Flat-Out Dispute

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Flat-Out Dispute
Supergraphic ‘wallscape’ ad at Sunset complex in West Hollywood.

The owner of a Sunset Strip development says it has received an unexpected property tax bill – for supergraphics.

Broadreach Capital Partners, owner of the Sunset, an office and retail complex near the corner of Sunset and La Cienega boulevards in West Hollywood, claims it didn’t realize when it bought the highly visible property that it would have to pay taxes on supergraphic advertisements installed by former owners.

The Palo Alto real estate investment firm said Los Angeles County has valued the complex’s supergraphics at $18.6 million, boosting the assessed value of the property by 18 percent to $124 million and resulting in $1.4 million in additional taxes.

But Broadreach said it is not receiving money for the advertisements under a deal that was struck before it bought the building and has started a legal fight to make the previous co-owners pay. It claims Area Property Partners LP and Apollo Global Management LLC are benefiting from a 30-year deal valued at $80 million that was made with Clear Channel Communications Inc. in 1999, years before the partners sold the property in 2006.

“They think they got a bad deal,” said Damon Mamalakis, an attorney at Armbruster Goldsmith & Delvac LLP who is not involved in the case but reviewed it for the Business Journal. “Signage is enormously valuable. They got this extra asset, but they don’t get to get an income stream, and in the meantime they’re paying property taxes.”

The advertising spaces in question are a pair of so-called wallscapes that cover two sides of the office tower at 8560 W. Sunset Blvd. The huge signs, each about 117 feet by 85 feet, are visible to drivers going in both directions on Sunset. The building is part of a complex purchased by Broadreach for $105 million.

Broadreach said that in 2010, the County Assessor’s Office informed it that the signage on the Sunset office tower had an estimated value of $18.6 million, and it realized it had been paying property taxes on that asset.

A spokesman for the County Assessor’s office confirmed that the tower’s supergraphics have been assessed for property taxes, saying it was a regular practice, but would not confirm the amount.

Company officials did not return requests for comment, but Broadreach has claimed in its lawsuit that Area and Apollo have refused to reimburse it or to take over the tax payments, which have totaled $1.4 million through last year.

Area and Apollo have not yet responded to the allegations in court and declined to comment.

Mamalakis said it appeared from Broadreach’s lawsuit, filed in Los Angeles Superior Court, that it owns the signage but cannot receive any income from it until the 30-year deal runs out in 2029.

The Sunset complex was the first phase of a much larger anticipated development, the controversial Sunset Millennium, most of which has been delayed for years despite plans dating back to 1999.

Originally budgeted at $250 million, the Sunset Millennium project planned by Apollo, Area and developer Mark Siffin called for a luxury hotel; retail space; and the renovation of the Sunset office tower, the former headquarters of Playboy Enterprises Inc. The developers also planned to use advertising to finance the project – in addition to the wallscapes at the Sunset, they proposed large billboards that could generate as much as $4.3 million in rental fees a year.

But the project met fierce community opposition and West Hollywood officials denied the billboard permits when opponents accused Siffin of paying hundreds of thousands of dollars to buy the support of neighbors.

Siffin left the project in 2002 and Apollo took the reins. The office tower renovation and the construction of a shopping center were completed, but the rest stalled. Broadreach bought the completed first phase in 2006, part of a move into the L.A. market that year that also included buying the CNN building in Hollywood.

Hollywood developer CIM Group purchased the rest of the Sunset Millennium development from Apollo and Area in 2011, changing the name of the project to Sunset La Cienega. The project now calls for two hotel towers and two residential towers, and it could break ground within the year, city officials said.

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