The Magic Castle and all Surrounding Land to Be Sold

Discuss the latest news and rumors in the magic world.

Postby Richard Kaufman » 03/19/07 06:13 PM

At the Annual General meeting of the Academy of Magical Arts at the Magic Castle on Sunday, President Gay Blackstone announced that the Glover family has decided to sell its land on the hillside in Los Angeles, which includes a restaurant, several hotels, apartment buildings, and The Magic Castle itself. For those who don't know, The Academy of Magical Arts doesn't own the building itself, but leases it from the Glover family.

I'll have some remarks from Gay herself that I'll post here very shortly, but for the moment suffice it to say that she feels that there is a good chance for the Magic Castle to continue in its present location.
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Postby Guest » 03/19/07 07:36 PM

Hope it works out. Would be the end of an era, were the Castle forced to move quarters.

- entity
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Postby Pete Biro » 03/19/07 08:00 PM

Guess we need to get Bill Gates or someone like him to take the joint over... or maybe Wal-Mart folks... the Wal-Mart of Magic.
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Postby Pete Biro » 03/19/07 08:01 PM

On second thought, it would make a great Disney property.
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Postby Steve Bryant » 03/20/07 06:34 AM

This is a shocker. A couple of weeks later and I would have thought it was an April Fool gag.

Here we go again ...
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Postby Guest » 03/20/07 09:50 AM

It seems like everytime I am getting closer to finally apply for membership something comes up that makes the future of the castle in its present form unsure.

If somebody spends all the money on that hill than I do not think that the castle is a keeper. I can see a developement of luxus condos and such at that location would be a good seller....

Let's hope the best.
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Postby Guest » 03/20/07 10:03 AM

I would think that if someone bought the hillside, the terms of the lease would still apply, so the castle is safe until the end of the lease, unfortunatly I would imagine at the end of the lease, the castle would find itself in a very perilous position. ....

So the rumor mills begin to spin....
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Postby Richard Kaufman » 03/20/07 10:13 AM

If I recall what Gay said correctly, the Lane mansion that houses the Magic Castle has been given historic designation. I'm not sure if that means the same thing in Los Angeles as it does in New York, but in NY it means the structure cannot be torn down, and can only be altered in ways approved by a city commision. That fact makes the land on which the Castle sits far less valuable and desirable to developers than all the other land surrounding it. That's where their hope lies.
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Postby Guest » 03/20/07 10:59 AM

$100 from every member of the IBM would be $1.5 million, which will buy you a small two or three bedroom home, maybe, in the area.

Depending on what the Glovers want to sell, and I have not seen the offer, you're talking many tens of millions of dollars, maybe more, and even if you were successful, there would be the yearly taxes on the re-appraised value, a not-insignificant amount.
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Postby Guest » 03/20/07 11:32 AM

Interesting idea Chris -

A unique and manageable way to do it may be to form a Real Estate Investment Trust, or REIT as they are known.

The problem as I see it would be getting the capital to do so, and convincing a bunch of megalomaniac magicians to try and listen to reasonable people who know about such things, and to plunk down tons of cash they generally don't have.

That being said - it would be possible to make it a "true" investment were any profits generated from the property (is the thing even profitable? I really don't know enough about it) could be divided as dividends amongst the "membership" shareholders.

As for taxes, the membership shareholders would foot any income taxes based on their dividends. Property taxes in that area may be a whole other beast.

Mr. Stickley
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Postby Pete Biro » 03/20/07 11:53 AM

Developers built the nearby (a block away) Hollywood/Highland Mall. It is enourmous and contains the Kodak Theater, where the Acadamy Awards shows are taped (and others) and... it was a financial disaster for the original investors and was sold to another developer for less than 45-cents on the dollar.
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Postby Guest » 03/20/07 12:14 PM

Sunday evening was my first visit to the castle.

I didn't know what to expect, only knowing the magic community from the internet but what a pleasant surprise!

The place was extremely cool, and I'm glad to see something so well done in the Magic community. It was also full of beautiful people spending money, on a Sunday night!

I had a really great experience, and I'm hoping to go again this weekend, before I leave. My mind is still reeling with the subtleties of the people and the place.

A million thanks to my host that evening.

I hope the place preservers, as is.
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Postby Richard Kaufman » 03/20/07 12:18 PM

Here's the official President's message from Gay Blackstone:

I know that many of you are wondering about the future of our Club in relation to our lease on the Magic Castle which currently runs through the end of 2008.

Late last year very preliminary discussions were begun on a long-term extension of our lease, as was reported in our Newsletter and in the Boards Minutes.

However, we recently learned that the Glover Family has decided to explore a possible sale of their entire real estate holdings in Hollywood, comprising approximately 11 acres, including the Magic Castle property, the Yamashiro Restaurant, their adjacent hotel and apartment properties and vacant land.

We do not yet have detailed information on the status of this decision by the Glover Family, although we do know that it under active consideration.

We want you to know that although this possibility presents interesting new challenges, it also presents the possibility of new opportunities for the Academy of Magical Arts. Over the next few months, we intend to explore all the opportunities this development presents including the possibility of purchase of the Magic Castle to preserve it permanently as the home of our organization.

Another possibility, of course, would be a long term lease with the new owners of the property if we are not able to purchase the property. As we progress further, we will keep you informed of developments, of course.
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Postby Dustin Stinett » 03/20/07 12:29 PM

Mr. Stickley said:
As for taxes, the membership shareholders would foot any income taxes based on their dividends. Property taxes in that area may be a whole other beast.
It was property taxes to which David is referring. Under Article 13 of Californias constitution (commonly referred to as Prop 13), property is reassessed when it changes hands. Since 1978, the property taxes have increased only 2% a year (assuming the assessor maxed-out Prop 13 provisions). I suspect that the actual value has increased far more than that, so the new assessment would be huge, along with the new property tax bill.

There is a work-around, which is commonly used by smart investors here. If the new owners instead purchase the corporation that owns the property, then the property does not technically change hands. The taxes stay the same.

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Postby Guest » 03/20/07 12:31 PM

The Glovers have owned Yamashiro, the Japanese restaurant on the top of the hill, since the late 1940s. They've poured millions into its restoration since Tom Glover's father bought it and started restoration.

Because of this loving care and massive investment it is one of the historical and cultural jewels of Los Angeles. I am surprised they are offering to sell it, but the offer to include it may be some sort of bargaining chip, leverage to get the sort of deal they want either from a potential buyer or the city. Selling all the land except Yamashiro, donating it to the Los Angeles Conservancy (or some such organization) and taking the donation against profits from the land may be a smart way to minimize taxes.

Should there be the possibility that Yamashiro could be torn down, I suspect there would be far more protests to protect Yamashiro than the Magic Castle.
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Postby Guest » 03/20/07 01:30 PM

Damn, Dustin, you won the bet. More later....

[added by edit]

We dont know enough to do anything but speculate. But sometimes its fun to speculate .

The fact that the Glovers are exploring the possible sale of their property is a far cry from an announcement that their property is to be sold. Potential sellers often put out such feelers to gauge interest, but it means nothing until an offer is made, and even then, in cases where the development potential of the property is key to a buyers offer (as might be the case here), theres a good chance that the deal will crater.

Absent some extraordinary provision in the lease(s), any buyer of the property would take it subject to such lease(s).

Assuming Richards observation on the historic designation of the Castle is correct, that would present a potential problem for a developer who might want to tear down the Castle building in connection with a change in use of the property. Alas, unless such historic designation relates directly to the Castle qua the Castle, thered be nothing to keep the new owner from changing the use of the building, even if the building had to be preserved. Also, there are different levels of historic importance and protection.

Some have suggested that an investment vehicle be created to purchase the property, presumably with one goal being to preserve the Castle as it is. Thats certainly a feasible idea, but there are many roadblocks to this approach. The first is financial. No savvy investor wants to pour money into something that wont make money. The second is securities laws. For the type of investment vehicle some are discussing, the interests being sold would have to be registered in compliance with state and federal securities laws. That takes time and money. Now, it is possible to create an investment fund which is exempt from securities laws, but that would mean, among other things, that the folks who bought interests in such fund would have to be accredited investors. Id venture that more than 95% of us here would not qualify. So that brings us back to the first problem: if those of us who are most sympathetic to the Castles plight would be excluded from investing in a securities-exempt fund, then the fund would have to find accredited investor laymen to invest and those guys didnt make their money by giving it away or accepting low returns on their investments.

Dustin wrote:

There is a work-around, which is commonly used by smart investors here. If the new owners instead purchase the corporation that owns the property, then the property does not technically change hands. The taxes stay the same."

First off, we dont know the type of entity that owns the property (corporation, trust, limited partnership, limited liability company, etc.). In any case, Im afraid the reassessment loophole Dustin has suggested does not exist. Basically, if more than 50% of the total control or ownership interest is transferred, a reassessment will be triggered. Put another way, to avoid a reassessment of the property, the Glovers would have to maintain control and sell less than 50% of their interest in the property (or in the entity that owns the property, depending on how title is held).

Its been fun speculating!
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Postby Dustin Stinett » 03/20/07 01:32 PM

Nope: Matt Field did.
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Postby Guest » 03/20/07 02:17 PM

"Creative thinking", indeed, Mr. Wasshuber!

I would totally be willing to ante-up, and THEN really go to work: I can't WAIT to re-decorate that place!
How fun to really change it up--just little touches; get rid of all those musty old posters, and maybe less of a "magic" theme: something with more zazz. I mean, "The Dante Room"? Come ON! :rolleyes:
Who was that old fossil, anyway? Nobody likes yesterday's news.
These days if it's not a Lindsey Lohan room, you're s.o.l.--am I wrong?

See? Now you're thinkin': How 'bout dancing... and music! That place definitely needs a d.j. blasting intrusive music! (The rubes aren't running up tabs when they're conversing too much, you know what I mean? "Turn the tables!", that's my motto.)

--And SHOWGIRLS! Everybody loves showgirls, right? Maybe a few strippers? (wink, nudge)
--We can convert the library spaces (which are currently only stacked with books and dorky old "periodicals") into v.i.p. rooms for the discriminating patrons that want to take the magic to the next level, if you catch my meaning...

We can hire some photographers to pose as paparazzi outside to get the buzz going. It will be sweet!

Boys, we can turn that place into a money maker! --At least for a little while 'till we finally torch it for insurance. ;)
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Postby Dustin Stinett » 03/20/07 03:27 PM

I should mention that David Alexander also had 24 hours in the pool. It's just that Matt's came in just before David's. That said, since only bragging rights are involved, I declare it a tie.
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Postby Dustin Stinett » 03/20/07 03:47 PM

Not one to argue with a lawyer, I will stipulate that the statute does not specifically allow the corporate loophole I brought up if counsel will stipulate that it does not specifically disallow it.

The strategy that I mentioned has been used successfully in this state if one is to believe the detractors of Prop 13 (those who wish to reverse the statute).

Besides, anyone who wishes to buy and save just the Castle would not purchase the entire Glover empire anyway, so its a moot point.

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Postby Dustin Stinett » 03/20/07 03:51 PM

Hey, Castawaydave:

My gramma can sew the costumes and my brother can paint the walls.

Now if we could just get Mickey and Judy...
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Postby Guest » 03/20/07 03:52 PM

I don't think any of that matters. Once the Castle is reassessed the tax bill would be crushing and make continued operation highly unlikely, but it gets worse if you consider other factors.

Assuming the Castle and the parking lot is worth $35 million and that money could be raised from "investors," most investors on that level want something like a 10% return. It is foolish to think people on that level would give the money away without some return.

That means servicing the debt would run almost $10,000 a day, plus the pesky taxes of about $1,000, giving you an $11,000 a day nut to make before you buy any steaks to cook, booze to drink, or employees to pay, not to mention the cost of setting up the deal in the first place, the cost of structuring the deal via lawyers which would add probably another several hundred thousand more dollars to the cost...maybe more.

Even if I'm wrong in my estimate and the Castle and the parking lot is only worth, say, half, that's still over $5,000 a day before any other expenses are considered....if you could get money at 10%. It would depend on how the numbers worked out and how much risk the investors thought was present. With more risk, a higher percentage would be demanded.

The real problem is the size of the Castle. It can only serve so many dinners a day. The Fire Marshall limits the total number of people who can be in the place at a given time which also limits the amount of money than can be collected. While I don't have the Castle's operating numbers, I think it would have problems supporting even a moderately sized investment debt, presuming such a thing could be created in the first place.
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Postby Guest » 03/20/07 04:13 PM

Dustin wrote
The strategy that I mentioned has been used successfully in this state if one is to believe the detractors of Prop 13 (those who wish to reverse the statute).
There are many nuances and exemptions concerning Prop. 13, but -- generally speaking --what those folks told you, Dustin, is flat-out incorrect.
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Postby Dustin Stinett » 03/20/07 04:17 PM

Dang LA Times anyway.... :whack:

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Postby Pete Biro » 03/20/07 04:43 PM

What strikes me as interesting too is the fact that the Glovers have been working like beavers IMPROVING the building (Castle that is) with a new facade, new walls and gardens and all kinds of upgrades on the interior that don't show, like the upstairs offices, new furniture (chairs in the dining room) and other things... so???
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Postby Guest » 03/20/07 04:46 PM

The more improvements, the more it is worth, the higher the appraisal when it comes time to set a sale price. The Glovers are smart people.
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Postby Guest » 03/20/07 09:10 PM

However, we recently learned that the Glover Family has decided to explore a possible sale of their entire real estate holdings in Hollywood, comprising approximately 11 acres, including the Magic Castle property, the Yamashiro Restaurant, their adjacent hotel and apartment properties and vacant land.

We do not yet have detailed information on the status of this decision by the Glover Family, although we do know that it under active consideration.
Are we being premature about announcing that the Castle WILL be sold? This statement of Gay's appears to be worded somewhat less definitely than that.
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Postby Dustin Stinett » 03/20/07 09:17 PM

Absolutely. The Glovers have not listed the property. It sounds as if they are just sending up a trial balloon.
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Postby Guest » 03/20/07 10:08 PM

Willard and Dustin: Is there an echo on this thread? :) CHS
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Postby Dustin Stinett » 03/20/07 10:51 PM

Short posts rule. :D

Pitty.
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Postby Pete Biro » 03/21/07 11:22 AM

Pithy.
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Postby Guest » 03/21/07 04:25 PM

ditto
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Postby Guest » 03/21/07 07:41 PM

I'm not sure this plays as big outside of LA as it does in LA
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Postby Guest » 03/22/07 06:07 AM

I'm in the UK and it plays big here. I'd hate to lose The Castle.
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Postby Guest » 03/22/07 01:27 PM

knowledgable insiders seem to peg the value of the property being considered around $150 million. (taking into consideration all the limitations of the property) Cupcake sales aren't going to do it. Hoping for a "daddy" isn't so hot, either (Hope is not a plan)

So, where should the AMA consider moving the enterprise? If they do that, and find another name for it, it will generate $350,000/a year of extra revenue, with no change in finances otherwise. (if you don't understand why, you don't understand the current financial makeup)

This is straightforward:

1) If it is not sold, nothing needs to be done, other than negotiating the lease.

2) If it is sold, the new owners will either want the castle to remain, or not. If so, negotiate the lease. Nothing needs to be done now.

3) If it is sold, and Castle not to remain as is, close up shop or do something else. Planning needs to be started, NOW. This stuff takes time! If one or two happens, no sweat, abandon planning.

If three happens, and no contingency exists, it will be panic city. Until a reasonable contingency is created, there will be great uncertainty about the future, and it is likely that people will be shy about "throwing good money after bad". Reasonable detailed contingencies will be very reassuring to many. Speculation about contingencies will actually be frightening to most, and create nothing but more uncertainty.

Responsible parties should begin serious contingency planning, NOW, when there is reasonable time to consider alternatives. This is the best way to alleviate concern on the part of members who may quit in dismay, or prospective members who will not join on the basis of an uncertain future.
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Postby Guest » 03/22/07 01:37 PM

Heres the pithy version of my long-ish March 20 post:

Richards wrong.

It isnt easy buying and financing a property when potentially hundreds of investors are involved.

Dustins wrong.
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Postby Richard Kaufman » 03/22/07 02:18 PM

Clay, which part of what I wrote is wrong? Is the building itself not protected because it's received historic designation?
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Postby Guest » 03/22/07 03:38 PM

I was just having fun with Dustin's "short posts rule" comment. I was referring to your "Castle and land to be sold' comment. Considering the idea of selling is not the same as actually selling (or being under contract to sell).
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Postby Richard Kaufman » 03/22/07 04:36 PM

Time will tell.
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Postby Dustin Stinett » 03/22/07 05:26 PM

Dustin is never wrong. ;)

He is, occasionally, mistaken due to a poor source.

Dang LA Times :whack:

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