Hollywood & Highland Cranks Up Efforts to Boost Traffic, Sales

Summer has been kind to the Hollywood & Highland complex, the troubled shopping and entertainment center in Los Angeles whose value has plummeted $400 million since it opened in November 2001.

Knots of Japanese tourists are milling around the stores, and even local residents are discovering that the economically challenged shopping center has a few things to offer.

“Sales have been incredible lately,” said David Ramos, manager of the Bebe store, which has a prime location off the central Babylon Court. “There has been so much more foot traffic this summer compared with last summer.”

Trizec Properties Inc., the Chicago-based company that owns the 645,000-square-foot complex, said that 84.6 percent of the retail space is leased.

But Hollywood & Highland still has a ways to go. Several retailers along the Awards Walk area, referred to by some as the “Corridor of Death,” have either bolted or are trying to devise ways to get out of their longterm leases.

And analysts note that even though Trizec has performed some creative marketing techniques to bring more traffic to the complex, such methods have cost money and their effects may not last forever.

“I think they are doing what they can to right the ship and prepare it for sale, but there is a lot of work to do,” said Jim Sullivan, principal with Green Street Advisors Inc., a Newport Beach, Calif.–based research company that covers Trizec.

Last year, Trizec, which is getting out of the shopping center business and is concentrating on its large portfolio of commercial office spaces, decided not to sell Hollywood & Highland. Instead the company decided to take aggressive measures to turn around the property that is sometimes compared to the two big white elephants that hover over its Babylon Court.

The complex is offering free or low-cost shuttles to local events, staying open later to cater to night owls and providing free open-air per formances three nights a week.

So far, the plan is working.

“We’re humming along here,” said LeeAnne Stables, chief marketing officer at Hollywood & Highland.

Difficult debut

Last year, Trizec took a $217 million write-down on the asset valuation of Hollywood & Highland— which includes the 640-room Renaissance Hollywood Hotel, now up for sale—because operations did not meet expectations. This was the second write-down Trizec took on the $630 million property. The first write-down at the end of 2001 totaled $181.4 million. The complex, which was to have been the key to Hollywood’s economic revival, has had its value reduced 69 percent in less than two years.

The complex’s poor performance came to light last summer when then-Trizec President and Chief Executive Officer Christopher Mackenzie said in a conference call with analysts that retail sales at the complex averaged $294 per square foot (annualized) during the first six months of 2002. By comparison, the Glendale Galleria, in nearby Glendale, Calif., was averaging $530 per square foot, and the national average for shopping centers was $336.

Two weeks later, Mackenzie was replaced by Timothy H. Callahan, who has stopped talking publicly about retail sales.

Early this year, Callahan promoted Mike Escalante, who had been in charge of Trizec’s office properties in Southern California, to executive vice president. Callahan put Escalante in charge of Trizec’s entertainment and retail division, which includes Hollywood & Highland and the ailing Desert Passage shopping center in Las Vegas. Lee Wagner, who left in January, had previously headed the retail and entertainment division.

Trizec originally designed Hollywood & Highland to cater to the hordes of international tourists who flock to Hollywood Boulevard in search of celebrity sightings and Tinseltown activity only to find a faded area with T-shirt shops and tattoo parlors.

The complex opened with a host of high-end stores catering to free-spending visitors on holiday. The duty-free DFS Galleria is the largest retailer in the complex. Sephora opened one of its rare Los Angeles outlets, and Swarovski, the crystal purveyor, also leased a space.

But the shopping center had the misfortune to open two months after the Sept. 11 terrorist attacks. For more than one year, international tourists were a rarity, particularly those from Japan. And locals were not turned on by the complex’s confusing layout and poor signage.

It was also pricey to park in the subterranean parking lot, owned by the city, which had contributed Community Redevelopment Agency funds to build the structure. Shoppers found that their parking fees could mushroom to $10.

Last year, the city reduced parking fees to $3 for four hours. With validation, that fee is cut to $2.

Drawing traffic

With new parking fees in line, Trizec decided to capitalize on the mammoth 3,000-space parking structure.

Executives thought they could generate more business at the complex’s stores and sit-down restaurants if they offered a free shuttle from Hollywood & Highland to the Pantages Theatre a few blocks away, where the Tony Award–winning musical “The Producers” will be playing until early next year. Theater patrons are encouraged to eat at the complex’s various restaurants, including Wolfgang Puck’s Vert, a modern French brasserie.

In addition, executives added a $3 shuttle to the Hollywood Bowl to save patrons the hassle of parking near the congested concert area. Seven restaurants in the complex put together Hollywood Bowl picnic packages.

Restaurants have seen a surprising improvement in sales.

“Our restaurant has turned around miraculously,” said Bob Spivak, president and chief executive of Grill Concepts Inc., a Los Angeles–based company that runs more than a dozen Daily Grill restaurants. “This all started about the time ’The Producers’ opened. Also, the Hollywood Bowl shuttle has done a lot for our business. Before our sales were always decent, not great. But starting in April, they have really skyrocketed. Sales are up 35 to 40 percent over last year.”

To give tourists and teenagers alike a place to hang out in the evenings, the center announced that starting July 4 it would stay open until 11 p.m. on Fridays and Saturdays through the summer.

The complex is also luring locals by offering a free multimedia presentation, Vox Lumiere, every Wednesday, Thursday and Friday evening through August in the Babylon Court. The presentation is a blend of silent film clips, rock music and live theater. Behind the viewing area is a beer garden.

“It’s going great for us,” said Kevin Saunders Hayes, creator of Vox Lumiere, noting that 800 to 900 people have been showing up for each performance. “A couple of the restaurant and store owners came up to me in the last couple of weeks and said they were getting all sorts of traffic and people are shopping later.”

Trouble on the Awards Walk

While business seems to be booming in the main retail section off Babylon Court, foot traffic is still slow along the Awards Walk, the two-story retail section that lines the stairway leading to the Kodak Theatre, where the Academy Awards are held.

Emilie Davidson Hoyt, president of Lather, a skin-care shop that is one of the original tenants along the Awards Walk, said business has not changed much since she opened.

“My sales haven’t gone down, but then they didn’t have any place to go,” she said, noting she would like to get out of her 10-year lease and concentrate on her other three stores in Pasadena, Calif., San Jose, Calif., and Scottsdale, Ariz., which are doing well. “It was definitely a mistake on my part to lease at Hollywood & Highland. The store next to me went out of business, and now there is a travel agency located next door. This is not what was sold to us.”

Ames Ladies Wear, a small chain offering contemporary women’s clothing, was also one of the original tenants in the Awards Walk corridor. After keeping his store open a little more than six months, Ames’ President David Oliver closed his shop in June 2002 even though he still had a 10-year lease.

Months later, Trizec sued R & H Oliver Corp., parent company of Ames, for breach of contract. Trizec is seeking more than $250,000. Oliver countersued Trizec for breach of contract and negligence.

While Oliver would not comment on the case, his countersuit says Trizec promised that a location in the Awards Walk would attract many high-profile customers, which did not happen, and that parking would be affordable for customers. The lawsuit also says Trizec told Oliver the secondfloor doors to the DFS Galleria across from his store would remain open. They did not, which meant that customers did not wander over to his establishment.

Trizec and Oliver met with a mediator this year to resolve their differences. After the two companies failed to come to an agreement, a trial was set for Oct. 14 in Los Angeles Superior Court.