CIM Group Truly Is Bullish On TOD And Hollywood

John, why don't we begin by you commenting on CIM Group's Urban Real Estate Fund's recent acquisition of Trizec Properties' Hollywood & Highland development? How would you describe the investment opportunity? What's the return on investment that CIM expects?

Last month, we closed on acquisition of Hollywood & Highland ®, including the theatres, retail and hotel components. We look at this as part of a larger investment in the Hollywood Boulevard district, which is really anchored by the intersection of Hollywood and Highland. Just to put it in perspective, we have now a projected investment in Hollywood of $321 million, and almost 1.8 million square feet of building area. We invested in this property to achieve a high return, and we believe that can be accomplished because of several factors.

First, the district itself has gone through a tremendous transformation, which led us to make our first investments in the area in 1998. The phenomenal transformation of Hollywood can only be put in perspective by looking at the condition that Hollywood was in after '92 or '94, and the variety of calamities that befell the area-riots, earthquakes, and disruptive metro rail construction. All of that, in a sense, has been a silver lining in that it was the catalyst for a tremendous amount of public investment in Hollywood. During the period of recovery Mayor Riordan, Councilwoman Goldberg, the Hollywood Chamber, and the greater L.A. business leadership recognized that Hollywood has been and should continue to be a profit center for L.A.'s economy. This became the fertile environment that facilitated the Hollywood & Highland ® development and set the stage for CIM and many others to invest in Hollywood. And, from what I understand, the City's revenues from Hollywood have been very positive. From our perspective, Hollywood's transformation is ongoing. The leadership and optimism continue with today's business and civic leaders, such as Mayor Hahn and Councilman Eric Garcetti.

We see Hollywood as an area where businesses are still anxious to launch new concepts and bring services to their customers, i.e. better serve the community. At Hollywood & Highland ®, we see a facility that is beginning to rebound in each of its component parts. Through some key tenants, some design and construction activity, and our efforts related to the larger district, we think that we'll create that next surge that will add the value that will make the return for Hollywood & Highland very respectable.

Let's take a half step back, John. What is the investment strategy, the objective, of CIM's Urban Real Estate Fund? How do you go about picking your targets of opportunity?

The CIM Urban Real Estate Fund is a discretionary fund that CIM manages for our investors, which include CalPERS and CalSTRS, and CIM Group. The total fund is $676 million dollars, which leverages to permit a total investment of between $1.5 and $2 billion. The fund looks at all forms of properties in urban districts. We're not so much product driven in our selection of investments as we are driven by the quality of a district, diversification of product within a district, levels of public and private investment within a district, and the opportunities for high returns from every individual property. When we look at an area, we want to see concentrations of density, concentrations of daytime and evening population, underutilized or undervalued land, opportunities to add value, and a long-term commitment by other public and private investors.

Where in Southern California and the metropolitan L.A. basin have you targeted your investments?

Within the city of L.A., we have investments in Downtown Los Angeles, Hollywood, San Pedro and Mid-Town (at Pico and San Vicente). In addition, we have a substantial project in Anaheim, another in Huntington Beach, and another project in Brea.

To give you a sense of the magnitude of what we're currently working on, in the City of Los Angeles, we are projecting total investment in those four locations of around $940 million, including: 1.3 million square feet of retail; 670,000 square feet of office; 1700 dwelling units; the Kodak Theatre (180,000 square feet); and over 600 hotel rooms.

Let's refocus on Hollywood. For decades, many investors judged Hollywood a "B" retail area, and concluded that in any downturn it would suffer much more than other areas of metro Los Angeles. What does CIM see in the mix of opportunities in Hollywood that convinces you that there will be an economic return on your investment in the near future?

One has to look at the demographics of greater Hollywood, which extends in to the hills and the canyons, east through Los Feliz, all the way into downtown and west to Beverly Hills and West Hollywood. That is the region for which Hollywood has traditionally been a focal point. And, that focal point has been strengthened by the Metro connections that run all the way out to Valley and into downtown. One has to look at the continued strength of a much more diversified media industry, which is a core industry of Los Angeles. While the industry is not solely centered in Hollywood, it continues to generate a tremendous amount of enterprise and growth for in the Hollywood area.

You then look at who's continuing to move into and recreate Hollywood. I consistently find that the next generation of L.A.'s best and brightest is based in Hollywood, Los Feliz, Silverlake, Echo Park, and downtown L.A. When you look at where the energy of L.A. is going among the creative groups, this is one of the region's most dynamic communities.

John, you cut your teeth as a planner with the L.A. CRA and MTA- when public planning was appreciated and supported. How will CIM's private investment in Hollywood create a safe, attractive public environment, including retail, residential and office, that will induce investment by your tenants and other investors?

We find that retail businesses are looking for access to strong markets and space that meets their requirements. We look for multi-use districts and environments where that can be achieved, and that is represented in our Hollywood program, with Hollywood & Highland ® and the surrounding properties. It is also the underlying rationale for our focus on Downtown Los Angeles, Mid-town, San Pedro and other projects such as Anaheim, Huntington Beach, San Jose and Sacramento.

As a city planner, I value the need for a capacity to constantly calibrate the plan making framework each evolving market and opportunity driven business of city building. It is too often the case that policies or, worse, regulations, hammered out to solve a problem ten years ago, come back to haunt planners, community groups and developers who are trying to do the right thing today. I appreciate that many planners are starting to be weary of a legislative approach to planning. Planning is viewed most favorably in cities where it has been manifest in transportation, the quality of public spaces, a healthy housing supply, and a dynamic environment of continuous reinvestment.

Also in this month's TPR , is Westfield's David Doll commenting on how retail centers are evolving and including a new mix of uses. TPR specifically asked Doll about the AOL-Time Warner Center in Manhattan as potentially being a model of a next generation retail center. Do you have an example to offer?

That question looks to the notion that there is one, monolithic or idealized model that drives development and reinvestment in cities, and I'm not so sure that's the case. I'm averse to trying to categorize it that way. I think the next wave of redevelopment draws upon the capacity to absorb many developments of different scale with different mixes of use. That's really how we look at what we're doing in Hollywood and elsewhere. The notion that a singular project or prototype can, in and of itself, shape a city false. In fact, it's one of the more limited ways in which cities get built.

John, CIM was not a bidder to develop the Grand Avenue vision. Address what went through your mind, what were your considerations in choosing to skip that opportunity?

We considered it very seriously. It's obviously a beautiful piece of property that completes a long history of redevelopment, and reconnects an important aspect of the city. We feel that downtown is also far more diverse in its opportunities than Grand Avenue is by itself, and we are continuing to focus on those opportunities. That being said, when that project takes shape the developers are selected, and the opportunity is ready to be realized, the CIM Urban Real Estate Fund will consider opportunities to invest equity in Grand Avenue.

Changing subjects, Hollywood & Highland's Renaissance Hotel will host the annual Rail-Volution conference this September. This celebrated national gathering of transit devotees focuses public attention on both examples and the challenges of creating livable neighborhoods through smarter use of public transit. Have you any thoughts on how that conference could serve positive ends for metro Los Angeles?

I think that Los Angeles has evolved a phenomenal transit system. There is a community-you could call it Transit L.A.-that is able to have a lifestyle that is totally different than what is available to others in Southern California. This community extends all the way out to the Valley with Metrolink and DASH and Metro Rapid connections throughout the Valley; it extends down through the densest districts of L.A., through Hollywood and Wilshire and into downtown; it connects out to Pasadena, south to Long Beach, and out along the Green Line corridor. Extending from the stations are interconnected transit communities Hollywood/Western is a good example. There have been four separate mixed-use and mixed income housing projects constructed within a stones throw of the Metro Station. Moreover, there is already a very dense community surrounding the station in all quadrants and along the Hollywood Boulevard and Western Avenue bus lines.

The population that is served by that system is probably equivalent to one of the top ten cities in the country. A transit-oriented city almost as large as any in the nation exists right here in Los Angeles along these transit corridors. It may not be the city experienced by people on the Westside, the South Bay, the San Gabriel Valley, or other more remote areas. But, when you take a region of ten to fifteen million and you look at the level of service that's occurring for two or three million people, I think it's phenomenal. This is a story in which L.A. needs to take pride, because that will be part of what makes our transit system grow.

That's a long-winded way to also say that there's a phenomenal visitor/tourist entertainment itinerary that can be realized for anybody connected to the system or staying in Hollywood, Universal, Downtown, Pasadena, or Long Beach. An entire 3 to 7-day experience in Los Angeles can be fulfilled on a transit base. This is a story that is going to be told at POW WOW, the international tourist agency convention, which L.A. is hosting this spring. Conference attendees are holding one of their events at Hollywood & Highland ® and they will be taking the Red Line from downtown. Hopefully, this exposure will help to introduce this fact to the world.

You say CIM not only develops, but you invests in developments. In that regard, describe your investment to date with the Lee Group in the Flower Street lofts, and what that investment portends for others CIM might make in like projects.

Beginning with the Flower Street Lofts, we have established a great relationship with the Lee Group. Jeff Lee is a for-sale developer who has a vision for L.A. and an entrepreneurial spirit similar to CIM. We also have several projects in which we're invested on the east coast and in the Washington, D.C. area, and we're looking to close a couple of investments in San Francisco and elsewhere in the state with similar programs.

Five years from now, what new investments can we expect from CIM's Urban Real Estate Fund and where are those investments likely to be made?

Far sooner than five years from now, we will have committed the full $676 million of equity and will have opened up a third funds that will be of similar or greater magnitude. We will have completed a portfolio of investments in Los Angeles that includes $1 billion of total investment. We will have developed a number of residential communities throughout the city and throughout the state, from Sacramento to Anaheim. Also, we will have numerous co-investments with development sponsors, also throughout the state and throughout the country.