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TrizecHahn Moves Beyond Malls

Property: It's out with offices and shopping centers and in with urban, tourist-oriented projects. Some call change innovative but question profit potential.


After building countless suburban shopping malls, real estate giant TrizecHahn is betting hundreds of millions of dollars that Southern Californians are ready for something different.

Hollywood & Highland, a $560-million retail and entertainment complex that will serve as the permanent home for the Academy Awards show, is being built in Hollywood by TrizecHahn's development arm. A few miles to the northeast in Pasadena, the Canadian company is ripping apart a failed mall as part of its transformation into Paseo Colorado, an urban village complete with housing 400 units.

"It's a huge bet," said TrizecHahn Development President Lee H. Wagman, who recently relocated his division's headquarters to Hollywood from San Diego. But, he added, "we like L.A. We see real opportunities here to do something different."

Perhaps too different. Many industry observers have questioned the profit potential of these complex, expensive projects and the wisdom of committing the company to building them. The giant developments narrowly focus the company's risk, much like a Hollywood studio that bets its bottom line on a couple of blockbuster movies.

"It's certainly innovative, but whether they are going to generate a good enough return is another question," said real estate industry analyst Jonathan Litt at Salomon Smith Barney. "I'm not sure how much of this they are going to do in the future."

Public officials hope the projects will rejuvenate urban centers. Hollywood & Highland is also predicted to be a strong draw for tourists, perhaps enticing them to lengthen their visits.

"This is a very, very critical project," said Jack Kyser, chief economist of Los Angeles County Economic Development Corp. "It's something that people [will] want to stay for."

TrizecHahn Development, which built the recently opened $300-million Desert Passage shopping center at the Aladdin Hotel in Las Vegas, is part of TrizecHahn's far-flung real estate empire. The company owns more than 200 properties--including Chicago's Sears Tower--across North America and Europe. In Southern California, the firm owns scores of buildings, including office skyscrapers in downtown Los Angeles and Long Beach.

The firm is headed by Canadian financier Peter Munk, who gives division executives wide latitude to run their operations. Despite the company's sizable portfolio of Los Angeles office buildings, development operations President Wagman has little contact with his peers.

"When it's appropriate, we integrate [operations]," Wagman said. But "there's not a lot of synergy" among parts of the company.

Wagman, who joined the company five years ago, played a crucial role in rethinking TrizecHahn's retail real estate strategy. Wagman and other company executives had come to the conclusion that the traditional mall format had peaked in popularity and profitability in the wake of department store consolidations, competition from rival centers and the growing threat from the Internet.

So, in April 1998, TrizecHahn sold the bulk of its mall portfolio--totaling 20 properties--to rivals Rouse Co. and Westfield America Inc. in a deal valued at $2.54 billion.

In contrast with the mostly suburban malls the company let go of, TrizecHahn's new projects are much more urban and tourist oriented, They include a more diverse group of tenants--such as hotels and supermarkets--and uses, such as housing. Wagman said the projects are more risky and costly than traditional malls but also promise to generate twice the investment return--he predicts at least 20%.

This new breed of retail center requires more events, activities and tourist-related marketing to succeed. Instead of relying on department stores to attract crowds, TrizecHahn is using a new set of traffic-generating anchors, such as a casino in Las Vegas, Hollywood's tourist attractions and, to a lesser extent, housing in Pasadena.

"You have to know how to build a business that takes advantage of those anchors," Wagman said.

Tourists will play an important role in Las Vegas and Hollywood, where about 50% of visitors will probably be from out of town. They tend to spend more than local shoppers and trade up to more expensive restaurants and goods than they would if they were shopping at home. "They are looking for an experience," Wagman said.

The company remains focused on completing its current projects before taking on any new retail centers, Wagman said. But despite the skepticism among industry analysts, Wagman said that TrizecHahn is looking to expand its new breed of urban retail projects in other parts of Southern California.

"We have . . . pushed the definition of what retail development is in totally new directions," Wagman said. "Our job is to make sure they are executed well."


Retail Redux

Hollywood & Highland (Hollywood)

* Estimated cost: $560 million

* Size: 640,000 square feet

* Features: 4,000-seat theater, 640-room hotel, shops, restaurants, broadcast studio

Paseo Colorado (Pasadena)

* Estimated cost: $135 million

* Size: 565,000 square feet

* Features: 400 loft-style apartments, 14-screen movie complex, supermarket, restaurants, offices

Desert Passage (Las Vegas)

* Estimated cost: $300 million

* Size: 500,000 square feet

* Features: 130 stores, 14 restaurants at hotel.


TrizecHahn has abandoned the traditional suburban shopping mall in favor of a new mixed-use model. Three examples:

Sources: TrizecHahn, Ehrenkrantz, Eckstut & Kuhn Architects


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