PRINT THIS STORY:

CHANGE TEXT SIZE:

A tear-jerker start, but...

TRIZEC HOPES FOR A HOLLYWOOD ENDING

BY JON SPRINGER

And those who are successful
Be always on your guard
Success walks hand in hand with failure
Along Hollywood Boulevard
— The Kinks, “Celluloid Heroes”

It was a script almost too good to pass up: a developer and a city get together to capture the glory of a bygone era and trade on the fascination of millions. Tapping into the power and allure of America’s most famous export — its movies — the project promised star power, drama, thrills and the revitalization of the film industry’s hometown. So singular was the project in scope, design and concept that it did not need a name, but merely an address: Hollywood (Boulevard) and Highland (Avenue).

Undertaken in the late 1990s by Canadian developer TrizecHahn, the 1.2 million-square-foot, $615 million Hollywood & Highland project would combine retail, entertainment, lodging and dining in a way rarely before attempted. The city of Los Angeles, anxious to revitalize an underutilized asset in need of a new start, pitched in with subsidies that included $60 million for an underground parking lot and $30 million to underwrite a unique anchor — a 3,500-seat theater that would host 100 events a year, including Hollywood’s glitziest: the Academy Awards.

The project, according to developers, would succeed because it provided at last a destination for those millions of tourists who otherwise found the Hollywood delivered to them to be significantly less than Hollywood the idea. Aside from the Walk of Fame at Grauman’s Chinese Theatre, visitors would find little beyond pizza shops and T-shirt vendors, and were much more likely to bump into a prostitute than a movie star.

“It was the kind of place where tourists visiting Southern California would stop in for 20 minutes and then go,” said Donna DeBruhl-Hemer, a Hollywood-based project manager for the Community Redevelopment Agency of the City of Los Angeles.

In contrast, developers anticipated that tourists visiting Hollywood & Highland would spend more than just time there. A line of ritzy retailers were positioned along the red-carpeted entrance to the theater, whose naming rights went to Kodak. More shops surrounded an open-air event venue dubbed Babylon Court, which, in addition to offering spectacular views of the famed HOLLYWOOD sign, was framed by the architectural setting of the 1916 D.W. Griffith film Intolerance. Celebrity chef Wolfgang Puck would oversee the service at a 25,000-square-foot, fifth-floor Grand Ballroom banquet facility. Nightclubs and restaurants were secured to occupy the third and fourth floors. Visitors could stay at the newly refurbished, 640-room Renaissance Hollywood Hotel at the northeast corner of the facility.

Developers and the city were further encouraged as they watched a similar effort begin to pay dividends in New York City, where the redevelopment of 42nd Street had replaced pornography shops with hotels and new theaters. As Hollywood & Highland geared up for a late 2001 opening, expectations were high, despite a slowing economy.

Then the whole world changed.

Sept. 11 wasn’t a part of anybody’s script, but for this major tourist attraction set to open in 59 days, the effects would be especially far-reaching.

“We all knew right then that [Sept. 11] was going to be a major problem for the center,” said DeBruhl-Hemer, whose agency had solicited proposals for the project and floated the bonds for the parking lot and the theater. “This was about the worst thing that could’ve happened. We knew tourism would suffer all over.”

She was right. According to the Los Angeles Convention and Visitors Bureau, spending among tourists in Los Angeles was expected to drop from $12.1 billion in 2001 to $11.7 billion in 2002, a loss of about 3.1 percent for the year and a decline of 11.7 percent from 2000. High-spending international visitors were a prime target for Hollywood & Highland, but their numbers dropped from 5.5 million in 2000 to about 4.5 million in 2002. Spending among foreign tourists in Los Angeles was expected to have fallen by $1 billion in 2002 from a high of $4.4 billion in 2000.

It was under these conditions that TrizecHahn opened Hollywood & Highland on Nov. 9, 2001. According to its chief marketing officer, LeeAnne Stables, Hollywood & Highland has been forced since then to “play the hand that was dealt us,” but early results have not been especially encouraging.

TrizecHahn (since renamed Trizec Properties in the U.S.) has twice written down its investment in the center over its first year, to the tune of $217 million in the spring and an additional $184 million in November. The property has been slated for disposition, but the company, which now focuses on office development and has disposed of nearly all its retail properties, does not expect to find a buyer for some time.

The parking lot has become a financial disaster for its owner and operator, the city of Los Angeles, which alienated many local shoppers by charging $10 to park.

The center’s most exclusive retailers have been its greatest disappointments, observers say. Not only have they failed to draw wealthy tourists in the numbers that had been expected, but they also suffered because their location along the Awards Walk proved difficult for shoppers to find.

Though Trizec declined to disclose sales-per-square-foot figures, officials admit they have been significantly less than expected.

“The primary problem with Hollywood & Highland was that its success was underwritten too heavily by its existence as a tourist attraction, and [Sept. 11] was a big blow to that,” said Jim Sullivan, a senior analyst for Green Street Advisors, a Newport Beach, Calif.-based REIT research firm. “But there were also some self-inflicted wounds.”

When it became clear that international tourists weren’t hitting Hollywood in the numbers the developers and tenants had hoped for, they scrambled to sell the concept to local shoppers and regional tourists. Filled with pricey European retailers, however, Hollywood & Highland had a cast to play Breakfast at Tiffany’s but an audience that wanted to see The Breakfast Club.

“It’s beautiful — probably one of the nicest malls in all of L.A.,” said Ambler Moss, 39, an education administrator who lives within walking distance of the project. “But to me, it’s just not local, not the kind of place I’m going to go more than once or twice a year.”

Like many local residents, Moss says he was turned off initially when he learned that parking at Hollywood & Highland would cost $10 for four hours. According to DeBruhl-Hemer, the rates were set so that the city could pay off the bonds with garage income. But instead of operating at a modest deficit as planned, the garage was losing an average of $500,000 monthly during its first six months, according to the Los Angeles Times.

Under pressure from local representatives, the city lowered the parking rates in May, sparking additional volume, DeBruhl-Hemer said. (The Los Angeles Department of Transportation, which operates the parking lot, did not respond to requests for comment.)

Struggles among the high-end retailers that line Hollywood & Highland’s Awards Walk have proved unsolvable for some (Santini Maverdi and Avant Premier each closed shop shortly after opening) and slow to improve for others. Melissa Carden, a spokeswoman for Swarovski, an Austria-based crystal maker with U.S. headquarters in Cranston, R.I., said the store at Hollywood & Highland was “catching on slowly.”

Carden said Swarovski, which sells decorative crystal pieces and jewelry at prices ranging from $35 to $5,000, hoped it could gain some residual benefits from being located along the red-carpet path that celebrities tread on their way to the Kodak Theatre for the Academy Awards ceremony. But signage for the stores was concealed during the event. According to Ken Gillett, vice president of operations for Trizec’s Retail and Entertainment Group, that issue was covered in the stores’ lease agreements.

“From what I understand, the high-end tenants that paid the highest rents in the project have had the most difficult go of it,” said Steven Tronson, a senior associate for Ramsey-Schilling, a commercial real estate brokerage in Hollywood. “I think that the shopper who’s looking for that Rodeo Drive, Beverly Hills-type retailer isn’t looking for that at Hollywood & Highland. They can go to Beverly Hills.”

Hollywood & Highland has and will continue to address the issue of attracting shoppers to the Awards Walk area, Gillett said.

“When the project first opened, the entrance to the Kodak Theatre off Hollywood Boulevard did not read ‘retail.’ It just looked like the entrance to a theater,” Gillett said. New landscaping and signage has improved traffic, he added, but “we still have a ways to go.”

Gillett said the best-performing retailers at Hollywood & Highland thus far have been such stores as Banana Republic, Express and Tommy Hilfiger — “the sophisticated, well-branded retailers that shoppers know.” Those retailers are located on the eastern side of Hollywood & Highland, and, it should be noted, in far less fancy regional malls.

Hollywood & Highland officials make no bones about the project’s financial struggles. But Gillett and marketing officer Stables convey a determination to make the project work and a real sense of excitement about its possibilities. Said Stables, “We’re going to make ourselves a great destination.”

One of Hollywood & Highland’s diverse attractions, Babylon Court, is a venue styled after the set of the 1916 movie Intolerance.

Their strategy involves leveraging the center’s location among its entertainment industry neighbors in a recharged Hollywood. ABC’s new late-night program starring comedian Jimmy Kimmel is being filmed directly across the street. Several movies were shot at the project last fall. TV hosts Jay Leno and Sharon Osbourne have used Hollywood & Highland for their “man-in-the-street” pieces. Talent-search hit American Idol filmed its final broadcast at the Kodak Theatre, and the Game Show Network will be launching a new program shot on location.

“Five years ago, it would be hard to imagine ABC would ever be doing a daily TV show from Hollywood Boulevard,” Gillett says. “But that’s what’s been happening in Hollywood today, and we feel we’re a part of that and we can benefit from it.”

Officials have also found success running tours of the Kodak Theatre in which participants can view memorabilia including an Oscar statue awarded to Kodak. The center is leasing space to Debbie Reynolds’ collection of film memorabilia. A hip bowling alley and cocktail lounge called Lucky Strikes is set to open this month. The Highlands nightclub is becoming known for its celebrity parties. The hotel has been well received by guests and is booked for 85,000 group room nights for 2003, up from 80,000 in 2002, Gillett said. Retail occupancy is at 94 percent.

“Retail is only one part of the story here. We’re kind of like a Hollywood Town Hall with retail,” said Stables, who joined Hollywood & Highland last spring after previous stops at the E! television network, Universal Studios and the Sega GameWorks retail chain.

Hollywood & Highland’s role as a catalyst in Hollywood’s revitalization is one project objective few will deny has been effective.

“I know that Hollywood & Highland has received some mixed reviews and that Trizec might be losing money on it overall, but ultimately I see it as a huge positive for those of us who believe in Hollywood,” said Ramsey-Schilling’s Tronson. “There’s been a lot of investment in this area since they got involved, including retail and loft-style apartments at Sunset and Vine, the office project at Hollywood and Vine, the Hillview Apartments, the W hotel.”

Whether the retail portion of Hollywood & Highland will ever work as designed may still depend on capturing the foreign tourist. But how soon that market will bounce back nobody can be sure. Gillett said he expects a slight increase among Japanese tourists in 2003 but doesn’t anticipate a return to “normalized” levels before 2004.

In the meantime, observers say, the project should move downmarket somewhat.

“They ought to look at more middle-of-the-road retailers, because the emphasis on the higher end does not work with the locals,” said Green Street’s Sullivan.

Sullivan said he also believes that with the project slated for disposition by Trizec, its future would be best served by companies with expertise in its various uses. “What needs to happen is for a good entertainment company to oversee the entertainment element. You should get the retail piece in the hands of a Simon or a Taubman and see what they can do. Get a good hotel operator in there to run that. That way you can finally get to ‘1+ 1+ 1= 3,’ rather than the ‘1+ 1 + 1 = 2’ you’ve got there now.”

In hindsight, observers see the risks more clearly: an overreliance on tourism in a slowing economy and an uncertain world; an unusual tenant mix; a design that is in some places more fashionable than functional; and in Sept. 11, a plot twist no one saw coming.

Said DeBruhl-Hemer: “Was it ambitious? Yes, but it’s also made us [the city and the developer] acutely aware that we’re all in this boat together. You consider all you can, take your best guess and try to make it work.”

“I think the lesson that can be learned is that redevelopment is a very difficult thing to do well,” said Sullivan, “and a developer in that situation has to make sure his downside is protected.”

Added Stables: “Even the best-laid plans can change. You might have a plan on paper that you think is great, but you’ve still got to be flexible and react to the realities of the world. We make no bones that when this project opened, we’d expected a huge tourist component, but it turned out our timing was bad. And we have looked everywhere to make that up, starting one step out of the door.”

© 2008 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |