By ELIZABETH HAYES
Staff Reporter
More than a week has gone by since DreamWorks SKG decided to pull out of Playa Vista, and everybody seems to be in the mood to reassess things developers, elected officials and the three amigos themselves.
No one, however, seems prepared to say what DreamWorks will end up doing or who might end up taking the fledgling studio’s place at Playa Vista.
Among the developments:
? Los Angeles city officials, desperate to salvage a DreamWorks deal, unleashed a flurry of calls to see what could be done to convince DreamWorks to build its 21st century studio in North Hollywood. Because North Hollywood is within the city of L.A., tax credits that had been promised to DreamWorks in the Playa Vista deal would conceivably be transferable to the new site. But DreamWorks officials turned up their noses at the idea, saying they do not plan to undertake any major expansion or consolidation in the near term.
? Playa Vista’s developers, Playa Capital LLC and MaguirePartners, scrambling to save face and regain momentum, said they already are in talks with other major Hollywood studios interested in possibly leasing the proposed sound stages. The developers also said they are negotiating with commercial tenants for nearly half a million square feet of office space at Playa Vista, and that they plan to aggressively lobby to retain the $35 million of tax incentives promised to DreamWorks, as soon as they secure one or more major tenants.
? Officials in Burbank, North Hollywood and Glendale scurried to capitalize on DreamWorks’ decision to remain in the East San Fernando Valley and possibly expand there. Burbank, where DreamWorks currently has no presence, fired off two letters inviting the company to consider building office space in that city. “We’re clearly going to talk to them about locating in Burbank,” said City Manager Bud Ovrom. “We have some premiere locations in the middle of all the (entertainment) activity.”
? DreamWorks’ pull-out from Playa Vista immediately threw cold water on a major portion of the long-sizzling Westside commercial real estate market. One small office building in the vicinity of Jefferson Boulevard and Centinela Avenue fell out of escrow the day the DreamWorks announcement was made, apparently because the lender got the jitters, according to real estate sources. And brokers said speculative development that had been envisioned for the area is now going to be shelved indefinitely.
“Nobody wants to buy property and sit on it for many years, waiting. Everyone’s standing on the sidelines,” said broker Jerry Porter, president of Cresa Partners. “It’s a setback.”
Not everyone is lucky enough to be on the sidelines. Some more-aggressive speculators, anticipating that DreamWorks would finally settle at Playa Vista, had already jumped in, among them multi-family developers who anticipated plenty of housing demand from highly paid entertainment-industry workers and their families.
“Up and down Lincoln Boulevard and into Fox Hills, there’s been a lot of investment activity and development of high-rise condos,” said broker Bill Goodglick, president of the Goodglick Co. “A lot of the rationale behind that is the Playa Vista development. Without that catalyst (DreamWorks), it will be slower moving.”
Said John Wilkinson, a broker in the Marina del Rey area with Westmac Commercial Brokerage Co.: “We have a huge number of multifamily units coming on line and it’s a lot (for the market to absorb) if we don’t see a major employer coming into the area.”
Yet Wilkinson, like many of those who rely on the area’s real estate market for their livelihoods, said there might be a silver lining to consider: namely, that DreamWorks had overheated the market.
“It will slow rent increases along Jefferson Boulevard,” he said. “(Owners) wanted a premium because of DreamWorks.”
Over the past five years, land prices around Playa Vista have risen in preparation for the movie studio from $18-$20 per square foot in 1994 to the current $40 per square foot, “a steep rise in a short period of time,” Goodglick conceded. Class-A office rents have risen from $1.40-$1.65 per square foot two years ago to about $2-$2.70 today.
But it’s unlikely that values will rise further without a new major tenant at Playa Vista.
At present, the Marina del Rey-Culver City office submarket, where Playa Vista is situated, has become one of the tightest in L.A. County. Its vacancy rate had fallen to 10.8 percent as of the end of the second quarter, down from 11.2 percent in the first quarter, according to Cushman & Wakefield Inc. That makes it far tighter than the L.A. County office market, with a second-quarter vacancy rate of 14.6 percent, and even slightly tighter than the overall Westside market, with 11.5 percent vacancy.
Those conditions would make Playa Vista’s future outlook seem bullish. But with DreamWorks now staying put in the Valley and several competing Westside projects already under construction, Westside vacancies are projected to rise substantially in the months ahead.
Chief among the new projects are Howard Hughes Center near Westchester, where a major expansion is underway, and a slew of Santa Monica projects Water Garden Phase II; Arboretum Courtyard, the Lantana Center expansion, and Westside Media Center, to name a few.
“This will be a windfall for neighboring projects. They’re going to use this (DreamWorks’ pull-out) to their advantage and say, ‘Look at how fast we’re up and running,’ ” said David Thurman, a partner with Concorde Real Estate Partners. “A lot of smaller groups, or bigger ones, that had Howard Hughes as their backup, now will make it their No. 1 choice. For a lot of these groups to go to a 1,000-acre development (Playa Vista), they’re kind of getting lost. And do they want to be the first? DreamWorks gave them some comfort.”
Playa Vista developers Playa Capital and MaguirePartners bristle at such comments.
“Our enthusiasm and commitment to the development has never been stronger,” insisted Drew Planting, partner in charge of leasing for MaguirePartners. “MaguirePartners has every intention of making Playa Vista the go-to location of the Westside.”
Planting, who expects 250,000 to 300,000 square feet of office space to be completed by mid-2001, says negotiations are underway with financial services and entertainment companies for 450,000 square feet.
Other studios have also expressed interest in plans for six to eight sound stages and state-of-the-art production facilities at Playa Vista, said Michael Steed, senior vice president of investments for the Union Labor Life Insurance Co., an equity partner in Playa Capital.
“We’re talking to a couple (studios),” he said. “Playa Vista is going to go forward with a major partner to build sound stages and production facilities.”
He declined to identify the studios. Such a deal may be particularly challenging considering several other sound-stage projects are further along, and Hollywood studios have been cutting back on local production activities for months.
Elsewhere on the Playa Vista site, excavation work is underway for underground garages for the first phase of residential development, designed to include 3,246 housing units and slated for completion in January 2001.
Playa Vista spokesman David Herbst said the developers have a list of 3,600 people who are interested in the housing and “all we’ve done is put a few signs up around the property.”
So far, three housing pads have been sold to residential developers, but the names won’t be disclosed until all the builders up to nine in all are selected this fall.
Infrastructure work is also proceeding apace, including installation of water and sewer pipes and cutting roads. Developers are paying for that, along with creating a Mello-Roos district that is in the process of being approved. Under the district, property owners would be assessed to pay for improvements to the community.
DreamWorks’ departure has cost the development $35 million in tax credits for job creation. Herbst said the developers hope to make another case for those credits once they secure another tenant.
Steve Solomon, a broker with the Seeley Co., said it’s important for Playa Vista to move ahead with the infrastructure without delay.
“No one’s going to go to that site until that stuff is done,” he said. “You need to have at least one building in the 200,000-square-foot range. It needs to be creative,” with big floor plates and lots of natural light, he said.
Meanwhile, commercial landlords in the East San Fernando Valley, where DreamWorks will remain, can breathe a sigh of relief, at least for the time being.
“Everyone felt when DreamWorks came, it would be a stampede to the Westside. You won’t have that now. It will be a slower trickle,” Thurman said.
Initially, North Hollywood property owners and redevelopment officials were enthused by DreamWorks’ decision not to go to Playa Vista. Some officials immediately concluded that DreamWorks instead might be interested in anchoring the $400 million studio and office complex being developed in North Hollywood by J. Allen Radford.
“The level of excitement around here has been intense,” said Walter Beaumont, a North Hollywood project manager for the L.A. Community Redevelopment Agency, who fielded calls from Mayor Richard Riordan’s and City Council President John Ferraro’s office immediately after DreamWorks’ Playa Vista announcement.
But DreamWorks spokesman Andy Spahn said that the studio has sidelined plans to build its own sound stages, at least for the next few years. The company will consider eventually expanding at Universal Studios, and may expand its Glendale animation campus, as well as its Beverly Hills music facility, he said.
The prospect of the company moving to North Hollywood any time soon is “unlikely,” he added. “There have been additional sound stages built (in greater Los Angeles) since we began the Playa Vista project,” Spahn said. “As all the traditional studios do, we can rent space.”
Staff reporter Chris Woodard contributed to this report.
