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AEG Finds New Partner for Entertainment Complex near Staples Center;
56-story, 1,100-room Convention Center Hotel Back on Track

Daily News, Los Angeles
Knight Ridder/Tribune Business News

Jan. 13, 2006 - In a deal aimed at salvaging the luxury hotel project critical to efforts to turn around the ailing Los Angeles Convention Center, developers announced Thursday that they will partner with KB Home to build a skyscraper touted as the linchpin of the $4.2 billion l.a. live complex.

KB Home, co-founded by billionaire philanthropist and L.A. power broker Eli Broad, will replace Apollo Real Estate Advisors as the financial partner for AEG, which recently broke ground on the l.a. live sports-and-entertainment complex near Staples Center.

The revamped hotel plan features design changes and additional condominiums to offset projected construction costs that have soared from $450 million to more than $600 million. Despite the higher costs, city government has not sweetened its agreement to provide nearly $300 million in public financing, which includes a loan, tax breaks and fee waivers.

"We think this is going to be one of the landmark buildings in all of Southern California," KB Home Chairman and CEO Bruce Karatz said at a press conference on a Staples Center balcony overlooking the construction site.

AEG President and CEO Timothy Leiweke said the two companies would be 50-50 partners.

"I hope this will be the last press conference we ever have to do," he said. "No more speculation, no more false starts, no more people saying it's not going to happen."

City leaders were optimistic, with Councilwoman Jan Perry touting the "strong, strong, strong partnership" of the two corporate giants and Mayor Antonio Villaraigosa referring to their relationship as a good marriage.

The Daily News reported in November that Apollo had pulled out of negotiations with AEG to provide about $60 million for a proposed 56-story, 1,100-room Hilton Hotel.

Leiweke said Thursday that Apollo's stake had been bought out, although he declined to provide details.

"It wasn't a disagreement as to the potential, but maybe a difference of opinion about how to get it done," he said.

Richard Ackerman, principal of Apollo, issued a written statement: "Our decision not to continue with the creation of this hotel will allow the project's development to go on in the most expeditious manner."

Co-developer Lew Wolff, who also owns the Oakland A's baseball team, will remain involved in the project but not as an investor. He said he is advising the developers and not committing any money, although that could change at some point.

The developers now plan a 50-story, L-shape building, with 50 to 100 more condominium homes than in the original design. Sales of the 250 luxury residential units will help offset the rising construction costs, Leiweke said.

The hotel is still intended to have 1,100 rooms and more than 70,000 square feet of hospitality, banquet and ballroom space, developers said.

A hotel operator has yet to be chosen, although the developers said they are negotiating with Hilton, Hyatt, Marriott and Westin, among other companies.

For KB Home, one of the nation's largest home builders, the venture is both a new one in the hotel business and an extension of recent efforts in developing high-rise buildings.

The firm was already part of the plans for the area, partnering with Lennar Properties to develop other residential units in the l.a. live complex.

While Broad was a founder of KB Home and has been deeply involved in the $1.8 billion Grand Avenue project in the Civic Center area of downtown, he is not involved in the Convention Center hotel.

The hotel has been considered the centerpiece of l.a. live, both from a city standpoint in trying to lure business to the Convention Center and as a key component of the entertainment-retail complex.

The city's Community Redevelopment Agency had agreed to commit a $16 million loan for the project, while city government has agreed to waive upward of $270 million in hotel bed taxes, along with $4 million in fees.

The city averted a lawsuit over the tax waivers when it agreed to allow the Bonaventure Hotel to convert 400 of its rooms to condominiums in order to be able to compete in the downtown market.

Villaraigosa, who spent a week brokering that deal, said he sees the Convention Center hotel as the linchpin of downtown's revitalization.

The need for such a complex was brought home New Year's Eve, the mayor said, when TV viewers watched celebrations in New York and other far-flung cities but not Los Angeles, supposed to be the entertainment capital of the world.

"This partnership will ensure that l.a. live and the hotel not only (will) come to fruition but will make Los Angeles the entertainment capital of the West Coast," Villaraigosa said. "Furthermore, the Convention Center headquarters hotel is absolutely necessary if Los Angeles wants to have a convention center that is able to compete with other convention centers in the region."

The mayor has called the Convention Center, which loses money and costs the city millions of dollars in debt service, a "big white elephant."

There has been some criticism of the development, though, both from opponents of the public-financing package and urban theorists such as Joel Kotkin, senior fellow at the New American Foundation.

"I keep asking: Why are we building this hotel?" Kotkin said. "The attraction of Los Angeles is in its beaches; yet they are investing all this effort in an area of the city that I don't think most people want to be in."

Kotkin also said he believes the convention business is cyclical. In addition, he said, it is particularly difficult for Los Angeles to compete with a city like Las Vegas for convention business.

Officials with L.A. Inc., which books conventions for Los Angeles, said city officials' support for a Convention Center hotel already has begun to pay dividends, and that there has been an upswing in convention bookings for the next several years.

The group said the city hosted nine conventions in 2004, saw that jump to 15 this past year and already has booked 24 conventions over the next several years.

The l.a. live project is the second phase of what AEG and its owner, Philip Anschutz, agreed to when they won the right to build Staples Center. Part of that agreement called for development of a commercial retail-entertainment complex on the land across from the arena.

Construction of theaters -- for both live entertainment and movies -- is planned as part of l.a. live, in addition to the hotel. Also, ESPN has announced it will open a broadcast studio as part of the complex.

By Dan Laidman and Rick Orlov


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