IT'S SHOWTIME FOR CIM GROUP
May 1, 2004 12:00 PM, Morris Newman
Culminating a story of disappointed hopes and financial hemorrhaging, CIM Group of Los Angeles in February paid $201 million to acquire the troubled Hollywood & Highland, the 640,000-square-foot retail complex that's home to the Academy Awards.
The project contains the 640-room Renaissance Hollywood Hotel, the Kodak Theatre (site of the Academy Awards) and Wolfgang Puck's Grand Ballroom and a Babylon-themed retail center. The retail portion is currently only 70 percent occupied.
Developer TrizecHahn — now Trizec Properties, a Chicago-based REIT — spent nearly $615 million to complete the massive project in 2001. The original budget was about $430 million.
Bombs Away
Located on arguably the most visible corner in Hollywood, the project was a linchpin of Hollywood redevelopment, lending credibility to the formerly squalid district. Despite a lineup of national credit tenants, the center bombed. Critics said was unattractive and offered little that was characteristically Hollywood. Others claimed the lineup of high-end retailers may be incompatible with the “impulse” preferences of tourists.
The developer helped further devalue its former asset, if unintentionally, by announcing in 1999 that it was going to sell its three entertainment-retail projects — including the Desert Passage in Las Vegas and the Paseo Colorado in Pasadena — while Hollywood & Highland was still under construction.
The stated reason was Trizec's desire to focus office construction and management. The sale of the retail properties was perceived as a lack of commitment on the developer's part. And the extraordinary charges that Trizec took on Hollywood & Highland, totaling about $400 million, conveyed a sense of a project out of control.
So, did CIM Group buy a white elephant? Retail broker Steven Tronson of Los Angeles-based Ramsey-Schilling thinks definitely not. “At $200 million, it's a steal,” he says, pointing out that the center commands leasing rates of about $60 per square foot. Rents drop to about $48 per square foot two or three blocks east of Hollywood & Highland, and go as low as $12 per square foot a few miles further east.
The center is due for some rethinking, according to CIM Group vice president of acquisitions John Given, who says he is interested in making Hollywood & Highland more attractive to the young “creative” crowd who live, work and seek entertainment in the historic filmland district.
While Given says his ideas were preliminary, he wants to emphasize night life and introduce high-quality restaurants in the center. The Kodak Theater, which is usually empty except on Oscar night, could become a venue for long-running Broadway shows, and help generate additional nightlife. In general, Given says, “our first focus will be on the leasing, and any design changes will come later.”
