One of the biggest hurdles holding up the beleaguered Playa Vista/DreamWorks movie studio development was crossed Thursday when developer Maguire Thomas Partners agreed to negotiate exclusively with a Los Angeles-based financier aiming to arrange $200 million in financing.
The developer said it will team with Pacific Capital Group, which beat out such competitors as Wall Street firms Morgan Stanley and Goldman, Sachs & Co. to form a new partnership to develop Playa Vista. Maguire Thomas and Pacific Capital, which reached an agreement in principle, will now work toward arranging final details on the financing, a process sources said will probably take several more months.
“It’s a good first step, but it’s just that. There are a lot of pieces of this that need to be worked out,” one source close to DreamWorks said.
The financing, which is coming from AFL-CIO pension money, is being raised mostly to pay off a group of increasingly impatient banks holding about $150 million in debt on the property and that are owed an additional $20 million in unpaid interest. Eager to get out of the project, that group, led by Chase Manhattan Bank and which also includes Bank of America, has agreed to be paid about 65 cents on the dollar, sources said. The other portion of the money will be used to jump-start construction on the stalled development.
Playa Vista is a much-touted, 1,087-acre commercial and residential development near Marina del Rey. The glamorous drawing card of the project is the DreamWorks SKG studio “campus” that would house the fledging studio founded by director Steven Spielberg, former Walt Disney Studios Chairman Jeffrey Katzenberg and billionaire music mogul David Geffen. Developers hope that DreamWorks will serve as a magnet attracting top-quality entertainment and technology firms.
Arranging financing, along with internal bickering, had put the project months behind schedule, raising concerns about whether it would be built at all.
DreamWorks executives, frustrated at the delays, have blamed developer Robert F. Maguire, who they allege has been overly concerned with cutting himself the best deal and maintaining control. Maguire has denied that, instead blaming delays on lawsuits from environmentalists who believe the project threatens the nearby Ballona Wetlands. Supporters of the project, such as Councilwoman Ruth Galanter, say the project is designed to provide economic development and the restoration of the wetlands.
People close to the project caution that several major hurdles remain, notably drawing up final documents that are satisfactory to everyone involved, working out tax implications of the deal, formulating a business plan for how the development will proceed and selecting someone to oversee development. Maguire will serve on a board of directors for the project as will partner James A. Thomas, sources said.
One source involved in the talks said there is hope that ground will be broken in the fourth quarter, but acknowledged that the timetable could be too optimistic. Work is expected to begin on the DreamWorks studio portion early next year, with that part to be completed in 1999 or 2000.
Over the last two months, negotiations have taken on a quality of brinkmanship, with DreamWorks, the banks and others turning up the heat on Maguire to reach an agreement.
DreamWorks executives, impatient at the delays, studied several alternative sites for the studio. But in a statement, Katzenberg reiterated Thursday that “Playa Vista has always been our first choice” and said the company is pleased financing will be set soon.
Sources said Maguire initially wanted a 50% stake in the project, but instead will settle for a plan that allows him to buy a 15% stake for $15 million. Sources said Maguire has discussed putting some of his existing properties into a real estate investment trust to raise the money needed to invest in the project.
Pacific Capital is led by former Drexel Burnham Lambert executive Gary Winnick. Pacific has teamed up for Playa Vista with Union Labor Life Insurance Corp. and Virginia real estate giant J.E. Robert Cos.
Playa Vista would become one of the largest deals backed by union money. In addition to being an investment, the project was attractive to the pension funds because it would generate thousands of union jobs during construction.
“This is a landmark event for the unions,” said Michael Steed, senior vice president for the Union Labor Life Insurance Corp., a holding company that manages AFL-CIO pension funds. “We get superlative returns for the pensions and create new jobs.”