Three projects' woes illustrate saga of Hollywood revival gone wrong.

Recent default notices on projects deemed vital to Hollywood redevelopment are providing fresh evidence that efforts to realize a 1980s vision of a vibrant, revitalized community have failed.

A trio of redevelopment projects heralded by the L.A. Community Redevelopment Agency as the answer to Hollywood's woes -- the renovation of the El Capital theater, construction of an enclosed shopping mall called the Galaxy, and plans for a mixed-use development called Hollywest -- are falling victim to economic destruction.

The El Capitan, despite having Walt Disney Co. as an anchoring tenant, is facing foreclosure. The Galaxy is in default on its bank loans. Hollywest's developers are now being dogged by the Internal Revenue Service on some demolition-related bills (see accompanying story below).

And now, just when Hollywood rents seem to have hit bottom -- and owners are losing properties to their mortgage lenders -- the Metropolitan Transportation Authority is poised to rip up Hollywood Boulevard for five years and put in a subway tunnel.

Although owners along or near Hollywood Boulevard are bracing for further distress, other developers and entrepreneurs are buying up and renting property cheap -- including a renovation expert, the Church of Scientology and the Holy Alamo Christian Church.

The Galaxy at 7021 Hollywood Blvd. was heralded by the CRA as one of the premiere examples of redevelopment in Hollywood. But recently, Citicorp Real Estate Inc. filed a notice of default on $37.8 million in loan debt on the property.

Michael Dubin, president of the Hollywood Chamber of Commerce and senior vice president of Galaxy developer Kornwasser & Friedman Shopping Center Properties, said not only didn't the CRA put any money into the project, but it actually slowed down the development process and did nothing to help the developer when the project hit hard times.

"They just want to take all the credit and all the glory," Dubin said. "When we came to them with problems, they turned their backs on us."

Kornwasser & Friedman is negotiating with Citicorp and hopes to avoid foreclosure, Dubin said.

"The question is: Would (a foreclosure on the Galaxy) have a ripple effect down the Boulevard?" Dubin said.

The mall is 60 to 70 percent leased, but 50 percent of the mall is taken up by the General Cinema theaters, he noted.

The lauded restoration of the El Capitan Theater at 6838 Hollywood Blvd. and an adjacent office building is also in danger of foreclosure after losing key tenants that feared Metro Rail disruption, confirmed Nick Olaerts, a partner in the El Capitan project and several other Hollywood renovation ventures.

While lender Century Life of America filed a notice of default and a notice of trustee's sale earlier this year, Olaerts said the lender has shown "willingness to work with" him and his partners as they seek tenants to save the project.

However, the insurance company holding the property's $5.5 million note "is part of a regulated industry and can only go so far," Olaerts said. "If I can't pull it off in a couple months, we probably won't be around," he added.

CRA Director of Operations Don Spivack said the CRA, which provided technical assistance on the El Capitan renovation, "would be willing to help in any way we legally can." He said the CRA may be able to aid in negotiations with lenders.

Another key building in Hollywood that has fallen on hard times is the former Brown Derby restaurant at 1628 Vine St. The building is partially burned out and has become a home to transients.

Its owners want to demolish it, use the site for a parking lot, and then sell the land for development at a later date, according to published reports. But activists for the arts and historic preservation want it renovated.

Developer Jerry Schneiderman, who has been involved in several Hollywood redevelopment projects, offered to acquire the Brown Derby building and renovate it into a restaurant and arts center, in cooperation with the Hollywood Arts Council, Schneiderman said.

But he said the owners -- Larry Worchell, one of the owners of the Hollywood Palladium; Steve Ullman, who owns Grant Parking; and Paul Ramsey of Ramsey-Shilling Commercial Real Estate Services -- don't want to sell to him.

So Schneiderman is asking the CRA to use its power of eminent domain to force the owners to sell.

Broker Frank Buckley of Ramsey-Schilling said the Brown Derby property owners have been seeking tenants "with the vision" to work on a renovation that "needs a half-million dollars to get started" and would take perhaps 18 months to accomplish. But the "reality" facing the owners is that tenants can lease fully serviced commercial space immediately -- and cheaply -- from competing landlords, he said.

Hence, the owners "would just as soon tear it down," Buckley said.

Hollywood business people also note the indefinite tabling of two much larger mixed-use redevelopment projects last year represented the elimination of critical "anchors" that would have inspired further redevelopment in the "Heart of Hollywood."

One of these, the Hollywood Promenade project slated to wrap around the famed Chinese Theater, would also have helped retain key Hollywood office tenants -- which have been vacating the once-proud district en masse -- by providing new "Class A" office space as well as drawing tourists.

"I think a lot of firms that have left would have stayed if there was first-class office alternatives in Hollywood," said Rob Waller, vice president with real estate brokerage CB Commercial Real Estate Group.

"The problem here is that (prevailing) market rents don't support development of new Class A office space," added commercial broker Rob Langer, chairman of the Hollywood Economic Development Committee, which is affiliated with the chamber.

Schneiderman, who still believes Hollywood property is a good investment, said his company, Colony Bancorp, is also about to close escrow on buying the Security Pacific Tower at Hollywood Boulevard and Highland Avenue.

He said he will spend $1 million renovating the 12-story, 50,000-square-foot tower, and already has a commitment from a restaurant/entertainment business to lease the ground floor, basement and mezzanine space vacated by Security Pacific.

Schneiderman said he is buying the building for less than $25 per square foot, through a receiver from Pacific Mutual Insurance.

"I have no trouble keeping my buildings full. The space that is empty doesn't have character; it's not creative space," said Schneiderman.

"(Former City Councilman Mike) Woo and the CRA tried to revitalize Hollywood to their image of what a redevelopment zone looks like, with the focus on tearing down and building instead of renovation."

Spivack agreed that there needs to be more emphasis on renovation of existing Hollywood buildings, but he denied that new construction has been the CRA's emphasis.

Meanwhile, Schneiderman said the controversial Church of Scientology has taken an interest in buying more property in Hollywood and rehabilitating existing buildings as housing for church members and/or office space for Scientology-related companies.

"They're a force to be reckoned with -- a positive force," said Dubin. "They maintain their property. They have pride in ownership."

Buckley confirmed that Ramsey-Schilling is "working on a couple deals" involving the Church of Scientology, "but I wouldn't call it a trend."

And Schneiderman said he has been contacted by the even more controversial Holy Alamo Christian Church -- run by evangelist Tony Alamo and best known for passing out radical anti-Catholic literature on windshields -- about buying a "major" building to house church facilities and a shelter in Hollywood.

Dubin and others insist the remedy for Hollywood is retaining the entertainment industry base, building gradually and improving the once-thriving tourism business by giving people more to do than touring the Chinese Theater and Hollywood Walk of Fame.

"You can only have so many T-shirt shops and pizza places on the boulevard," said Dubin. The chamber, he said, will soon announce some important projects in Hollywood involving movie studios.

But Hollywood businesses -- and their landlords -- are still focused on surviving five years of Metro Rail construction.

"We're likely to see an entirely new group of property owners" along Hollywood Boulevard, predicted Olaerts.

The city and the MTA view property owners as "casualties of war; they accepted that some people are going to die," he said. "There's just no appropriate relief from the city in terms of reasonable, affordable loans that will help (landlords) restructure our tenant bases and bring in tenants that can live through" the construction period.

A committee has been designated to study possible mitigations, but the Hollywood Metro Rail Mitigation Committee is falling victim to the same divisiveness that has plagued other Hollywood advisory groups.

Committee member Doreet Hakman, owner of the Snow White Coffee Shop, now says the group's executive committee violated the state's open meetings law when it threw her out of a recent meeting. She said she plans to file a lawsuit.

But some look for a better post-Metro Rail future. Real estate broker Don Ferris of Julien J. Studley Inc. envisions a "new generation" of property owners who will benefit from Metro Rail.

"People like Schneiderman are able to buy cheaply. That makes the bottom-line cost of development cheaper, and that could be just what the market needs to be more competitive," he said.

"I think the changes we'll see will indicate a regrouping in the market, new blood leading a second wave of redevelopment -- and that could be a good thing," agreed Scott Milano, a broker with Lambert Smith Hampton. "We probably had an inflated expectation of what redevelopment would be with the big projects that didn't materialize; now we'll see more 'grass roots' redevelopment on a project-by-project, block-by-block basis."

Controversial Hollywest plot thickens as IRS enters the scene

The Internal Revenue Service has become involved in financial wrangling connected with the controversial Hollywest development at Hollywood Boulevard and Western Avenue -- the Hollywood redevelopment project advocated most fiercely by former L.A. Councilman Mike Woo.

The latest woes of Hollywest developer Ira Smedra were brought on by the company that last June removed asbestos from the old Hotel Rector on the Hollywest site, in preparation for the hotel's demolition.

A-Rem Inc., when it didn't get paid by Hollywest Associates L.P., filed a lien against the property to collect on the $68,000 owed for its services, said Philip Amos, vice president of A-Rem.

Amos said his company was solicited by someone named Ed Plankers of Smedra's Arbor Group to bid to perform the asbestos abatement. Later, A-Rem entered into a contract with Hollywest Associates L.P., an affiliate company, for the work, Amos said.

"We bent over backward to get it done in time," said Amos, who said he was told by Plankers that the work had to be done before Woo left office in July, because new Councilwoman Jackie Goldberg might try to stop the demolition.

When A-Rem's payment from Hollywest hadn't been received by August, Amos said he had his accountant, George Simik, call Smedra, who told him A-Rem would get paid when Hollywest received some more government funding. The city and the Community Redevelopment Agency told A-Rem it was up to Smedra to pay his demolition bills, Amos said.

Then when A-Rem had trouble paying its employee payroll taxes, it signed over the lien to the IRS.

IRS Agent Carl Jones confirmed he visited Arbor Group/Hollywest offices with final demand papers in November. He said he too was told that "they are government-funded and they will pay as soon as the government money comes in."

CRA Director of Operations Don Spivack said he was unfamiliar with the asbestos-abatement bill issue, but he said he believed that all the government money promised to Smedra had been disbursed.

"I don't believe there's any money pending," said Spivack.

Amos said his company plans to pursue "any remedy civil or criminal available to us," and hopes to have Smedra brought up on fraud charges.

"I would like to see him in jail," agreed Stephen Ursino, owner of Nomad Envirolabs. Ursino said Nomad is owed $6,000 for asbestos consulting work on the Hotel Rector demolition project. He said he plans to sue the Arbor Group because he believes Smedra and his associates knew they couldn't pay for the work when they contracted for it.

"I don't like dishonest people," Ursino said.

The man whose company did the actual demolition work -- William Olson of Chatsworth -- said he hasn't been paid either and also has filed a $60,000 lien. But he said he has done other work for the Arbor Group in the past and has been paid, so he trusts Smedra to pay him eventually.

Smedra, who was out of town last week, referred calls to his consultant Ira Handelman, who said the company had no comment.

The news of the lien and the IRS action comes on the heels of a city announcement that the CRA and Goldberg's office were trying to rescue the redevelopment project, by converting it from a mixed-use project with a senior housing element to a strictly commercial project.

City officials said they were planning to pay off the project's $4 million in affordable housing loans from the CRA with new economic development funds.