DreamWorks stuck in limbo.

PLAYA DEL REY - Four months after construction was supposed to begin, ground-breaking on the DreamWorks SKG studio is at least six months away as the developer labors to put together financing on the massive Playa Vista property.

Despite commitments from state and local governments to help defray costs, the up-front infrastructure requirements represent a major financial challenge, the developers acknowledge.

"The capital structure of the project, the financing for the infrastructure - those are the top priorities," said Peter Denniston, who was just named to head the Playa Vista project by the community's lead developer, Maguire Thomas Partners.

Denniston, however, expressed confidence that the thorny problems will be resolved.

"My objective is to break, ground within six months," he said.

Even that could be a tall order.

According to Denniston and others, the chief obstacle has been securing the millions of dollars in development financing to get the project moving.

Although he declined to disclose specific dollar amounts needed, one thing is certain - the logistics of the project are enormous.

The developers are still working out specific ownerships of individual Playa Vista development projects, said Doug Gardner, the Maguire Thomas partner responsible for planning and entitlements.

Phase One of Playa Vista is slated to include a 100-acre media campus that would include the DreamWorks studio and other media/technology heavyweights, including IBM Corp., GTE Corp., Silicon Graphics Inc. and Digital Domain. It also would have 3,200 units of multi-family housing.

With the strong support of Mayor Richard Riordan, the L.A. City Council last December approved an aggressive, $85 million, multi-agency incentive package aimed at fast-tracking the costly DreamWorks campus - and keeping perhaps 4,000 jobs within the city limits. The incentives include tax breaks and a discount on the cost of hooking the project up to utilities.

The day after approval, DreamWorks principals Steven Spielberg, Jeffrey Katzenberg and David Geffen announced amid much fanfare that groundbreaking was slated for June 1996.

DreamWorks officials would not comment on the continuing delays. Steve McDonald, director of Riordan's L.A. Business Team economic development group, did not express concern.

"There are lots of smart people at DreamWorks and at Maguire Thomas, and we remain confident that they can put this thing together," he said.

Of all the obstacles involved in the massive project, the most daunting is the financial challenge, Denniston and Gardner agreed.

"Clearly, getting the financing finalized is the key, but we can't focus just on that," Gardner said.

Under development plans that Maguire Thomas and various regulatory authorities have hammered out over a decade of planning and negotiating, the Playa Vista developers are required to see that roads, sewers, utilities and other infrastructure elements are moving forward before construction can start on any commercial or residential structures.

Private investors aren't inclined to help fund the developers' portions of those costs, or provide financing for construction of income-producing facilities, unless they're convinced that revenues from the developments can repay the debts.

The problem, according to several real estate professionals who declined to speak on the record, is that Playa Vista's Phase One might not "pencil out" under prevailing rent levels.

They contend that rents need to be in the high-$30's per-square-foot range annually to make economic sense, but market rent levels simply haven't reached that rate and may not for several years.

But Denniston stressed that ongoing negotiations with prospective Playa Vista capital partners are focusing on realistic assessments of market conditions.

"We must start with the market, what it wants, what it's willing to pay," Denniston said.

According to sources close to the deal, another complicating factor is the substantial existing bank debt, secured by Playa Vista land, that Maguire Thomas and Playa Vista limited partner Howard Hughes Corp. have accumulated as they've pursued the huge development over the years.

Denniston declined to specify the balance of the outstanding debt, but stressed that those banking relationships are critical to Playa Vista's future.

"We have to not only satisfy (the banks), we have to make them happy," he added.

Title records indicate that the property owners took out some $158 million in loans through Chase Manhattan Bank during 1989-90.

To help with infrastructure financing, a city-sponsored $49 million bond issue, tied to an approved special assessment district, is to be funded as the private phase-one infrastructure financing is funded.

But that debt will need to be repaid from the property owner's revenues as well and hence must be factored into rents at Playa Vista's commercial and residential properties.

Denniston remains encouraged about private financing prospects, noting that the Playa Vista team is pursuing several "viable alternatives" for the infrastructure as well as individual development projects.

"If I returned all the calls I'm getting (from interested parties) I wouldn't have time for much else. I'm very pleased" with the response from the real estate capital markets, Denniston said.

Also, as Denniston and others point out, Playa Vista's special attributes should help convince construction lenders and equity investors that developments within Playa Vista will command premium rents relative to other Westside locations.

And while other cities are likewise clamoring to woo the DreamWorks campus, "I think we're in the pole position relative to meeting their needs," Denniston said.

McDonald said that Riordan and Councilwoman Ruth Galanter continue to work closely with Maguire Thomas and DreamWorks "to help ensure that (the campus) becomes a reality."

The current key player is Denniston, a veteran Southern California land developer. He has dealt with tricky property entitlement business as director of community development at The Irvine Company, Orange County's dominant landowner. He later established and directed the former Homart Development Co.'s western regional operations.

In the late 1980s, Denniston joined big former development company Signal Landmark Corp. as president, and oversaw entitlement and development of thousands of homes and millions of square feet of business properties.

At Signal Landmark and its successor entities, he was intimately involved in another highly controversial, environmentally sensitive coastal property - the Bolsa Chica wetlands along Orange County's northern coastline.