37 million reasons Theatre Royal will stay dark

SYDNEY’S THEATRE CRISIS
EXCLUSIVE, By Julius Grafton

Australia’s oldest theatrical institution is the star of a political play with major international operators converging on Sydney’s Theatre Royal on April 11 for a briefing. Theatre Royal itself is up for grabs, but the long-term lease on offer may well be a Trojan Horse.

The original 1827 built theatre burned down, the next iteration was on the corner of Rowe street and Pitt street, built in 1875. This was demolished at the time the high-rise MLC Centre was built. A modern theatre was incorporated into the basement of the iconic tower in the late 1970’s.  That 1,100 seat theatre was operated by MLC until three years ago when the MLC Centre changed hands.

Just prior to the NSW State Election in March, the Government was under intense pressure from the Arts community over inaction on theatre venues and the ‘war on festivals’. It announced it had secured a long term lease over the theatre, and would seek an operator to take over and run the theatre ‘at no cost to taxpayers’.

Now the tender for an operator has been released, and it contains a poison pill – any operator will pay Dexus, the owner, $37 million upfront as a construction contribution. The construction is for entry and foyer works to harmonise the theatre with a major redevelopment of the greater centre. The theatre operator will then be required to refurbish and refit the theatre – at their own expense.

Industry estimates put that refit cost at over $10 million, and that is before any increase in capacity is attempted. It is possible to rebuild the dress circle and take the capacity up to 1,450 but the cost of this major work is well north of $20 million.

“I can buy a theatre on Broadway (New York) for $70 million”, one potential operator told me this week. They prefer not to be identified as they think the Government will water down the tender terms. There are ten potential Australian and international theatre operators keen to run the theatre, should the financials stack up.

Dexus have major works planned across the whole seven level retail podium at the MLC Centre, and have produced architect drawings that show the theatre foyer alterations they propose. With the security of a theatre operator paying them $37 million, and presumably meeting reasonable rental, they have everything to gain.

But the question of rental is on the minds of theatre operators who risk black periods between shows. Math says that Dexus could convert the three levels occupied by the theatre, which sits on 2,500 square metres, into 7,500 gross square metres of retail space. With Pitt Street Mall rentals at sky high levels of around $14,000 per square metre, it is reasonable to estimate the retail rental value of the theatre space is around $25 million a year – at just half the price of Pitt Street nearby.

With mind-bending economics, it is clear that a theatre will not continue at the MLC centre, unless either the NSW Government or Dexus underwrite one. While the intentions of Dexus are unknown one could presume they seek maximum return for their shareholders. As to the NSW Government, it argues in the Expression of Interest document attached to the theatre lease tender that lack of suitable theatres has lost Sydney major musicals, and that a new theatre would generate over $37 million in visitor spend each year.

There’s that magic number again. If only the Government could find an operator prepared to pay Dexus $37 million, then invest another $30+ million, then satisfy Dexus’s lease, after all of that, the state will be $37 million better off. Two slabs of $37 million. What coincidence is that?

Meanwhile 30kms west at Rooty Hills, the Western Sydney Performing Arts Centre is set to open this December.  On Tuesday 9 April, Sydney Morning Herald reported it will be named ‘Coliseum Theatre’. It  will have 2,000 seats and world class staging suitable for virtually any West End or Broadway musical. The green field lyric theatre is costing $72 million, funded by Rooty Hill RSL Club, without a single taxpayer dollar from the Government.

Against this background, it is very possible that the Theatre Royal will become history. The pre-election announcement pales against the post-election investment proposition in the Government Tender. The whole exercise gives Dexus certainty – they either get the $37 million plus serious weekly rental, or they get to gut the space and win retail rent. The lease proposal is a Trojan Horse, containing $37 million dollars.

The NSW Government can then walk away with clean hands, saying that no commercially viable offer was received. Sydney will remain woefully under equipped with just two large lyric theatres in the city, (and the Coliseum Theatre 30kms out) compared with four in Melbourne.

• Previously we stated the original 1827 theatre was demolished to make way for the MCL Centre. This was incorrect. 

And published in CX Magazine – May 2019

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