EXCLUSIVE: WME Must Only Pay $20M-$30M In Beverly Hills Building Arbitration

EXCLUSIVE: The final arbitration decision came down in mid-December and all sides have been operating under a  strict confidentiality clause. But real estate sources tell me that the Hollywood agency is paying on the low side of what the Beverly Hills commercial property community expected would be 8-figure damages. It was WME chief Ari Emanuel who decided to back out of the William Morris Agency’s commitment to lease that big blue 6-story Beverly Hills office building going up at 231-265 N. Beverly Drive after Endeavor took over the venerable tenpercentery. As I previously reported, WME could have been on the hook for anywhere from $25 million to $70 million because of Emanuel’s refusal to move. The final figure of $20M-$30M damages was set because the landlord George Comfort & Sons was able to recoup by leasing to MGM. Several real estate sources tell me this is “the appropriate amount of damages” in the situation. That still sounds like a lot of agency moolah. “Given the result, I think he did the best thing for the company by not moving,” one of the sources explains, referring to Emanuel. “The cost would have been to build the space from scratch and accept a lease negotiated at the height of the market.”

I’ve been following this story since 2008 when Morris first decided to sell its buildings and make the move, through the WMA-Endeavor merger in 2009, and well into Ari’s subsequent antics. But then last July the first ruling of a two-pronged arbitration went WME’s way. But the second one didn’t. Camp Emanuel’s argument had been that George Comfort & Sons violated its lease agreement with WME by letting rival Gersh agency move from Canon Drive into another Comfort space next door at 9465 Wilshire Blvd. That was just 50 feet away from the site of the new WME headquarters. The two agencies would have shared valet parking services and a parking lot. (God forbid!)

So WME decided that was a lease dealbreaker. The arbiter agreed that was a violation. But the arbiter then determined that this breach was not material enough to warrant WME breaking the lease. At the same time Comfort’s damages are mitigated by MGM leasing the space but at a cheaper price than what Morris had been willing to pay at the top of the market when real estate was still strong. Plus, the City of Beverly Hills gave Comfort a big incentive if it leased to a major talent agency (because CAA and ICM had already left BH).

It was William Morris Agency CEO Jim Wiatt who made the initial deal to sell the agency’s longtime and outdated Beverly Hills digs and seek out a hot new headquarters. But Wiatt was pushed out by Emanuel and never made the April 2009 merge. Immediately, Ari began complaining about the impending move. Though at the time he claimed it was “a collective decision”, Ari succeeded in convincing the newly merged company to fire the global architecture firm Gensler which Morris originally hired to develop its new headquarters. The problem was that Gensler had designed CAA’s current space and Ari hated it. (“I heard CAA is trying for some white-leather, Gucci-style, 1970s grandeur over there,” Emanuel was quoted as saying about CAA’s headquarters.) WME claimed at the time that the change wouldn’t cost a dime.

Not long after, Emanuel decided that he wanted the newly merged company to stay at Endeavor’s headquarters at 9601 Wilshire Blvd. At the time, his decision seemed short-sighted. After all, the Endeavor space couldn’t even fit both agencies’ personnel and those early WME staff meetings had to be held at the nearby Beverly Wilshire Hotel. But then WME started firing people left and right. Voilà, space galore. (No matter the human cost and lives destroyed…) In September 2009 Comfort initiated legal proceedings. Emanuel shrugged them off. Instead he had the new WME buy up more space in the Endeavor building and kept certain divisions like the Music Department housed back at the old Morris building.

WME To Suffer 8-Figure Loss After Setbacks In BH Building Arbitration
WME Will Stay In Endeavor Digs Instead Of Moving To New Building
Ari Gets His Way And New WME Architect
William Morris Agency Sells Beverly Hills Buildings

This article was printed from https://deadline.com/2012/01/exclusive-wme-must-only-pay-20m-30m-in-beverly-hills-building-arbitration-221118/