The Los Angeles city government is stepping in to help save plans for a reconstruction of the Kodak Theatre so the home of the Oscars can accommodate Cirque du Soleil’s 10-year Hollywood-themed show.

L.A. developer CIM Group, which co-owns and operates the Kodak at Hollywood & Highland, is seeking a $30 million loan from the city to replace a private financing deal that collapsed in the capital market meltdown.

And Los Angeles has fashioned an arrangement almost as acrobatic as a Cirque performer.

Under the deal, the city essentially would borrow $30 million from the U.S. Department of Housing and Urban Development and then loan that money to CIM for the project.

It carries some risk to the city. If the Cirque show tanks or otherwise is unable to pay, then CIM is obligated to pay. But if it can’t, the city would lose up to $30 million of HUD money.

CIM principals and city officials said the loan arrangement is designed to preserve a deal that the Montreal circus troupe signed in late 2007 to set up residence at the Kodak for 10 years. If that deal falls apart, it’s feared replacement tenants would be hard to find and that hundreds of jobs could be lost. Booking the theater was more difficult in the months leading up to the Cirque deal; some acts that might have played at the Kodak found other possibilities as the Nokia Theater prepared for opening at downtown’s L.A. Live and other venues were being upgraded.

Already, design changes have forced a delay of at least nine months in the project’s opening, pushing it back to summer 2011 from the September 2010 opening date originally announced. The major change has involved fitting an on-site training center for Cirque performers into the existing complex.

“We cannot afford the Kodak facility to go dark,” said Ninoos Benjamin, director of the economic development division of the Los Angeles Community Development Department, which is processing CIM’s loan request and applying for the HUD loan guarantee. “This will preserve economic viability of a whole neighborhood and create about 850 jobs.”

A response from HUD could come within three months; the financing plan will go to the City Council in coming months for approval.

The only problem would be if Cirque’s Hollywood production fails to draw the expected crowds or is forced to close prematurely. It could start a domino borrowing collapse that could end up costing Los Angeles some community development funds.

“With this loan, the city is putting its eggs in one basket, essentially functioning as a Hollywood producer,” said Larry Kosmont, an L.A. economic development consultant who has helped put together similar deals using the HUD loan guarantee program. “If for some reason the show is a complete flop, the question then becomes: Is there an undue amount of exposure to the city?”

Backers of the loan deal said this is extremely unlikely, given Cirque’s 25-year track record and the major success of other long-term shows, including six that are now running in Las Vegas.

“Our very first permanent show, Myst & #269;re, opened in 1992 at Treasure Island,” said Cirque spokesperson Renee-Claude Menard. “It is still relevant, inspiring and amazing. We invest three years in developing unique, creative and hopefully long-lasting productions that aim at entertaining our audiences.”

The advantages of having a Cirque attraction in the heart of Hollywood far outweigh the risks, said Shaul Kuba, one of the three CIM principals.

“This will draw local, state, national and international visitors, all of whom will come to see the show,” said Kuba. “It will help complete the transformation of Hollywood that we’ve all been seeking for so long.”

High hopes

CIM co-owns the Hollywood & Highland shopping center in a split deal with the city’s Community Redevelopment Agency and manages the center, which includes the theater. CIM acquired the center in 2004 from original developer TrizecHahn Corp. and holds title to buildings; the CRA owns the land and leases it to CIM.

The 3,332-seat Kodak was the centerpiece of the Hollywood & Highland redevelopment project; it was built as the permanent home of the annual Academy Awards, produced by the Academy of Motion Picture Arts and Sciences. Over the years, acts including Celine Dion, Elvis Costello, Harry Connick Jr., the Dixie Chicks and the American Ballet Theatre have played there. The theater has hosted numerous awards shows in addition to the Oscars, including the daytime Emmys.

However, in recent years, the theater faced increased competition from other venues, especially the 7,100-seat Nokia Theatre at L.A. Live, which opened in October 2007. That’s why the signing of Cirque to the 10-year deal to produce a Hollywood-themed show was viewed as vital for the Kodak’s survival.

But preparing the venue to meet the mammoth production requirements of a lengthy Cirque residency was an ambitious undertaking. The initial cost was pegged at $90 million, split almost evenly between CIM and the troupe.

CIM is responsible for the physical improvements to the theater, estimated at $50 million. These include a new two-floor stage, with the bottom level used for rehearsals; massive lifts to bring up sets from the lower level when needed; an on-site training center tall enough to allow for aerial acrobatics; substantial space for a workshop and repair center; reconfiguration of seats; and improved lighting and sound for the main auditorium.

“It’s an immense amount of work that much of the audience will never see,” Kuba said during a tour of the facility to the Business Journal.

The complexity of the project resulted in the delay of the show’s launch date.

All the work must be done around an existing theater and shopping center. One example Kuba gave was the need to shift several existing underground tunnels to make room for the lower level of the stage.

Fitting the on-site training center into the shopping complex is also a proving a challenge. After a series of complications, designers found a way to drop it below the ground level, into a space above the bottom of the west entrance ramp to the parking garage of the complex. Such challenges were among the factors that led to the delay, as the original plans that had won city approval had to be discarded and new ones required more municipal OKs.

Cirque is handling all the “soft” preparation costs, including the thematic content of the show, at least two years of training for many of the performers; and the marketing effort. Jerry Nadel, vice president of shows for the troupe, said that the planning for this show is more complex than other long-term Cirque productions including those in Las Vegas because the Hollywood show must vacate one month each year for the Academy Awards.

Financing woes

Kuba said CIM pledged $20 million of its own equity toward the project and then sought $30 million in outside financing. By late summer 2008, CIM had a signed letter of intent for a loan. He declined to name or specify the lender.

Then the capital markets collapsed and that loan “went away,” as Kuba put it. Realizing that getting another private-sector loan was becoming virtually impossible, Kuba said CIM turned to the city Community Development Department.

“This project is too important to be halted, for both the city and the local economy, and that’s the case we made to the city,” he said.

But Los Angeles officials were reluctant to give a direct loan to CIM, due to budget constraints and fear of political opposition. So the city turned instead to a HUD loan guarantee program known as Section 108.

HUD spokesman Brian Sullivan said the program exists to assist cities participating in the Community Development Block Grant program with major economic development projects. Once HUD approves a city’s application, the agency sells federally guaranteed notes to private investors and passes the money on to cities. If a particular city cannot repay HUD for the notes, the agency can take back some of the community development block grants.

The Cirque loan would represent 40 percent of the $75 million in block grant money that Los Angeles got in the last program year.

But there were would be several steps before that happens. Under the deal, if the Cirque show tanks although none ever has or is otherwise unable to make its payments, CIM would be obligated to pay from revenues it gets from its other holdings at the Hollywood & Highland shopping center.

If CIM fails to pay, then the city would stand to lose its HUD money.

In Los Angeles, the Community Development Department and the Community Redevelopment Agency have used the loan guarantee program in the past for such projects as Chesterfield Square in South Los Angeles, Plaza Pacoima and the NoHo Commons project in North Hollywood.

More recently, though, Benjamin said increasing numbers of private developers with projects in redevelopment areas are applying for HUD loan guarantees.

“With the frozen state of capital markets, we have found interest from developers that they want to use this facility,” said Benjamin of the Community Development Department.

Los Angeles City Council President Eric Garcetti, who represents Hollywood, believes it’s important to help CIM get the funds in order to keep the Cirque deal alive.

“The city had the opportunity to step in and get this project completed in a timely manner,” he said. “This project will bring more than 800 new jobs in Hollywood at a time when we need to be focusing on creating and retaining jobs for Angelenos.”