Is the centerpiece of Tinseltown's revitalization hitting the wall?
The huge Hollywood & Highland project, which TrizecHahn Corp. has said it will sell upon its completion next year, is nearly $300 million over budget and is having trouble signing up tenants, according to several sources familiar with the project. TrizecHahn officials did not return calls to discuss the status of Hollywood & Highland, though a spokesman for the company said information would be available soon. Meanwhile, real estate brokers, developers and construction contractors with knowledge of the Hollywood & Highland problems said that TrizecHahn has gotten in so far over its head that it is offering "sweetheart" lease deals that include 100-percent construction loans for tenant improvements. The developer has said that it decided to sell the project, along with its other retail-oriented projects Paseo Colorado in Pasadena and Desert Passage in Las Vegas, so that it can focus on its office and technology center properties. "I think the challenge becomes, how does an organization that far over budget get a return on investment or create any value with such a bogey?" said one prominent out-of-town developer who monitors Hollywood & Highland and was in Los Angeles for a recent Urban Land Institute event. The developer asked that his name not be used. When TrizecHahn introduced the Hollywood & Highland project in 1998, the price tag for the 645,000-square-foot development was $385 million. Since then, sources said, changes in approach and construction timetables to meet the planned November 2001 opening date have consistently pushed costs higher. One local developer said the final sticker price would be close to $650 million. Developers, designers, contractors, brokers and other interested observers said TrizecHahn is incurring accelerated construction costs so that it can make the November opening date. Kip Rudd, a planner with the Los Angeles Community Redevelopment Agency who works on the project, said he is aware that crews last year worked double shifts for a period to build the subterranean parking structure, but he believes that the work schedule has settled down since then. Rudd said there still are a lot of people at the site, though as many as 800 at a time. If the reported cost overruns on the retail center aren't bad enough, TrizecHahn has been approaching prospective tenants with bargain deals that include complete financing of tenant improvements. National retailers are clearly concerned about the cooling economy, and that is causing many of them to rethink their expansion plans. The out-of-town developer said that long-term leases at the project are being negotiated with "kick-out clauses" that allow the tenant to leave after a given number of years if sales projections are not being met. "They've had such a difficult time with leasing here that it's become a completely incentive-driven process," the developer said. Jorge Sosa, a New York restaurateur who operates Sosa Borella in Manhattan, said leasing agents for Hollywood & Highland approached him last summer. They were really offering a good deal, big money for construction," Sosa said. "I went there and couldn't decide." John Tronson, a principal at Ramsey-Shilling Commercial Real Estate Services Inc. who has been negotiating a lease for a still-unsigned tenant at the project, said he differs with those who say the project's costs are spiraling out of control. "To single out Hollywood & Highland as being unsuccessful, or something they go into over their head, is inaccurate," said Tronson, who is taking over as chairman of the Hollywood Chamber of Commerce. Tronson acknowledged, however, that TrizecHahn missed its original dream of filling the project with studio retail stores and other Tinseltown tenants. The studio store concept fell out of favor with consumers last year after a brief success. The Walt Disney Co. is the remaining player in that market, and is nevertheless in the midst of making over its stores to meet shifting consumer tastes. "The original vision of the project as being this 100-percent entertainment-oriented, vertical retail they didn't hit it on the nose," Tronson said. "The reality is the studios don't want anything to do with retail. (TrizecHahn has) had to change the tenant mix to a more traditional tenant mix." According to the TrizecHahn Web site, those retailers include Aveda, Banana Republic, The Gap, Louis Vuitton, Tommy Hilfiger and Victoria's Secret. That change in tenant mix, coupled with the ballroom and Kodak Theatre features, have contributed to the difficult leasing program, one developer said. "I think the project has had a confusing positioning to the retail market," he said. "People are confused about what (the project) is."
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