The long-delayed Playa Vista development, which just a month ago seemed to be back on track, appeared on the verge of unraveling last week as mortgage banks initiated foreclosure after developer Rob Maguire refused to cede control of the troubled project.
Los Angeles Mayor Richard Riordan and other city officials were scrambling to save the $8 billion project, which would include the DreamWorks SKG studio, 13,000 housing units, 6 million square feet of offices and 600,000 square feet of retail.
“I’ll guarantee you it will happen,” said Riordan, who said he has spoken with the principals in the development but declined to be more specific.
“It’s going to happen,” he said. “There’s clearly a will, a resolve there, among all the parties.”
But that resolve was not openly apparent, as Maguire and other key parties refused to say what was happening with the deal.
The 1,087-acre property below the Westchester bluffs is controlled by a partnership headed by Maguire Thomas Partners, but the banking group holding the mortgage initiated foreclosure action last week.
The notices of default filed by the Chase Manhattan Bank-led group specify that the landowners now owe the bankers $195 million and have four months to pay up before the bankers take title.
The action was precipitated when Maguire, the managing partner of Maguire Thomas, abandoned negotiations on a deal to recapitalize the project under a new development team and retire the debt, according to sources close to the deal.
Only a month before, on Feb. 6, Maguire had tentatively committed to the new deal.
That agreement in principle called for a team led by Beverly Hills financier Gary Winnick to provide new financing. The team included Winnick’s Pacific Capital Group, big real estate investment firm J.E. Robert Co. and Union Labor Life Insurance Co., which invests union pension fund money.
Under the terms, the banks would have been paid off at 65 cents on the dollar and Maguire would have been given a smaller, supporting role in the development.
But sources close to the Playa Vista deal say all bets were off following a Feb. 17 Business Journal story quoting Winnick saying he was taking charge of the project.
“I feel like I went out fishing for trout, and ended up landing a whale,” Winnick said at the time.
The comment reportedly angered Maguire, one of the city’s most accomplished developers, who subsequently rekindled talks with Wall Street investment bankers in hopes of getting his own financing to retain control of the project.
Winnick, Maguire and Chase Manhattan officials all declined comment last week.
In a statement, however, Maguire voiced confidence that he would find a way to satisfy the bank before foreclosure.
“We think Chase Manhattan will continue to support our effort to reach an initial agreement on fnancing and we believe that will happen relatively quickly,” Maguire said.
City officials were concerned, however, that if Maguire does not obtain financing he could declare bankruptcy which would further delay the project.
Any such delay would be particularly damaging to DreamWorks, which plans to build the first new major studio in Los Angeles in more than 50 years.
To help attract the studio a “clean” industry with high-paying jobs the City of Los Angeles offered a $70 million economic incentive package for the Playa Vista development.
But city officials have warned that those incentives could be denied if DreamWorks drops out of Playa Vista.
DreamWorks officials have been the most vocal in their criticism of Maguire. Groundbreaking for the studio was supposed to have taken place next summer, and the studio’s plans to become a full-fledged entertainment company cannot be realized until it has a production facility.
But a DreamWorks official said last week that the studio still expects to develop its campus at Playa Vista.
“We’re not overly concerned about the foreclosure,” said DreamWorks spokesman Andy Spahn. The action by the banking group “will hopefully bring Maguire back to the table, and we’re still optimistic we can go forward” with the studio development under the new team specified in the early-February agreement, he added.
If negotiations should fail, however, other cities are waiting in the wings to snare the DreamWorks prize including the city of Burbank, home of Walt Disney Co. and Warner Bros. Studios.
Burbank City Manager Robert “Bud” Ovrom said city officials there met with DreamWorks officials in late February about a potential studio development site near the Burbank airport.
Los Angeles City Councilwoman Ruth Galanter is among those fighting to keep DreamWorks from leaving, which would jeopardize the financial incentives for the entire Playa Vista project.
She expressed confidence that a deal will be reached, and that Winnick’s group will be playing a leading role. She said the key parties banks, developers and financiers are meeting regularly to resolve the conflict.
“They’re all in meetings every time I call, and that’s a good sign,” said Galanter, whose district includes Playa Vista.
She added that the foreclosure action “starts the clock ticking and may prove to be a helpful development. When you’ve got such high stakes and such high-profile people involved, you can expect that negotiations will reach a level of brinkmanship.”