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‘BAR’ MARKET

When Tony Daly staged a New Year’s Eve party for 150 wealthy L.A. business types on the last night of 1999, the Casablanca-themed affair was held at one of the very few nightclubs in Hollywood, a place called Garden of Eden. The main attraction: a vintage airplane that Daly rented and parked on La Brea Avenue – which was closed for the occasion. The stunt helped make the nightspot hot for years.

But now, Daly and business partner David Judaken are competing against a slew of clubs for the ever-shifting attention of L.A.’s nighttime revelers. These days, not even a parked airplane will guarantee a lingering buzz and packed dance floors for enough time to pay back the surprising expense of outfitting and opening a nightspot. Such is the new and brutal economics for hot Hollywood.

“It’s become a market where you have your core group of people who like to go out in Hollywood,” Daly said. “They’ll go out to a club religiously every weekend for a year and then get tired of it and they want to move on to the next place.”

Judaken and Daly, who run Syndicate Hospitality Group in Hollywood, own the most party spots of anyone in Hollywood.

They’re currently operating hot spots MyHouse and MyStudio, frequented by the likes of Leonardo DiCaprio, Paris Hilton and 20-something trust-funders ready to drop $10,000 for the chance to party with such celebs. A third club, formerly named Opera, is set to reopen in October. A fourth club, formerly known as Crimson, is closed. Their fifth site, East Restaurant and Lounge, was a white-tablecloth eatery and is now a private event facility.

However, other night life impresarios, including entrepreneur Sam Nazarian, and Las Vegas nightclub king Victor Drai and his partners, identical twins Jesse and Cy Waits, are quickly moving in on their territory. (See box.)

Judaken, 40, and Daly, early 30s (he won’t specify), said they welcome the competition from such big names, insisting that it forces them to develop better nightclubs.

“Friendly competition is great, it makes me excel, it makes our promoters excel and probably pushes the level of entertainment for the customer to a better place,” said Daly, who’s known Nazarian and the Waitses for years. “I have no problem with healthy competitiveness with those entities. Bring it on.”

Hot Hollywood

Still, there are at least 20 nightclubs and lounges, which often serve food and cocktails, and feature DJs in a more relaxed environment, open for business within Hollywood’s 3.5-mile radius. The area’s hot spot proliferation, which Daly said began about eight months ago, isn’t expected to end soon.

Amsterdam, the Netherlands-based Supperclub, for example, is set to open a dining and nightlife venue in September at the old Vogue Theater, while brothers Johnny and Mark Houston are renovating the short-lived nightclub Jane’s House.

With more venues to choose from, clubbers won’t be dancing at one place for long.

“Hollywood is fickle,” said James Sinclair, principal at L.A. hospitality consultancy OnSite Consulting LLC. “If you put up some wallpaper in a 7-Eleven and grab some promoters, it turns out that the 7-Eleven is the new hot spot.”

As a result, Daly and Judaken, who’ve spent about $15 million renovating their clubs during the last five years, are finding it more difficult to turn a profit.

“In 2009, we opened up MyHouse, a renovated Garden of Eden, and we had a record year,” Judaken said. “And what happens when you get to year two is that normally you have another tier of promoters and guests. But we’ve had a monumental decline in revenue. Garden of Eden lasted 13 years. If we hit three years with MyHouse, it will be a small miracle.”

Judaken said revenue at the 700-person club, designed by Dodd Mitchell to look like a chic Hollywood Hills home, is down about 65 percent from the same time last year. He estimated that revenue from Syndicate’s operations will hit between $17 million to $20 million this year. But those numbers could move down under the pressure of the battle for bodies with Nazarian and Drai.

“I could have a $5 million swing just like that because a competitor opened up next door,” he said, “and not a better one, just a new one.”

Club owners often spend millions on decorating a new nightspot before opening. But that kind of expense is justifiable only if the club stays open and profitable for several years. Hedging their bets, Daly and Judaken plan to cut preopening investment significantly.

“We are trying to scale back more and hope that if we go further back, the design will follow the budget,” said Daly, who added that he’s not willing to cut spending to the point where it’s no fun to be a nightclub owner. “Maybe we will go a little over when it comes to that nice light fixture that we want.”

Judaken, a South African native who moved to Los Angeles as a child, made his first mark on L.A.’s nightlife scene when he opened Garden of Eden in 1996 on the western edge of Hollywood at La Brea Avenue and Hollywood Boulevard. At the time, there were only a few nightclubs operating in the then-gritty area.

“He was definitely an early adopter, a visionary,” Sinclair said. “Don’t get me wrong, he took a gamble. But he prospered there for many years without competitors and that’s the biggest compliment there is.”

About 10 years ago, Daly was a struggling actor (he’s since had success in show business, including a recurring role last year on “General Hospital”). Based on his staging of that spectacular New Year’s Eve party, Judaken hired him as a promoter for Garden of Eden, and they soon became business partners, with Judaken as Syndicate’s chief executive and Daly as chief operating officer.

Since then, Hollywood has filled with glitzy nightclubs, bars, restaurants and hotels, and Syndicate has expanded along with it.

Dining debacle

Now, however, Judaken and Daly find themselves looking at new business strategies in an effort to keep their nightclub domain profitable. It hasn’t been easy.

After their success with nightclubs Garden of Eden (now MyHouse), Mood (now MyStudio), Opera and Crimson, Judaken and Daly decided to enter the restaurant business. They spent $3.2 million on high-end restaurant East, also designed by Mitchell, which opened in September 2009.

But East couldn’t draw enough diners willing to drop a hefty sum for slow-steamed black cod and lobster brioche, and so its public business closed in June. East now stages private affairs, including events such as the season premiere party for the cable hit “The Closer.”

Judaken and Daly said they couldn’t operate a profitable white-tablecloth restaurant in the heart of Hollywood due to problems with traffic, parking and the neighborhood’s lingering grittiness.

“East has been the only thing that I’ve done that I haven’t had huge success with,” Judaken said. “And I closed my doors because I realized that I was fighting a battle that could not be won. I couldn’t convince my demographic that Hollywood was the place to eat.”

Daly has a rosier outlook.

“It was a difficult challenge for us because there was a learning curve with the recession and opening on Hollywood Boulevard with a fine-dining experience,” Daly said. “But I’d rather try and fail than never try at all.”

Judaken and Daly are using East as a base to launch a Syndicate division called Velvet Rope Productions. The private-event production department will allow them to stage more corporate and private parties, either at their nightclubs or offsite locations, and generate additional revenue.

Hospitality consultant Sinclair said it’s a smart move to target the corporate world.

“If you were to look at it correctly,” Sinclair said. “The nightclub, and the service of goods to your customers at night, is there primarily to get out the word for day events and corporate parties because the margins are larger and the business is easier to operate. You don’t have the problems associated with running a nightclub.”

Daly’s even been toying with the idea of entering the hotel business, perhaps inspired by Nazarian. Nazarian is expanding his presence in the neighborhood. In addition to the SLS, he’s taking over what was to be Palihouse Hollywood. He is scheduled to open the hotel under the name Redbury on Sept. 1. (See the Retail and Apparel column, Page 6.)

But Daly will only follow Nazarian into hotels after Syndicate’s nightclub and corporate events businesses grow.

“If a hotel were to come to us and say, ‘We would like you to do our nightlife operations,’ and David wants to be Ian Schrager and I can be Rande Gerber, it would be fine by me,” Daly said. “That would be the ideal upward mobility for us.”

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