The Magic Castle and all Surrounding Land to Be Sold

Discuss the latest news and rumors in the magic world.

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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Postby Dustin Stinett » 03/22/07 05:38 PM

By the way Richard, having a historic designation from LA is no guarantee of anything (the Castle does not have a State Historic Landmark designation and likely never will).

As a wise man said, its easier to ask for forgiveness than it is to ask for permission.

After legally evicting its tenant, what do you suppose the fine would be to a corporate landowner if their old, empty historic but dilapidated building were bulldozed down as the result of an unfortunate accident in paperwork?

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Postby Guest » 03/22/07 10:43 PM

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)
______________________________________

If that represents the trademark fee, as I understand the percentage deal that was reported on this forum a while back, that suggests the gross is less than $7 mil a year.
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Postby Guest » 03/23/07 09:09 AM

David, lets say it is $6 mil. That means, with no changes in the current financial makeup at all, that the AMA would have to make do with $500,000 a month for rent and misc expenses.

BTW, after write-offs, they only made about $5,000 net this last year. With the plans to hire a person for a new GM position at a salary that has to be in excess of $100,000/year, you can look forward to a dues increase, just for that.

This is not an impossible task, if the planning starts right away. It takes time to figure out what property one wants, find property, make the renovations, furnish, manage the information (people will end up going to the Lane mansion, because they "know" that is where it is at!)
Transitions are not easy things, but are tremendously helped by careful planning, incrementally operationalized.

For example, having demonstrated that they have no clue how to profitably operate a restaurant and bar compared to professionals, they might partner with such an operation, and make a nice arrangement for both. Or, bag the dining issue altogether, and make the "Castle experience" less of an experience that requires some to take out a mortgage.

But such things take time to put together.
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Postby Guest » 03/23/07 07:38 PM

My last night working the Castle was the night of the annual meeting. It was something to be there and hear all the rumors buzzing about.

I had a nice talk about this subject with Milt. He and I have agreed to move the Castle to Coney Island in New York. So there.
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Postby Pete Biro » 03/23/07 07:50 PM

Todd... no problem with that, but I'd like to see it on wheels and tour the country. What a great membership drive that could be.

Seriously tho... I would love to have been a fly on the wall today where I spotted Board Members in a meeting with Ulloa, representing the land owners.
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Postby Guest » 03/25/07 05:52 PM

He and I have agreed to move the Castle to Coney Island in New York.
Then I can visit the Magic Castle AND the World Hot Dog Eating Championships in the same day.

YES!!!

DD
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Postby Guest » 03/26/07 08:45 AM

Dustin,

FYI

If a historical landmark was torn down, the City could impose Scorched Earth. This means that nothing could be built on that bare patch of earth, not even a parking lot, for 10 years.
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Postby Guest » 03/26/07 09:26 AM

"Sooorry Folks! Park's closed. The moose outside shoulda told ya." -John Candy

Looks to me like Coney Island won't be there much longer.

http://www.curbed.com/archives/2006/11/ ... fishes.php
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Postby Guest » 03/26/07 09:47 AM

Kirk the Magician wrote:
Dustin,

FYI

If a historical landmark was torn down, the City could impose Scorched Earth. This means that nothing could be built on that bare patch of earth, not even a parking lot, for 10 years.
_______________________________________________

In the real world it is highly unlikely that any such policy would be applied to people who can afford to spend $150 million or more on the land plus the money that would be spent on developing the property. If anything, they would apologize, possibly pay a fine, and that would be the end of it.
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Postby Guest » 03/26/07 12:45 PM

There is no "knowledgeable insider" that valued the property at 150 million - it was merely speculation by a Castle member. The actual valuation will be much, much lower given the building restrictions that are in place in th Hollywood area. Can the AMA buy it? I doubt it. Will it be bought by a group that will keep the Castle? I would say probably. I very much doubt that there will be a public sale of the land and buildings - it is much more likely to be a private sale without any bidding. My understanding, as a person who is at the Castle a lot (much too much according to my wife) is that all of the land must be purchased as the individuals who make up the trust that owns the land want a cash lump sum as opposed to the income from the land.
I have spoken with AMA Board members and we would be surprised if this happens any time soon. We may be wrong, but it would be hard for the individuals concerned to turn down a good offer - something very different from listing the properties for sale.
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