Culminating a story of disappointed hopes and financial hemorrhaging, CIM Group of Los Angeles in February paid $201 million to acquire the troubled Hollywood & Highland, the 640,000 sq. ft. retail complex that also is home to the Academy Awards auditorium.

The project contains the 640-room Renaissance Hollywood Hotel, the Kodak Theatre (site of the Academy Awards), and Wolfgang Puck's Grand Ballroom and a Babylon-themed retail center, featuring a 70-foot tower topped by a blue elephant. The retail portion is currently only 70% occupied, while hotel occupancy registers 80%.

Developer TrizecHahn — now known as Trizec Properties, a Chicago-based real estate investment trust — spent nearly $615 million to complete the massive project in 2001. The project was originally budgeted at about $430 million.

Located on arguably the most visible corner in Hollywood, the retail-and-entertainment project was a linchpin of Hollywood redevelopment, lending credibility to the formerly squalid district with both developers and lenders.

Despite the high cost and an impressive lineup of national credit tenants, Hollywood & Highland bombed with the public. Critics complained that the center was unattractive and offered little that was characteristically Hollywood. Other critics claimed that the line-up of high-end retailers — including Banana Republic, Benetton, Coach, Louis Vuitton and Versace — may be incompatible with the “impulse retail” preferences of tourists.

The developer helped further devalue its former asset, if unintentionally, by announcing in 1999 that it was going to sell its three entertainment-retail projects — including the Desert Passage in Las Vegas and the Paseo Colorado in Pasadena — while Hollywood & Highland was still under construction.

The stated reason was Trizec's desire to specialize entirely in office construction and management. Yet the sale of the retail properties was perceived as a lack of commitment on the developer's part. And the extraordinary charges that Trizec took on Hollywood & Highland, totaling about $400 million, conveyed a sense of a project out of control.

So, did CIM Group buy a white elephant? Local retail broker Steven Tronson of Los Angeles-based Ramsey-Schilling thinks definitely not.

“At $200 million, it's a steal,” he says, pointing out that the center commands leasing rates of about $60 per sq. ft., the highest rates on Hollywood Boulevard. Lease rates on the same boulevard trend downward, dropping to about $48 per sq. ft. in the two or three blocks immediately east of Hollywood & Highland, and going as low as $12 per sq. ft. a few miles further east, where the boulevard enters a working-class neighborhood.

The center is due for some rethinking, according to CIM Group vice president of acquisitions John Given, who says he is interested in making Hollywood & Highland more attractive to the young “creative” crowd who live, work and seek entertainment in the historic district.

While Given says his ideas are preliminary, he wants to emphasize night life and introduce high-quality restaurants in the center. The Kodak Theater, which is usually empty other than Oscar night, could become a venue for long-running Broadway shows, and help generate further nightlife. In general, Given says, “our first focus will be on the leasing, and any design changes will come later.”