WME Appeals Arbitration Loss in Building Dispute (Exclusive)

The talent agency backed out of a lucrative Beverly Hills lease after the merger of Endeavor with the William Morris Agency.

WME is appealing an arbitrator’s ruling against the talent agency in its multi-million-dollar dispute with George Comfort & Sons Inc., the real estate developer that built the Beverly Hills office building WME has decided to not occupy, according to several sources with knowledge of the matter.

While the arbitrator determined that George Comfort violated its lease agreement with the agency by allowing Gersh, a competitor, to move to another Comfort-owned building next door to the proposed WME site, it was determined that this breach was not material enough to warrant WME walking out on the lease.

WME’s predecessor firm, William Morris Agency, had agreed in late 2007 to occupy the entirety of the six-story 235-269 N. Beverly Drive building. But William Morris’ 2009 merger with Endeavor threw a kink into its plans to move from nearby El Camino Drive offices to the new building, which was under construction at the time. WME backed out of the lease deal and has been headquartered nearby at 9601 Wilshire Blvd., in the building that housed Endeavor, since April 2009.

At issue all along has been Gersh’s location next door at 9465 Wilshire Blvd. Gersh moved from offices nearby on Canon Drive to the Wilshire Boulevard building in 2009. WME’s subterranean parking facilities would have been adjacent to those of Gersh, according to several reports, and WME brass apparently bristled at the prospect of sharing a valet with a rival. The lease, negotiated by former WMA chief Jim Wiatt, is said to guarantee exclusivity to the talent agency.

Comfort initiated legal proceedings in September 2009, claiming that WME violated the lease, costing the developer millions in lost rent. The arbitrator recently issued its ruling, according to sources, but what damages WME must pay to the developer, if any, has not yet been determined. That portion of the legal proceedings is ongoing, though it is difficult to win an appeal of a private arbitrator’s ruling. Factors in determining the damages include loss of rent, transaction costs and downtime. The worst-case scenario for WME could be a damage award in the millions of dollars.

WME likely would have moved into the building last year, though MGM signed a lease for the property at issue in December, mitigating some of the developer’s potential losses. MGM is slated to move into the building this fall, according to sources. Terms of MGM's lease with George Comfort are not known, though the Lion’s deal for the 144,000-square-foot, Class A property is believed to be less lucrative than the one William Morris inked near the top of the real estate market, before the economic downturn. Also, MGM will not occupy the entirety of the building, which has been completed and sits vacant.

WME declined to comment, and its attorney, Tony Natsis of Allen Matkins, did not return phone calls. George Comfort and its attorneys at Federman Steifman and Sidley Austin also did not return calls.
Twitter: @DanielNMiller

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