When the Pacific Bank building on Hollywood Boulevard was listed for sale earlier this month, broker Mark Tarczynski thought the owners were a bit optimistic with the $17 million asking price.
But within days, prominent developers and homebuilders were submitting even higher offers.
"I couldn't believe it," said Tarczynski, a first vice president at CB Richard Ellis Inc., who assisted colleague Ed Rosenthal in putting together the listing. "I was literally stunned. It just shows you how much things have changed."
Welcome to a new Hollywood, where developers from around the nation are clamoring to build mixed-use projects and luxury condominiums. Though the community still has its challenges, the malaise of crime and dilapidation that plagued the area for decades is long gone.
Since bottoming out in the early-1990s, when lenders wouldn't finance new projects, the community has turned a corner and today it's attracting close to $1 billion in new development.
The change becomes even more apparent after a closer examination of who is doing the investing.
Up until now the massive, high-profile projects such as Hollywood & Highland and the $325 million W hotel development planned for Hollywood Boulevard and Vine Street have been orchestrated by the Community Redevelopment Agency and subsidized with public money.
That's no longer the case. Just last month, the Nederlander family signed a deal with Clarett Hollywood LLC, a partnership of New York-based developer Clarett Group and Prudential Real Estate Investors, which is planning a $300 million mixed-use project straddling a block of Hollywood Boulevard between Argyle Avenue and Gower Street. The development will include housing, retail and restaurants stretching eastward from the Pantages Theatre.
"I don't think five years ago you could have done a project of this scale on Hollywood Boulevard," said Daniel Hollander, a managing director with Clarett Group. "Everyone seems fairly excited that private development of this magnitude now seems to be possible."
While the project is still being fleshed out, Clarett a developer of large Manhattan condominium towers is envisioning more than 1,000 residential units, including as many as 300 condos and 200,000 square feet of shops and restaurants at the nearly seven-acre site.
"This is exciting because it's purely market-driven," said Helmi Hisserich, deputy administrator for the CRA's Hollywood region. "It would be one of the biggest transactions in Hollywood's history."
Long on potential
There have always been people interested in rebuilding Hollywood. In the late 1980s, mall magnate Mel Simon proposed a nearly $1 billion complex on the northwest corner of Hollywood and Highland.
But Simon backed away from those plans when the 1992 recession knocked the wind out of retailers and hotels.
There were also the problems of escalating crime and the effects of subway construction. Rents bottomed out and vacancy rates ballooned; the 1994 Northridge earthquake only amplified business flight.
Local businessmen created the Bank of Hollywood in those years to serve merchants whose regular banks had moved away. "Everybody was leaving," said Grant Parking Inc. owner Steve Ullman, whose father was one of the bank's founders. "There wasn't a bank on Hollywood Boulevard."
Still, the idea of a massive entertainment and shopping venue at the corner lived on, finally becoming reality when the Los Angeles City Council struck a deal with Canadian developer TrizecHahn, now Trizec Properties Inc., to build the Hollywood & Highland shopping and entertainment complex.
Backed with city money, the project was intended to remake the struggling intersection into L.A.'s own version of New York's Times Square. Driving home the impression, Trizec hired David Malmuth an architect of the Times Square renewal to head up the development.
While the massive $615 million project drew the national spotlight and the Academy Awards back to Hollywood, it was a financial disaster for Trizec. Two years ago, it sold the complex for $201 million to CIM Group, which is now trying to reposition the center.
Smaller private investments have had a greater effect on forging a turnaround.
Predating TrizecHahn, CUNA Mutual Group spent $20 million rebuilding the El Capitan Theatre. It also convinced Walt Disney Co. to fix up its movie theater in the building and open a retail store one of the first national retailers to open on the boulevard for nearly 50 years.
Property owners formed a business improvement district in 1995 that raised $2 million to pay for street cleaning and armed security guards most former or off-duty Los Angeles police officers to patrol Hollywood Boulevard.
"We've definitely benefited from (the security guards)," said Ed Collins, the Disney manager of the El Capitan, who's been at the theater since 1989. "The mom who comes to Hollywood the first time and whose purse was stolen isn't coming back."
Private dollars flow
As the area began to stabilize, more investors were attracted. CIM, which cut its teeth on the Third Street Promenade in Santa Monica, bought one of the boulevard's largest office buildings at 6922 Hollywood Blvd. and moved its headquarters to the site.
"When we bought 6922 there were hookers in front of the building," recalled Shaul Kuba, a CIM Group principal. "But that's what we do. We buy buildings in areas where we think we can make the greatest difference."
CIM removed the souvenir shop on the ground floor of the building, which is across from Mann's Chinese Theater, and remodeled the space into locations for several restaurants and a retailer. The firm also convinced Gemstar-TV Guide International Inc. to take a large chunk of vacant space and then later move its entire headquarters from Pasadena.
Encouraged by the building's success, CIM bought the Hollywood Galaxy retail complex and a 65,000-square-foot former Cadillac showroom at Hollywood and Orange. The company also bought nearly an entire block of Hollywood Boulevard storefronts between Cherokee and Whitley avenues and a fire-damaged 19-story high rise at Sunset Boulevard and Vine Street.
Then in January 2004, CIM bought Hollywood & Highland and the adjacent 637-room Renaissance Hollywood hotel. (Trizec had announced it would sell the center before it ever opened as part of a companywide initiative to dispose of its retail assets.)
CIM's efforts to transform these holdings haven't yet taken hold. Longs Drugs and LA Fitness have permits to begin construction at the Hollywood Galaxy and construction is under way on the Hollywood Boulevard storefronts, where a restaurant has opened and a retail store and nightclub are close to completion.
Kuba said that in many cases CIM's hands have been tied by lawsuits stemming from the fire at Sunset and Vine Tower, and leases. "When we bought these, they had long-term leases that are still winding down," he said. "That is the biggest issue. Most of them are family-owned businesses where they have been there selling souvenirs for years."
Housing heats market
As elsewhere in Los Angeles, high demand for housing is helping spur Hollywood's development. Lenders require very little arm-twisting.
"I wouldn't say it was a tough sell to our investors," said Hollander, the Clarett executive working on the Nederlander project. "There are a lot of folks out there who see this as a prime area. They see the demand for housing and they see that demand is strong, especially in core areas of the city like Hollywood."
Hollander said Clarett was attracted to the Nederlander site because of its size, as well as its proximity to the studios, other well-paying employers and a subway station.
Numerous smaller housing projects are moving forward. Last month Palisades Development Group and John Laing Homes both struck deals for condominium buildings with ground-floor shops and restaurants.
Palisades, which has been hired to convert the Equitable building at Hollywood and Vine into condominiums, has formed a joint venture with Herman Properties to build a 50-unit complex at 1717 Vine St.
John Laing, one of largest housing developers in Southern California, is buying a 2-acre site at 1625 La Brea Ave. and intends to build a 180-unit condo building there.
Developers also are buying up older office buildings for conversion to apartments and condominiums. In June, Kor Group Inc. purchased the Hollywood & Vine Plaza, a 180,000-square-foot building that formerly housed the Broadway department store, for conversion to about 100 condos.
Hollywood's soaring property values are finally justifying the high cost of building new for-sale housing, said Avi Brosh, principal of Palisades Development. "It costs me the same to build in Hollywood as it does in Beverly Hills," he said. "Hollywood has come to the point where it's justifying these prices, which is why you're seeing so much activity."
While many new nightclubs and restaurants dot Hollywood's landscape and have transformed Cahuenga Boulevard between Franklin Avenue and Sunset Boulevard into a nighttime destination retailers keep struggling.
Excluding the stores on the outside of Hollywood & Highland and Amoeba Music on Sunset Boulevard, the shopping sector hasn't benefited yet from the area's revival.
Until a majority of the new housing units come online still several years away the expectation is that national chain stores and other destination shops are going to continue to steer clear of Hollywood.
"The retailers are looking for better demographics and people with money in Hollywood," said retail broker Matthew May. "And you have the people with money living up in the hills who want a nicer place to shop and with plenty of nearby alternatives."
Former Hollywood madam Heidi Fleiss learned that the hard way. After opening successful lingerie stores in Santa Monica and Pasadena, Fleiss believed Hollywood would be a good market for her.
But her shop, a few doors down from Frederick's of Hollywood's flagship location, didn't attract a desirable clientele and within several months of opening she closed it down.
"This placed sucked the life out of me," Fleiss told the Hollywood Independent. "(My landlord) said it was a prime location, but there's just a bunch of bums down there. No one has any money."
Without the concentration of new housing similar to what's being built in downtown Los Angeles, May said Hollywood's retailers will continue to have a hard time. "Hollywood is still too tourist orientated," he said. "It's not a place we feel interested in going yet, but that could change."
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