Reality Checks In

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Developer Avi Brosh had big plans for L.A.’s hospitality market during the real estate boom – a twist on long-stay hotels that would make them as hip as the stylish entertainment clientele that frequents them.

A major part of those plans was Palihouse Vine, a boutique hotel he broke ground on in 2006. But four years later, the building, painted an eye-catching brick red, sits unfinished and unused, its garage blocked by a chain-link fence.

The state of the five-story building near the famous corner of Hollywood and Vine says a lot about the shape of Brosh’s business.

The recession has been tough on the 44-year-old developer, who made his mark with the Palihouse Holloway, a West Hollywood inn that opened in January 2008 and boasts a bohemian décor and a popular brasserie, called the Hall. The project was the first in what was supposed to become a brand for his Santa Monica company, by Palisades. Not only are those plans on hold but the developer has lost a separate Westchester hotel property – and could lose Palihouse Vine now that his lender has sold the note on the property.

“2009 was a tough year. We were not immune to all the things that were going on,” said Brosh, who dresses impeccably in fashionable clothes and trademark black-frame glasses. “It’s been very difficult, probably the biggest challenge of my professional career.”

But Brosh, who cut his teeth building luxury houses before venturing into the hospitality business, is nothing if not an optimist. Though he’s had to lay off staff, he noted that business remains strong at the Palihouse Holloway, and in March he was able to auction off all remaining units at Ostrich Farm Lofts, a South Pasadena condo project.

What’s more, Brosh is hopeful that he will retain a role at the 57-unit Palihouse Vine project, perhaps just as an operator. He’s also thinking about opening or managing restaurants. And he believes his fee-based business – in which he is paid to handle the planning, design, construction, management and sales for a property – could become the new bread and butter for Palisades.

Palisades’ fee work has included the Lofts at Hollywood & Vine condos.

“A lot of people get out over their skis when they have that much talent at that age,” said John Tronson, a longtime Hollywood commercial real estate broker. “Can he come back from it? Absolutely. Guys like him, if they lose a fortune, they make two more over again.”

Losing properties

Palihouse Vine was supposed to open in spring 2009 and it was anticipated by the Hollywood community, given its rare product type and proximity to the famous corner, which is undergoing transformation. It is virtually across the street from the Capitol Records Building and next live music venue Avalon Hollywood.

In the last few years, both the Broadway Hollywood and Lofts at Hollywood & Vine condo projects have opened. And the nearby W Hollywood Hotel & Residences will open this year.

Palihouse Vine was viewed as a key part of the renaissance, said Hollywood Chamber of Commerce President Leron Gubler, who said his organization has gotten calls inquiring about the status of the development.

“Obviously it’s an important project. It’s an important corner,” said Gubler, who noted that there are scant long-stay options in Hollywood. “It’s definitely in the community’s best interest to see that project succeed.”

Tronson believes that the 142,000-square-foot project was dogged by problems that have wrecked numerous developments during the downturn: construction delays, escalating costs and tight-fisted lenders.

“Developers usually aren’t sitting on a ton of cash where they can spend another $2 million out of their own bank account,” said Tronson, a principal at Ramsey-Shilling Commercial Real Estate Services Inc. “That’s why construction stops and there are very few solutions; there is nowhere to go for alternative debt.”

There’s also the fact that Palihouse Vine targeted creative types who stay in Los Angeles while working on entertainment industry projects. But the concept was conceived during an economic boom when easy money was flowing.

Now, in a stark turnaround, Hollywood studios have sharply cut back on expenses, while the music industry grapples with lower revenues due to the explosion of digital downloads.

Similar to Brosh’s West Hollywood hotel, the Hollywood project was expected to have rooms that start at $250 per night for longer stays and top out at roughly $1,000 for a one-night stay in a fancy suite. Compare that with long-stay competitor Oakwood Worldwide, which has a nearby Barham Boulevard complex that charges as little as $135 a night for extended stays.

Brosh wouldn’t elaborate on how the development got off course, except to say: “The project fell into the same quandary that a lot of other projects close to completion fell into in just trying to get them done.”

But that’s not to say that Brosh is completely out of the game with his Hollywood project.

Pasadena lender East West Bank, which sources said filed a notice of default on a $27 million project loan, recently sold that note, according to a bank spokeswoman.

While it’s unclear who bought the note and what might happen to Palihouse Vine – the new holder of the note could try to shop it, sources said – Brosh is not discounting the possibility that he might be able to finish it. He also could be hired to operate it as a hotel. Sources said a new owner could also decide to operate the project as condominiums or apartments.

“It is still a work in progress. It’s something we’d like to be involved in, but it is not a done deal by any means,” he said, adding that “if everything goes smoothly,” construction could begin again in the next two months. “You never know what lies ahead in terms of bumps in the road.”

Tronson said it wouldn’t be all that surprising if Brosh was signed on to manage the hotel.

“I think a lot of smart people would like to acquire it at a lower basis and have Avi operate it as a manager,” he said.

Unlike Palihouse Vine, however, the book is firmly closed on Brosh’s ownership of Custom Hotel, which he opened in 2007. The hotel at 8639 Lincoln Blvd. was formerly the Furama Hotel, a staid business hotel designed by Welton Beckett, one of L.A.’s leading mid-20th century architects. Brosh made it over, painting the exterior black, and outfitting the hotel with a private lounge and themed floors. The 250-room hotel, not a long-stay operation, also included two restaurants developed and operated by Palisades.

According to Brosh, the property changed hands Nov. 1. It is now operated on behalf of Marathon Bank by Prism Hotels & Resorts, which has a business line that focuses on running properties for lenders. Prism did not return calls seeking comment. Marathon could not be reached for comment.

Brosh wouldn’t say what specific financial factors led to his loss of the property, but laid a good share of blame on the economy.

“It wasn’t like we did anything wrong; we got caught up in the economic climate and the hotel market,” he said.

Moving forward

Despite losing the property, Brosh said that running Custom Hotel’s sit-down eatery, Bistrotek, and its pool bar, Hopscotch, turned him on to the restaurant business. The company also operates the Hall, which has gotten good reviews and is often crowded with the hip West Hollywood set.

Brosh said he is considering opening more of his own restaurants, or in partnership with others. He also may just manage them.

“We are actively involved in doing some food and beverage venues because we had a lot of success at Custom and Palihouse Holloway. I’m really close to being able to do that,” said Brosh, though he declined to share details.

Palisades’ fee development business, in which it has no equity stake but acts as developer, is another unexpected turn.

The company has completed two projects on behalf of private real estate investor Paladin Realty Partners LLC of Westwood. There’s the 65-unit Lofts at Hollywood & Vine adaptive reuse project, and a 76-unit condo project in San Francisco that opened late last year called Union. Paladin Realty said 37 of the units have been sold at the Hollywood building, which opened in 2007, and 31 units are either closed or under contract at Union.

“I can’t say enough good things about their execution and development plan,” Jay Hartman, managing director at Paladin, said of Brosh’s operation.

Brosh said that the fee development business wasn’t a reaction to the recession. Instead, he struck the deals with Paladin about four years ago, calling it “fortuitous in hindsight.”

With the uncertainty surrounding the future of Palihouse Vine, the fee development and restaurant businesses appear to be more stable, albeit less glamorous, work for Brosh. But, he’s OK with that.

“An opportunity is an opportunity,” he said. “It wasn’t necessarily what we saw ourselves doing but you have to adapt. We have that skill set so we might as well put it to work.”

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