Dream Project That Could Yet Come True
Real estate developer Robert Maguire said this week that he is stepping aside to help the massive Playa Vista project--the proposed future home for DreamWorks SKG’s state-of-the-art studio and other developments--to move forward.
“If I’m perceived as the roadblock, let’s get a mechanism established where DreamWorks is comfortable and the financing can go forward,” Maguire said. “Maybe the way to do that is to have Jim [Thomas] play the implementer role in Playa Vista.”
The reference is to James F. Thomas, of the recently dissolved Maguire Thomas Partners, who comes in as temporary chief developer to get the project financed and off the launching pad.
Maguire is giving up direct management of Playa Vista to ease the tension between himself and DreamWorks chief Jeffrey Katzenberg that has threatened the project.
Within the next month, Maguire says, equity investors will put up between $90 million and $100 million--or more, depending on terms of the financing--to get construction going on the envisioned community of houses, apartments, office buildings and a movie studio for DreamWorks.
Trouble is, not everyone believes that financing will be forthcoming. Even friends of Maguire are skeptical that the project can be financed. And some real estate people now question whether it should be.
Playa Vista is a big job, a project that ultimately could take $8 billion to complete early in the next century. That makes it all the more important that the project be done right or not at all, and all the more instructive for Southern California’s economy that it is stalled.
It is only a year since Maguire, Katzenberg and the other DreamWorks principals, director Steven Spielberg and music mogul David Geffen, joined Gov. Pete Wilson and Los Angeles Mayor Richard Riordan in a Playa Vista ribbon cutting.
Los Angeles pledged $70 million in tax incentives because the DreamWorks studio would create high-tech jobs and because Playa Vista would demonstrate, as Riordan put it, “that L.A. is back!”
The enthusiasm, if misplaced, was understandable. Playa Vista, combining a movie studio with residential and commercial development, is the kind of project that made Los Angeles famous. It happened before, in 1960, when Spyros Skouras--then owner of 20th Century Fox--combined with developer William Zeckendorf to create Century City on 263 acres near Beverly Hills.
“Land that was worth $4 a square foot went to $50 a square foot,” Zeckendorf recalled in his autobiography. And today that land is worth hundreds of dollars a square foot. The lure of land development is powerful.
And that lure was present in Playa Vista, a site of more than 1,000 acres on the ocean near Marina del Rey. With building permits covering 3.6 million square feet of space, a fraction of that land is already worth $144 million before any cement is poured.
The DreamWorks studio was to be the most advanced in the industry, affirming Southern California’s position as headquarters of the entertainment industry.
For Maguire, 61, developer of classy buildings in downtown Los Angeles and around the U.S., Playa Vista was to be a crowning achievement.
But times change and history seldom repeats. Three months after the ribbon cutting, financing for the project proved difficult to attract. And relations between Maguire and his DreamWorks partners turned bitter as they blamed each other for the money troubles.
However, real estate developers and financiers around Southern California avoid blame and say only that the grand project wasn’t appealing at this time. “Lenders are still nervous about Southern California and big residential-commercial projects are difficult to finance,” says a real estate investment advisor. Investors now prefer smaller projects that can be securitized and sold in financial markets, he explains.
“It would be better if they broke up and reshaped the project in smaller units,” says a bankroller of local real estate who, like all who comment on Playa Vista, requests no attribution.
DreamWorks’ glamorous image also cuts little ice with financiers, who see a start-up company needing to finance studio facilities. “Glamour is in seeing how you’ll get paid back,” says a developer.
City officials lately became concerned with the stalled project. Councilwoman Ruth Galanter, who represents the Playa Vista area, wrote to Maguire. Mayor Riordan talked to the developer, who agreed last week to take a back seat and bring his now former partner, Thomas, into a direct role. Maguire and Thomas, who remain close friends, dissolved their two-decade partnership in August, and Maguire has been refinancing many of the company’s properties.
What will happen now? The next few weeks will be critical. Financier Gary Winnick, head of Los Angeles’ Pacific Capital, says he has union pension funds ready to finance Playa Vista. Maguire says he has other financiers waiting.
The tab could be steep. An investment of more than $150 million in equity--including DreamWorks’ studio portion--is needed just to allow financing to proceed.
Any investor will take some control of the project away from Maguire, who will nonetheless remain involved. And DreamWorks will have to offer lease insurance and other credit-enhancing terms to persuade financiers to invest.
Playa Vista may get started simply out of desperation--too much is at stake for too many people. Banks led by Chase Manhattan and Bank of America have $150 million in loans to the project that depend on progress. “If residential construction begins, I can pay back that loan in four to five years,” Maguire says.
DreamWorks doesn’t really have that many alternative places to set up. And only Playa Vista offers the studio ownership in a real estate project through which DreamWorks could earn the $140 million it will take to fully outfit its facilities.
Mayor Riordan and his City Council, with their $70 million in tax incentives, need the project to succeed. “It is extremely important to show L.A. is back,” Riordan says.
But Playa Vista’s very difficulties should be a signal that backing big projects may not be the best way to create jobs or boost industry. “If Playa Vista succeeds, fine,” says a real estate investor. “But whatever happens to Playa Vista, L.A. is back in many other ways.”
