. But I don’t know when it’s going to happen any more than you do, so why should we be taking risks here?”

Krikorian would not discuss the amount of funding that is still needed for the project.

“I don’t think it’s necessary to get into whatever financial things we’re dealing with,” he said. “The theater was going full blast. Then COVID-19 comes along, and we have no control over that. We’re just trying to use common sense. When the green light comes on and this is not a problem anymore, we’ll move forward with it.”

This type of cautious approach by commercial lending has been noted nationwide during the COVID-19 pandemic. Eric Corrigan is managing editor for Commerce Street Capital, a financial group based in Dallas. He addressed the issue on the S&P Global Market Intelligence website in a June 15 article titled, “Bankers showing ‘tough love’ in commercial lending amid COVID-19 uncertainty.”

“The loan itself was never a bad loan, but it did depend on those businesses being around, whether it was a restaurant or dry cleaning, whatever it was," Corrigan said, speaking in general terms about commercial lending.

"We don't know the ultimate borrower behavior coming out of this. It's something you can't model. It's never happened before. So people are going to make adjustments, whether that's in the amount of loan-to-value that they'll lend against or the amount of cash flow that's required or guarantees or pandemic insurance clauses. ... It's going to change all of those things."

It's likely that a study about the economic effects of COVID-19 on commercial lending does not satisfy Menifee residents who wondered why it took so long to begin construction in the first place. But through it all, Krikorian says he wants to convince the people of Menifee that he is committed to this project, regardless of how long it takes.

“We understand the community wants to have the theater. So do we,” he said. “But what has occurred is not something we have any control over. Like everyone else, we’re just trying to deal with it.”

The white “walls” that are standing as part of the theater project are actually foam blocks that are interlocked like Legos and eventually filled with concrete. It is a relatively new method of construction. The wood framing along Newport Road is for other retail space for which Krikorian is seeking tenants. He has not announced any tenants committed to those spaces.

The Sprouts Market and Olive Garden restaurant will be located on an adjacent parcel not owned by Krikorian.