Speculation Focuses on Hollywood & Highland Sale

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Speculation Focuses on Hollywood & Highland Sale

By DANNY KING

Staff Reporter

TrizecHahn Corp.’s announcement that it was taking a $217 million write-down on its Hollywood & Highland project has some real estate experts suspecting that the developer might want to unload the property sooner than planned.

Toronto-based TrizecHahn announced last year that it would dispose of its “non-core” retail properties, including Hollywood & Highland, though it gave a timetable of up to four years for those sales to be completed.

TrizecHahn spokesman Rick Matthews said it would be two years before the company would consider marketing Hollywood & Highland or until the center’s stores were up and running and the company had the opportunity to fully assess the operation.

But real estate investment sources, pointing to the resources necessary to managing a major non-core asset, said the company could shop the project far sooner than the two-year time frame.

“They’re prepping it for sale,” said one source, who added that “the market’s awash in capital, and the best time to sell retail is when the mall is brand new.”

David Shulman, a senior REIT analyst at Lehman Brothers, said, “This will probably accelerate the sale. I assume it’s something they’d like to do in 2002.”

In TrizecHahn’s end-of-the-year financial statements for 2000, the cost attributed to Hollywood & Highland, including the hotel, was estimated at $540 million. Since then, additional construction costs to get the project open on time upped the tab, and ultimately its pre-write-down book value, to $615 million.

Most agreed that an accurate valuation for the 645,000-square-foot retail, entertainment and hotel would be impossible to determine until more information is available about its retail and restaurant leases.

Still, a few institutional investors and real estate investment trusts, as well as the odd foreign investor looking for a trophy property, were mentioned in real estate investment circles as possible buyers. Among them:

– Simon Property Group Inc.: The Indianapolis-based REIT owns and operates 187 million square feet in 252 regional malls and shopping centers nationwide. Local properties include the 1.6 million square-foot Ontario Mills and the 1.3 million square-foot Brea Mall.

– Westfield America Inc.: Last week, the Brentwood-based subsidiary of Australia’s Westfield America Trust purchased, along with Simon Property and Columbia, Md.-based Rouse Co., the holdings of Rodamco North America for $5.3 billion.

– Madison Marquette Realty Services: The Westwood-based company has developed 400,000 square feet of retail space in Westwood Village, as well as the 552,000-square-foot Manhattan Village in Manhattan Beach. The company also manages 20 million square feet of retail space nationwide.

A number of sources pointed to Westfield and Simon Properties as REITs that have the resources to purchase Hollywood & Highland and which have been aggressively expanding their holdings. As for local private companies, Madison Marquette’s local retail presence makes it a leading candidate, according to Bill Bauman, senior vice president at Colliers Seeley International Inc.

Simon Property Group and Madison Marquette executives declined to comment on the possibility of purchasing the center. Executives at Westfield American did not return calls.

But Christopher Bonbright, chief executive at Ramsey-Shilling Co., downplayed the chances of an institutional investor or public REIT acquiring the property, at least until the center has had a pattern of earnings from the property can be measured.

“Institutional investors look for fairly predictable cash flows,” said Bonbright. “The right investor would be looking at it as more of a trophy as opposed to a nuts and bolts investment.”

The project’s mixed-use nature also makes identifying a buyer more difficult.

“If I owned a trophy office building, I could name five buyers,” said Steve Sakwa, First Vice President of Merrill Lynch & Co. “I don’t think (Hollywood & Highland) fits the traditional public company.”

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