DreamWorks Hits Playa Vista Financing Snag

DreamWorks SKG confirmed that it has been unable to arrange satisfactory financing to build its proposed 47-acre studio lot at Playa Vista, threatening a project that for nearly four years has been plagued by endless problems keeping it from getting off the ground.

“We’ve been unable to reach a financing agreement that makes good business sense for the company. We’re not sure we are going to be able to. But we’ll continue to talk,” said Andy Spahn, the DreamWorks executive who serves as the studio’s point person on the project.

Spahn would not comment further.

Sources said that DreamWorks will probably decide within as little as two weeks whether to continue to seek financing or scrap the project altogether.

Sources added that the company has alternatives scenarios, two of which include expanding its current headquarters on the Universal Studios lot and further developing facilities in Glendale where DreamWorks has its animation studio.

DreamWorks was founded five years ago by director Steven Spielberg, veteran studio executive Jeffrey Katzenberg and entertainment mogul David Geffen. In late 1995, they announced that they wanted to build the first new studio since the Great Depression on the former industrial site where Howard Hughes built his infamous Spruce Goose airplane.

If DreamWorks pulls out of the project, it would deal a blow to the overall 1,087-acre Playa Vista commercial and residential project near Marina del Rey because the studio was to have been the crown jewel of the development.

It also was the reason city officials have offered incentives to the project. Last month, the Los Angeles City Council approved $35 million in tax credits for Playa Vista, citing projections that 21,000 jobs would be created over the next 30 years there.

Just two months ago, the studio project finally appeared to be back on track after numerous delays and frustrations when DreamWorks bought the property near Marina del Rey for $20 million.

David Herbst, vice president for the overall Playa Vista project, said that the developer remains confident that DreamWorks will end up at Playa Vista. “They own the property. We have every confidence they will build their studio and headquarters here,” Herbst said.

After buying the property, the next step for DreamWorks was to have been arranging financing to build the studio at an estimated cost of $250 million to $275 million. Sources said, however, that the continuing delays, a tightening in the lending market and rising interest rates will push that cost up significantly.

Sources said that while DreamWorks has been in financing discussions with Union Labor Life Insurance Co., the company is hung up on arranging an intermediate, so-called mezzanine level of financing for the project. The pension fund, better known as ULLICO, works closely with Los Angeles financier Gary Winnick on various investments and is partners with Winnick in the overall Playa Vista project. Neither ULLICO executives nor Winnick could be reached for comment Wednesday.

One sticking point is whether the pension fund would be able to take over the property from DreamWorks if certain conditions during construction were not met. Sources said that DreamWorks objects to any such conditions and does not want to wind up being just a tenant at Playa Vista.

DreamWorks once before threatened to walk away from the project when talks over the sale of the property bogged down last year.

Sources close to the company denied that the latest threat is a negotiating ploy. The studio’s patience has worn thin, sources said, adding that DreamWorks officials don’t want to spend the next few months trying to dredge up more financing with the prospects uncertain. In addition, DreamWorks could face more delays because environmentalists opposed to the project continue to mount legal challenges to the development.

“We don’t need this,” one DreamWorks source said. “At a certain point, you come to realize that maybe it wasn’t meant to be.”