Citing financing problems, DreamWorks SKG scrapped its proposed $250-million studio lot at Playa Vista on Thursday, ending a nearly 4-year-old effort to build what would have been Hollywood's first major studio since the Great Depression.
DreamWorks said financing in today's commercial real estate market, recent rises in interest rates and potentially higher construction costs killed a deal that was originally touted as a godsend for the Los Angeles economy when first hatched in late 1995. That was before years of infighting and financing problems finally took their toll.
The decision also underscores a shift in both DreamWorks' priorities and the Hollywood economy. Studios are tightening their belts, cutting back film projects and finding it more difficult to launch lucrative TV shows.
Sources close to the project note that the partners, three of whom are billionaires, could have easily financed the project, with one calling the amount needed to cement a deal "a tip" for them. But in the end, they said, the numerous delays finally wore out the patience of the DreamWorks partners.
The studio lot and its state-of-the-art sound stages were to have been the crown jewels of the 1,087-acre Playa Vista residential and business development, located near Marina del Rey on the site of the factory where Howard Hughes built his infamous "Spruce Goose" airplane in the 1940s. Playa Vista is one of the largest undeveloped pieces of land in the city.
At its unveiling, Mayor Richard Riordan called it "the biggest business win that any city has ever had."
It also would have been a glitzy, permanent home for the studio's founders--director Steven Spielberg, entertainment mogul David Geffen and longtime Hollywood executive Jeffrey Katzenberg.
Spielberg was especially enthralled with the idea of building a modern studio lot unlike the early Hollywood lots that he likened to Detroit's auto factories. The lot was to have a campus-like feel and boast such high-tech companies as IBM and Silicon Graphics as tenants. It would even have its own eight-acre lake and include enough room between sound stages for trucks to turn around easily, a pet peeve of Spielberg's with Hollywood's existing studio lots.
Thursday's announcement ends lengthy negotiations that as late as April appeared to be on track. Last week, however, DreamWorks confirmed that it had been unable to arrange financing that made good business sense, hinting that the 47-acre project might finally be doomed.
Instead, DreamWorks will explore expanding its existing headquarters on the Universal Studios lot and also building additional facilities at its animation studio in Glendale.
In a statement titled "DreamWorks Closes Books on Playa Vista," Katzenberg said that "it is clear that this move is no longer in DreamWorks' best interest. It was simply not meant to be."
Spielberg added that "building our own studio has been a dream for Jeffrey, David and me since the inception of our company, and not building at Playa Vista in no way deters us from that goal."
Playa Vista President Peter B. Denniston, who as late as Thursday afternoon still held out hope, said, "Clearly, we are disappointed." But, he added, the developers still plan to build sound stages and studio facilities on the site.
Riordan, who championed the project and backed city financial incentives to bring the studio to Playa Vista, called the DreamWorks decision "a disappointment, considering the efforts which have gone into making this project real."
The DreamWorks partners--who also included billionaire Microsoft Corp. co-founder Paul Allen--purchased the land in April for a stated price of $20 million, but only committed $13 million of their own money.
The other $7 million was in the form of a note that would be canceled if the project received $35 million in tax credits agreed to by the city of Los Angeles.
Now, the DreamWorks partners will exercise a clause allowing them to return the land to Playa Vista's developers and get their money back.
The partners unveiled their studio plans on a rainy morning in December 1995 in a splashy ceremony in the hangar where Hughes built the Spruce Goose. Then-Gov. Pete Wilson, Riordan, scores of other politicians and Hollywood heavy hitters such as "Titanic" director James Cameron watched. The much-hyped project received national attention.
But from nearly the moment it was unveiled, the development was plagued by problems. DreamWorks feuded bitterly with developer Robert Maguire. Later, they had disagreements with investment banks and investors who had largely pushed Maguire aside.
The project also drew extensive protests from nearby residents and environmentalists, who picketed the premieres of Spielberg films and even targeted DreamWorks with a play called "Frogworks" because, they argued, the project threatened frogs and other inhabitants of the Ballona Wetlands.
Environmental groups such as the Ballona Valley Preservation League and the Wetlands Action Network hailed the DreamWorks' decision, calling it a "victory for the environment."
The decision to scrap the project brought different spins from opposing sides.
According to several sources close to the project, DreamWorks was arranging $210 million in financing, the largest part of which was a $160-million mortgage. In addition, the company was seeking another $50 million in so-called "mezzanine financing"--a combination of debt and equity. Finally, $40 million would personally be contributed by Spielberg, Geffen, Katzenberg and Allen. The financing would be arranged through the Union Labor Life Insurance Co., a labor pension fund group that also was a partner in the project.
Sources said that DreamWorks, which formed a company called Studio Land Co. to buy the land, wanted the complicated financing mechanism in part so it would not be on the studio's balance sheet because its lenders wouldn't have allowed it.
DreamWorks sources said that onerous demands in the mezzanine portion of the financing helped kill the deal. They added that changes in the negotiations resulted in growing distrust. In addition, recent bumps in interest rates and the prospect that the price tag could have risen to as much as $300 million also contributed.
But sources close to the developers said they believe that the fledgling company's long-term plan has changed. The studio has had mixed success--with such hits as Spielberg's "Saving Private Ryan," "Antz" and the TV show "Spin City" and duds like the movie "In Dreams" and the TV show "Ink." In an era when studios are curtailing costs and conserving resources, they said, building a studio no longer made sense.
"I think their business plan is different from what it was," said one high-level financing source. "The reality of doing this development is a lot different than it was. At the end of the day, they probably just said, 'We don't need this.' "
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Original plans for the DreamWorks studio at Playa Vista included:
* About 4,000 high-paying jobs, along with an estimated 8,000 construction jobs.
* A $750 million, 100-acre campus, later scaled back to a $250 million site on 47 acres, surrounding an 8-acre lake.
* High-tech tenants with interests in entertainment, including IBM, Silicon Graphics and special effects firm Digital Domain.