By Jesus Sanchez, Times Staff Writer
Hit with substantial cost overruns and a sluggish economy, TrizecHahn Corp. on Tuesday reduced the value of its recently opened Hollywood & Highland retail and hotel project by $217 million in one of Southern California's costliest real estate drubbings.
The write-down reflects a 40% reduction in the value of the giant complex in the heart of Hollywood. The Canadian real estate firm also said it would reduce the value of its poorly performing Las Vegas shopping center, Desert Passage, and several of its European retail properties for a total write-down of $287 million, which would be reflected in its 2002 year-end earnings statement.
Despite the size of the write-downs, Wall Street analysts applauded the move as part of the company's efforts to sell its retail properties, including Hollywood & Highland, and focus on its more stable office portfolio. On the New York Stock Exchange, TrizecHahn shares fell 1 cent to close at $16.70. Local real estate observers said the $217-million write-down TrizecHahn took on Hollywood & Highland ranks as one of the largest losses on a single piece of commercial property in recent memory.
"I still think it is a great idea, but it's one of those projects that just got out of control," said real estate developer Timothy Walker at Los Angeles-based MaguirePartners.
Some real estate investors suffered huge losses during the real estate bust of the early 1990s, said USC real estate professor David Dale Johnson, "but I don't recollect any of them on that order."
The 500,000-square-foot project at the northwest corner of Hollywood Boulevard and Highland Avenue has been hailed by civic and business leaders for generating development and boosting the momentum of Hollywood's revival.
Not only did Hollywood & Highland project suffer cost overruns and delays, but the project also opened last fall amid a recession and a steep drop in tourism after the Sept. 11 terrorist attacks.
"All of the things that could have gone wrong did," said Steve Sakwa, a real estate industry analyst for Merrill Lynch Global Securities.
On its books, TrizecHahn had valued Hollywood & Highland, which includes a 637-room hotel and a 3,500-seat theater, at $540million, but an independent appraisal firm trimmed that amount to $323 million.
Company spokesman Rick Matthews said most of the reduction reflected cost overruns related to construction of the parking garage, the Kodak Theatre, which is the permanent home of the Academy Awards ceremony beginning this year, and other construction-related delays. Matthews declined to provide additional details about cost overruns.
Matthews said Hollywood & Highland's financial performance had "been very promising" and that conditions were expected to continue to improve after the opening of more restaurants and the Academy Awards telecast in March.
He said the firm planned to sell the project by 2004. "We absolutely have no intention of [holding] a fire sale," he said.