DreamWorks: Maguire's nightmare.

Playa Vista project just one of the developer's woes; once mighty empire is sinking

The world is crashing in on the man many consider to be L.A.'s premier commercial real estate developer: Robert F. Maguire III.

In the last couple of weeks alone, some of his most strident supporters have publicly scolded the man most responsible for developing the tallest office highrise in the Western United States, as well as many other local landmarks.

Among Maguire's sudden detractors: entertainment mogul Jeffrey Katzenberg, L.A. Councilwoman Ruth Galanter and officials at IBM Corp.

"We're not waiting any longer for these people to sort out their mess. ...They're chasing the ends of rainbows and genuinely have no sense of reality or practicality," Katzenberg told the Business Journal last week.

The DreamWorks SKG co-founder was referring to the delays at Maguire's most ambitious project to date - the $8 billion Playa Vista planned community near Marina del Rey, where DreamWorks wants to build its studio campus.

Katzenberg said DreamWorks, the critical mega-tenant Maguire needs to launch Playa Vista, is looking elsewhere for its home while Maguire struggles get his financial act together and start building Playa Vista's underlying infrastructure. (see related story, page 41)

Maguire, the 62-year-old managing partner of Maguire Thomas Partners, is feeling the heat from other key parties as well.

Galanter, who has supported Maguire's grand-scale plans for Playa Vista, is now publicly chastising him for the delays that could cost the city thousands of high-paying jobs.

His longtime joint venture development partner, IBM, has pulled out of its Playa Vista technology consulting role and is sending threatening letters to Maguire over unpaid bills.

And Playa Vista is not the only project in which IBM and Maguire Thomas are facing difficulties. Among the most prominent of several projects co-owned by the two companies is the 1.3 million-square-foot MGM Plaza in Santa Monica.

That project's lead lender, Chase Manhattan Bank, is selling at a substantial discount its $300 million mortgage. That mortgage is being sold to Brentwood-based Douglas Emmett & Co., a real estate investment group.

Chase also happens to be the lead lender behind some $150 million in mortgage debt on Playa Vista.

Real estate sources familiar with terms of the MGM Plaza mortgage sale said Maguire Thomas likely will lose MGM Plaza's management and leasing responsibilities - a key income source for Maguire's firm - a year after the mortgage sale closes.

Even worse, real estate sources are privately confirming reports that Maguire's Chase-led lenders might consider selling the mortgages on the Playa Vista land at substantial discounts as well.

Chase also holds the mortgage on the Western U.S.'s tallest tower, the Maguire Thomas-developed First Interstate World Center in downtown L.A., which is facing problems of its own.

The tower's namesake anchor tenant, after being acquired by Wells Fargo Bank, is trying to sublease its premier space in the building. And once the original leases expire, new leases are expected to carry far lower rental rates due to softer market conditions.

Meanwhile, IBM is Maguire Thomas's joint venture partner in several other projects around the nation, including downtown's IBM Tower and developments in downtown Philadelphia and suburban Dallas.

Other Maguire-led partnerships that own some of L.A.'s most prominent commercial developments are already facing financial strains - largely related to the recession-related tumble in rental rates after the partnerships took out huge mortgages.

And nearly all of Maguire's senior-most partners have left Maguire Thomas including former co-managing partner Jim Thomas about three months ago.

On top of all that, his wife of 20-plus years, Sue, is divorcing him.

As longtime partners have departed and Maguire Thomas has laid off much if its corporate staff, Maguire has persistently denied that his firm is facing a financial crisis - despite all the evidence to the contrary.

Maguire did not return phone calls last week for comment. And Maguire Thomas spokeswoman Peggy Moretti declined to comment on the sale of MGM Plaza's mortgage, which was said to be imminent as of last week.

Regarding DreamWorks' stated intentions to abandon Playa Vista and seek an alternative headquarters, Moretti said: "We are aware that they are anxious and looking. Certainly we'd be disappointed to see them leave the project, and what we are hearing is an indication of their frustration."

Moretti also said the firm is aware that Galanter "is equally frustrated, and we acknowledge that."

Maguire Thomas bought into the 1,087-acre Playa Vista property at the height of the last real estate upcycle in 1989, forming a partnership with longtime property owner Howard Hughes Corp.

Six years later, the huge project finally seemed set for a groundbreaking as Maguire and the three DreamWorks principals - along with a long roster of political dignitaries and business leaders - held a huge press conference in one of the site's old aircraft hangars.

Construction on Playa Vista's first phase, including the 100-acre entertainment-media-technology campus DreamWorks would anchor, was scheduled to begin within about six months of the press conference, Maguire reported at the time.

However, since the Business Journal first reported last month that the DreamWorks Studio at Playa Vista was behind schedule, subsequent media reports have placed much of the blame for the delays on Maguire's unwillingness to cut a financial deal allowing the project to proceed.

At this point, the only way to kick-start construction would require Maguire to cede much or all of his ownership and control, according to knowledgeable real estate finance sources.

"The (finance) market is waiting for Rob to go away," said one local finance expert whose finn is among the many that have considered investing in Playa Vista.

He added that eventually Maguire will have to cede control of Playa Vista, opening the door for a well-heeled equity investor to "pick it off and bring order to chaos."

That, in turn, would generate the stability necessary to secure financing commitments from construction lenders, the finance executive said.

DreamWorks and Galanter are exerting a lot of pressure on Maguire to finalize a financial package for Playa Vista - or risk losing DreamWorks and a key package of city-backed financial incentives aimed at keeping the new studio in L.A.

"We are finished waiting," said a frustrated Katzenberg last week. "We've waited for a year already, and we need to find a home for our company."

Galanter, who recently felt compelled to remind the developer in writing that the city's incentive package for Playa Vista is contingent on DreamWorks's presence there, nonetheless offered some sympathetic words last week. "It's a shame that people feel they have to put this kind of pressure on (Maguire)," she said.

However, she added, it's in everyone's interest to have Maguire "find a deal he's comfortable with and make it, and get on with the project. Nothing can move forward until he does that."

If Maguire fails to strike a deal soon that would enable the project to proceed, he risks losing DreamWorks - and with it, a pair of trump cards that can make or break Playa Vista's approved development plan.

One of those trump cards is the package of financial/tax incentives - potentially valued at $70 million to $100 million that the City of L.A. has offered to induce DreamWorks to locate its studio at Playa Vista.

The other is DreamWorks's name and its accompanying magnetic pull - which has already generated preliminary Playa Vista commitments from several high-profile media and technology firms. Many or all them would likely follow DreamWorks' lead if it decides to abandon Playa Vista.

RELATED ARTICLE: Where could Dream Works go? CBS, MCA may offer alternatives

BRAD BERTON - Staff Reporter

So now that DreamWorks SKG is threatening to pull out of the much-touted Playa Vista development near Marina del Rey, the search for an alternative site is under way.

The logical next question for founders Steven Spielberg, Jeffrey Katzenberg and David Geffen: "Where?"

If they want to buy or build an appropriate facility immediately, it's a pretty short list, according to knowledgeable real estate sources.

And it likely includes phone numbers at Westinghouse Electric Corp., MCA Inc., J.H. Snyder Co. and Vestar Development Co. - along with City Halls in L.A. and Burbank.

In an interview, Katzenberg declined all comment on alternative sites. But sources say there have been preliminary, top-level discussions between DreamWorks and Westinghouse, which owns the 40-acre CBS Studio Center complex in Studio City.

The site-already targeted for expansion by CBS - has the advantage of having existing production facilities. It also is closer than Playa del Rey to the DreamWorks animation studio now under construction in Glendale.

Another possible site is MCA's Universal City.

DreamWorks now maintains its corporate offices at 10 Universal City Plaza, and Spielberg's Amblin Entertainment is already located on the big Universal City lot.

MCA Also is in the process of expanding its studio production facilities, and officials have said they would like nothing more than to cut a deal for DreamWorks to locate on their property.

One source said a site at the corner of Barham Boulevard and Forest Lawn Drive would work particularly well. There's enough acreage to house a new complex, and it's within the City of L.A. - and would thus likely be subject to a similar financial/tax incentive package the city had tentatively offered DreamWorks to locate at Playa Vista.

Burbank has been upfront in its efforts to woo the new studio operation - and now two sites within that city are likely on the DreamWorks' short list.

The J.H. Snyder development firm is pursuing plans to develop a campus-like project featuring more than 500,000 square feet of office space along the Ventura (134) Freeway adjacent to NBC's studio in Burbank's popular Media District.

And within the Media District North, Vestar has agreed to purchase vacant 103 acres - between the Golden State (5) Freeway and the Burbank airport - from Lockheed Martin Corp.

A portion of that site seems to represent the best opportunity to quickly develop a major corporate/studio campus in a preferred location, sources noted.

A "sleeper" candidate, as one source put it: the Sunset Gower Independent Studio in Hollywood.