Magic Johnson's Group May Redevelop Ambassador Hotel.

Just a month after losing its bid to undertake a $120 million redevelopment of Santa Barbara Plaza, Magic Johnson's development firm has entered into negotiations to develop a major retail project on the Ambassador Hotel site, the Business Journal has learned.

Johnson MacFarlane Partners is negotiating on behalf of itself and the site's owner, Wilshire Center Marketplace, to transfer title to the southern 12-acre portion of the site to the Los Angeles Unified School District, where a junior high school would be built.

On the northern portion of the site fronting Wilshire Boulevard, a three-way partnership made up of Johnson MacFarlane, Wilshire Center Marketplace and Developers Diversified Realty (a Cleveland-based real estate investment trust) is proposing to develop a retail center anchored by a Magic Johnson Theatres multiplex.

"The only comment we'd make is, we are indeed interested and are in discussions with the appropriate parties to make it happen. It's in the very early stages," said Kenneth Lombard, president of Johnson Development Corp.

But time could be of the essence. The district had placed a deposit on the property in the early '90s, and if an agreement on the proposed school site is not reached by Jan. 15, it could be forced to foreclose, said one LAUSD official who asked not to be named.

"We're hopeful, but we can't wait beyond the 15th because we need the land," the official said.

The district is scrambling to find sites for dozens of new schools to accommodate a mushrooming student population, projected to grow from 700,000 currently to 776,150 in 2008.

Even if a deal is struck with the district in time, there's at least one other hurdle to clear. The Los Angeles Conservancy opposes demolition of the 78-year-old hotel.

The Ambassador site has been in limbo for years. New York developer Donald Trump acquired the 23-acre property in the '80s, but the L.A; school board wanted it for a high school. The board sought to condemn the property through eminent domain and deposited $48 million with Trump's ownership group.

The district dropped its plans in 1994, in the midst of the real estate recession. Trump's group sued to force the district to take the property after all. In 1998, Trump's group revived its plans to develop a retail center with a movie theater. Several months later, Trump pulled out.

The district has obtained a. court judgment stipulating that the Ambassador Hotel ownership group pay the district $68 million, if the ownership group doesn't pay up, the district could be induced to foreclose on the property.

Now the Ambassador ownership group and district are back at the table -- with Johnson MacFarlane representing the site's owner -- once again trying to hammer out a deal under which the property would be split between school and retail uses. The deal being negotiated would likely involve the district receiving a cash payment when the retail center opens, said the district official.

The Ambassador talks follow on the heels of the L.A. Community Redevelopment Agency's recent decision to terminate Johnson MacFarlane's exclusive right to negotiate for a proposed $120 million redevelopment of the decaying Santa Barbara Plaza in the Crenshaw District of Los Angeles.