CRA Cuts $50 Million Deal With Developer Of Hollywood Project
September 24, 1990
By CHIP JACOBS
The Los Angeles Community Redevelopment Agency will funnel up to $50 million to a private developer who is on the verge of bailing out of a $300 million project viewed as the cornerstone of Hollywood’s economic revitalization, the Business Journal has learned.
Under a deal being negotiated between the CRA and Hollywood Promenade developer Melvin Simon & Associates, the city would take an equity stake in the project or simply give Simon a grant or low-interest loan, according to knowledgeable city sources. The amount of public money will be in the tens of millions of dollars and $50 million was deemed a ballpark figure. It is unclear when the Promenade would get the money or how the CRA would fund it, sources said.
Politically, CRA funding of the Promenade could become a major source of controversy for the agency when the City Council reviews it.
Council members Zev Yaroslavsky and Gloria Molina, both of whom sit on the council’s Community Redevelopment and Housing Committee, have assailed the CRA and its leadership for spending too much money on lavish commercial projects at the expense of affordable housing, homeless shelters and economic development.
Attempts to reach Council members Zev Yaroslavsky and Gloria Molina were unsuccessful. CRA board chairman Jim Wood did not return Business Journal phone calls.
“When the project comes to Community Redevelopment & Housing committee it will get a very thorough review, as every CRA-sponsored project does,” said Gerry Hertzberg, legislative aide to Gloria Molina. “I am sure the committee will want to examine if this money would provide the greatest redevelopment bang for the buck.”
The 1.1-million-square-foot Promenade, slated to wrap around Mann’s Chinese Theatre on Hollywood Boulevard, is directly across the street from the now bankrupt Roosevelt Hotel. First proposed five years ago, the project had a ground-breaking ceremony earlier in the year, but no construction has taken place since then. According to plans, the Promenade will consist of a 350-room hotel, a 400,000-square-foot-office building and 275,000-square-feet of retail space.
“Here is a project that was approved by the city when the economic times and real estate development climate was much stronger,” said one city source, who spoke on the condition of anonymity. “In the intervening years the Promenade did not go forward and we don’t know why.”
The Promenade has been called one of the most critical commercial developments proposed in Hollywood in the last decade. Reportedly, the fate of a 1.7-million-square-foot “urban village” backed by the wealthy Bass family of Texas hangs on the outcome of the Promenade.
To date, however, the Promenade has foundered because of its inability to secure financial backing, commercial tenants or a major hotel operator. Now, with the Southland real estate market slumping and the economy on the brink of recession, Simon may be considering folding up his Hollywood tent without CRA money.
“The Promenade is very, very important to the future of Hollywood, though its renaissance could take a different tact if it didn’t go through,” said Cooke Sunoo, CRA project manager for Hollywood. “It is important to understand, though, that the Promenade will add tremendous vitality to the area.”
Sunoo said negotiations with Simon were “fluid” and could be completed within the next 30 days. Before the funds are approved, the project still requires approval by the CRA’s board of commissioners and the Los Angeles City Council.
If the $50 million in public money was approved, it would represent nearly 19 percent of the CRA’s $267.5 million budget for 1990-91 and half what the agency spent on Convention Center improvements.
Michael Marr, vice president in Simon’s West Los Angeles office, would not comment on the status of the negotiations. “We have been dealing with the agency for a number of years for an owner participation agreement and don’t think it’s appropriate to discuss the state of negotiations,” Marr said.
Robert Tague, CRA chief of operations, emphasized that nothing has been finalized. “There is no deal consummated on this project and no dollars agreed upon,” Tague said.
Originally, Simon agreed to give the city $1 million for social service programs in Hollywood and $9 million in improvements for computerized stop lights and street widening projects. The future of those public improvements, part of the project’s environmental impact reports, may now be up in the air. In addition to the improvements, Simon agreed to anchor the Promenade with two entertainment-oriented museums, the American Cinematheque and the Hollywood Exposition.
Hollywood Chamber of Commerce President Larry Kaplan said the collapse of the Promenade would strike a temporary blow to attempts to restore economic vitality to the once-booming area.
“Psychologically, it would have a negative impact in the short run,” Kaplan said. “In reality, it wouldn’t be as severe.” For the CRA to give Simon a $50 million subsidy, “it would mean a lot of money not going to other redevelopment projects,” he added.
The CRA’s Sunoo noted that there is some commercial activity being undertaken in Hollywood. The company that owns the Guiness Book of World Records is planning a museum on Hollywood Boulevard near its intersection with Highland Avenue, Disney is renovating the El Capitan Theater west of Highland and United Artists is refurbishing the Egyptian Theater, east of Highland. Meanwhile, a three-level, $36 million shopping complex called the Hollywood Galaxy, is being developed near the Promenade by Los Angeles-based Kornwasser & Friedman Commercial Properties.
“In general, there is more optimism in Hollywood, from a real estate point of view, than virtually any other Los Angeles area,” said Robert Waller, a sales consultant with Coldwell Banker’s commercial division. “It’s ready for a major project like Simon’s.”
Still, the CRA’s $922 million plan for revitalizing Hollywood remains tied up in court, the object of community fears that the agency would gentrify the area. The CRA earmarked roughly $10 million to spend in Hollywood this year, using money from its successful Bunker Hill redevelopment project. No tax increment money generated by Hollywood projects can be spent there until an appeal, filed by a community group called Save Hollywood Our Town, is heard in March.
Copyright Los Angeles Business Journal