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Hollywood & Highland’s new owners unveil fresh strategy

BY DEBRA HAZEL

Hooray for Hollywood & Highland, its new owners insist, as a plan takes shape to give the retail entertainment center — and its neighborhood — a new lease on life.

CIM Group, which bought the 1.2 million-square-foot complex in February, has also bought up some adjacent real estate and intends to make Hollywood & Highland a retail anchor for a multiblock district in the so-called City of the Stars.

By doing so, the new owners of Hollywood & Highland, one of the splashiest retail-entertainment centers in the United States, are putting their shoulders behind one of the city’s highest priorities — the revival of long-neglected Hollywood Boulevard.

“The beauty of this project was that it got all the political support,” said Shaul Kuba, a principal and co-founder of locally based CIM Group, which acquired the center from developer Trizec Corp.

Now the priority is to earn the support of local residents and shoppers.

CIM acquired the entire complex, which includes 640,000 square feet of retail and entertainment facilities, including a ballroom, the 3,400-seat Kodak Theatre (home of the Academy Awards) and the Renaissance Hollywood Hotel. The $201 million purchase price was less than a third of the original construction cost of $615 million.

From their nearby headquarters the CIM principals had literally watched the project go up. Kuba and partner Avi Shemesh, Israeli immigrants who came to California on vacation and never returned to their homeland, formed CIM in 1994. They started buying up real estate in various parts of metro Los Angeles, including Old Town Pasadena and the 3rd Street Marketplace, and Hollywood & Highland’s potential in terms of revitalizing Hollywood Boulevard was always obvious to them.

CIM continued to acquire property along the boulevard, including the Hollywood Galaxy mixed-use center and some office buildings, and made effective use of the excitement Hollywood & Highland generated in its leasing efforts. “It helped in marketing,” said Shemesh. “You tell [potential tenants] that there will be restaurants and retail, it helps.”

And they also continued to watch Hollywood & Highland carefully. A splashy November 2001 grand opening (SCT, January 2002) gave way to a period of struggle, particularly as tourism fell hard in the wake of the Sept. 11 attacks. Observers questioned some of Trizec’s leasing decisions, too —a museum for costumes used in Hollywood movies, for example, which never took off.

“That property was perhaps ill-conceived originally in that its marketing orientation was geared to the tourist,” said Charles E. Fancher Jr., principal of Irvine, Calif.-based development firm Fancher Partners. “They need to change and bring in the retail more aimed at the local and regional [shopper].” (Fancher, whose history includes stints at Homart Development and other major firms, is not connected professionally with Hollywood & Highland.)

On the other hand, the location can’t be beat, Fancher notes, and those elements that connect the project to the area, such as the theater, serve it well.

So when Trizec decided in May 2002 to exit the retail real estate business, CIM saw an opportunity.

Despite the center’s early woes, “they put together a hell of a project,” said Shemesh.

Negotiations began quickly and amicably. In February 2004 CIM took ownership and immediately set about leaning the retail mix more toward fashion to favor the local market rather than relying on tourism.

“After we acquired it, we got incredible feedback” from retailers wanting in, said Kuba. “This is a place where there is enough density to justify a store.”

Indeed, last year 515,000 people lived in the area. That’s double the population of Santa Monica, where CIM began redeveloping propertires in the mid-1990s to create its Third Street Promenade, which comprises several buildings. (CIM’s joint venture partner, Federal Realty Investment Trust, bought most of those buildings in 2001; CIM still owns one.) The median household income was $68,058 a year. The five-mile radius surrounding the center takes in parts of the still more affluent Beverly Hills, CIM says.

“We have very good demographics,” Shemesh said. “This is about turning this place into their center.”

The center’s appeal with tenants appears to be enhanced. A project that was 80 percent occupied in February is 95 percent occupied today. New apparel tenants include American Eagle Outfitters and BCBG Max Azria, but CIM is interested in local tenants too.

And the firm is carefully cultivating the entertainment aspect as well. The center includes a Fox television studio, where the syndicated On-Air With Ryan Seacrest is taped, and a radio broadcast studio.

“The live TV show is a good step,” Fancher said. “It’s a real link to Hollywood.”

The place is quickly becoming a true neighborhood hangout, with more restaurants, nightclubs and the Lucky Strikes bowling alley added.

CIM has retained architects to redesign the center’s signage, and plans call for adding an escalator off the main entrance on Hollywood Boulevard. Structural work will be done in phases over the next eight to 18 months. Further down the line there is to be additional expansion, though Shemesh and Kuba are not ready to talk about that yet.

Kuba says the goal is to provide an environment that is not merely for people in their 30s to 50s. “It’s a family place,” he said, “a place for teen-agers to hang out, for young people to go clubbing and do stuff.”

Even more important, the project will be the linchpin for the redevelopment of the two-block-long section of Hollywood Boulevard from Highland Avenue to Sycamore Street. CIM’s purchase of several office buildings along the street provides a rare opportunity to do some strategic leasing.

“The biggest problem in Hollywood has been the amount of disjointed property owners,” Kuba said. “There are all these little buildings along the Boulevard, and each one has a separate agenda.”

Beginning with its first investment, 6922 Hollywood Boulevard, now called the TV Guide Hollywood Center (it is also CIM’s headquarters), the company has been acquiring properties along the street.

“When you look at Hollywood Boulevard from La Brea to Vine, you have over 1.5 miles of storefront on either side,” Kuba said. “That’s a lot to reposition.”

Now, with the acquisition of Hollywood & Highland to effectively anchor the overall development, CIM says it has the critical mass to create a true downtown hub.

“You look two blocks behind [Hollywood Boulevard], and you see multimillion dollar homes within walking distance,” Kuba said. “The question is, how do we attract these people? This is where they need to shop.”