Playa Vista: A Project in Frustration

Call it a DreamWorks deferred.

The much-touted Playa Vista project near Marina del Rey where Steven Spielberg, David Geffen and Jeffrey Katzenberg want to build a state-of-the-art lot for their fledging studio is running into lengthy delays, raising concerns in some quarters that it will never get off the ground.

The frustration of the three has grown to the point where they’ve started checking out potential sites as a contingency plan, sources say.

Sources close to the project say the main reason for the stalemate is an inability to financially restructure the property, which would involve satisfying lenders holding a steep $150-million debt on the land as well as bringing in a major financial investor such as Wall Street giant Morgan Stanley, which has shown interest in the project.

Adding to the delay is the reluctance of developer Robert F. Maguire--whose Maguire Thomas partnership recently announced it is splitting up--to cede control of the project, sources say. Any major new investor will want control in exchange for putting money into the deal.

“It’s become a high-stakes poker game,” one executive close to the situation said. A Maguire Thomas executive denied that the project is being held up by Maguire’s demands for control.

Needless to say, the moguls are restless.

DreamWorks executives declined to comment. But sources said the company, as a backup plan in case the Playa Vista project unravels, has recently shown interest in the CBS Studio Center in the San Fernando Valley, where DreamWorks produces the new prime-time show “Ink” for CBS.

With 1,100 employees now spread across various parts of Los Angeles and big plans in the making, the DreamWorks SKG studio is under growing pressure to settle the question of where it will find a permanent home and when it will move in. Under its current plan, the company will be based at a “studio campus” located on 100 acres in the 1,087-acre Playa Vista site, with its feature animation division based in Glendale.

Another anxious, prospective tenant is Venice-based Digital Domain, a fast-growing special-effects house. “We thought we would walk in, do construction and [by January] move into our new place,” said company founder Scott Ross. “It was rather naive on our part.”

Ross said Playa Vista remains his first choice for a new corporate home, but he is considering other locations, including facilities in Santa Monica, and he is balking at the rents Playa Vista is asking. Maguire Thomas “didn’t fully understand the economics of the entertainment industry,” Ross said.

Maguire was not available for comment. But Maguire Thomas executives blame the delays primarily on legal problems--mainly a lawsuit from environmentalists and local residents concerned about the project’s impact--and the complexities associated with a multibillion-dollar project involving dozens of government agencies and several major partners.

“Sure, I’d like to be out there breaking ground,” said Douglas Gardner, the planning chief for Playa Vista. “But I’m not surprised that it took a little more time given all the moving parts.”

In retrospect, the June groundbreaking date “was probably too optimistic,” said Peter Denniston, who was recently hired by Maguire Thomas to head development and the financing of Playa Vista.

“Both DreamWorks and Maguire Thomas are frustrated with the delays,” Denniston said. “It continues to be a priority for them to establish their studio campus at Playa Vista. It’s clearly their best option.”

City officials, who rallied around Playa Vista and DreamWorks last year and granted the project valuable financial concessions, say the delays are not cause for great concern.

Steve MacDonald, director of the city’s Business Team and Mayor Richard Riordan’s point man on Playa Vista, said a “project of this size often takes longer than [most people] optimistically think possible.”

However, the delays and DreamWorks’ growing frustrations have raised concerns among real estate and lending executives about Maguire Thomas’ ability to carry out the project. Many are waiting to see firmer commitments from DreamWorks and other tenants.

“There are many investors looking at participating in the initial phase of the project,” said one Los Angeles banker who met with Maguire Thomas executives about financing the project. “But where are the commitments? I would be reluctant to make any commitments without determining the status of DreamWorks.”

Denniston said the delays were not the result of a shake-up at Maguire Thomas, which saw founding partners Robert Maguire and James Thomas go their separate ways earlier this year. Maguire remains in charge of the firm--which built the tallest building in Los Angeles, the 73-story First Interstate World Center--and Thomas continues to be a partner in some individual projects, including Playa Vista.

Maguire Thomas continues to deny persistent rumors in real estate circles that the firm is suffering financial problems resulting from the plunge in property values and office rents during the early 1990s.

“The critical item in this delay is this lawsuit,” Denniston said of the legal challenge brought earlier this year. “It makes it much more difficult to finance this portion of the process.”

The lawsuit, filed in January by environmental and community groups, claims the project has not received adequate environmental review and seeks a full environmental impact report. The suit’s claims were rejected by a Los Angeles County Superior Court judge in July, but the development’s opponents recently filed an appeal, which may not be resolved for several months.

Maguire Thomas executives say they are pursuing an expedited ruling, which they predict will fall in their favor. In addition, the developer says the legal action covers only the studio and multimedia portion of the project and does not prohibit the firm from going forward with the residential and other commercial sections of Playa Vista unrelated to the studio.

Denniston has committed himself to breaking ground in six months, if not on the studio site then on other sections of the sprawling project.

However, even if construction starts in six months as now projected, tenants would not be able to move into the development until mid-1999 at the earliest.