Disney Must Resort to Innovation for Expansion to Work : Development: Unlike company's previous projects, Anaheim plan also requires extensive urban renewal outside the park. This means skyrocketing costs.

By KEVIN JOHNSON and MATT LAIT

Nov. 15, 1992 12 AM PT

TIMES STAFF WRITERS

ANAHEIM — Not long after Walt Disney opened his fanciful theme park in an area surrounded by orange groves, he began to see a troubled future taking shape.

And Disney, flat out of cash after spending $17 million in 1950s dollars to develop his Magic Kingdom, was powerless before the hungry entrepreneurs who bought up the farmland around his beloved park.

He watched as just outside the park’s landscaped berm, a neon strip blossomed with pancake houses, hamburger stands, T-shirt shops and a string of cinder-block motels. It transformed a portion of Harbor Boulevard into a Las Vegas-style strip for little people.

“What made Walt unhappy was that we didn’t have any control over it,” Disneyland President Jack Lindquist said last week as he recalled his late boss’ daily frustration. “He wished he’d been able to afford more property between the park and the outside world.”

Now, all of that is changing.

Long gone are the days in the 1950s when Disney managers rushed vending machine change to the local bank to cover employee payrolls. The entertainment giant’s plan for a $3-billion expansion would triple the size of Disney’s kingdom in Anaheim, erasing the little Las Vegas and creating a self-contained destination resort.

The new Disneyland in Anaheim--call it the Disneyland Resort--would mimic the international success of Walt Disney World in Orlando, Fla., where guests stay for days in Disney hotels and eat in Disney restaurants while visiting its various attractions.

The way Disney officials see it, to repeat that success here would be a renaissance for the park and the city.

“This is where our main core of business started,” said Kerry Hunnewell of Disney Development Co. “We’re coming home.”

But it would also be a new challenge. Disney has never before attempted an urban-renewal venture.

In Florida, the canvas for Walt Disney World was swamp land; in Tokyo, vacant land on the city limits, and in Paris, a sugar beet field.

In Anaheim, the orange groves are gone and the land is booby-trapped with aging sewer pipes, water lines, old motels and miles of concrete. To re-create Anaheim would require massive investment, according to the city’s environmental impact report on the project made public last week.

By Disney’s own accounts, the costs of retrofitting a destination resort to an existing urban landscape are staggering.

Using its Florida-based theme park for comparison, Hunnewell said the cost of construction in developed Anaheim will be at least $1 billion more than if the same project were built on swamp land in Florida. The project envisions expanding Disneyland from 180 to 546 acres.

The reason for the cost differential are obvious:

* Twenty-five years ago, Disney gobbled up Orlando wetlands at a cost of $250 an acre. In today’s Anaheim market, land near Disneyland is going for between $1.5 million and $2 million an acre.

* Parking costs are $1,000 per space in Florida, but $10,000 per spot in Anaheim, where two of the world’s largest parking structures have been proposed.

* Unlike its experiences in Florida or Paris, about $750 million must be spent to upgrade the city’s public works system and upgrade present city services even before concrete can poured for the first amusement ride.

So far, there has been no agreement on how these enormous costs would be split between the company and city. And Disney executives insist they would not make a decision on the economic feasibility of the project until at least the spring of next year. By that time, the city’s environmental report would likely be in its final form and be submitted for approval before the city’s Planning Commission.

“This project has to stand on its own two feet,” Hunnewell said. “The economics are kind of marginal right now.”

Still, in the eyes of Disney executives and city officials, the mountain of debt is subordinated by the promise of increased revenue and the revival of a sagging statewide tourist industry.

According to Disney’s estimates, the expansion would double the number of park guests to 24 million each year, and add an estimated $1.2 billion in annual revenue and tens of thousands of new jobs.

Despite the costs, Disney officials say the Southern California market remains attractive because of its weather, population density and proximity to potential international guests.

“We’ve been members of the Anaheim community for 37 years,” Hunnewell said. “This would provide benefits to an area that has been our home. It provides the economic engine to finance public improvements for which money would not be available otherwise.”

And no one is betting against Disney in job-hungry Southern California, which is plagued by a nagging recession, nor in Anaheim, where Mickey Mouse has always been king.

“The day of the green field parks, like Magic Mountain and Six Flags parks are over,” said Dennis Speigel, president of International Theme Park Services Inc. in Cincinnati. “There’s not that much open room any more. . . . I think Disney is capitalizing on this trend.”

Speigel referred to the tiny motels that have taken hold on the park’s border as “parasites.”

“They are a blight on Disney,” he said. “It’s widely known that they (motels) have impeded Disney’s ability to expand.”

Jim Benedick, a theme park consultant with Management Resources in Tustin, said building in the urban environment would be difficult but “Disney has always ventured into unprecedented projects.”

“That makes them special,” Benedick said. “They are willing to take that risk.”

Said Speigel: “In this day and age, even Disney is going to have a problem.” But Anaheim “would be silly not to do it. Look at what it will do to expand the job base.”

On Saturday, residents near Disneyland were getting their first look at the city’s evaluation of Disney’s plan and most seemed pleased.

Several dozen residents who gathered at Disneyland were thrilled to hear confident projections from company executives about decreased traffic on local streets, once two giant parking structures with direct access to the Santa Ana Freeway are completed. They also were wowed by plans to convert West Street, Walnut Street and Harbor Boulevard into tree-lined roadways with walking paths set far back from the flow of traffic.

Over and over again, company planners stressed that the development would be financed by Disney and with tax revenue generated by the expansion, so that Anaheim’s general fund would not be touched.

Politically, Disney’s plans--despite the additional pollution and construction problems detailed in the city’s environmental study--is expected to face little opposition in Anaheim.

Responding to the city’s environmental findings, Mayor-elect Tom Daly said the expansion represents the “biggest and best project to come along in the history of Anaheim as well as the history of Orange County.”

The project has the unqualified support of a council majority, which includes Mayor Fred Hunter, who failed in his bid for a third term two weeks ago but retains his council seat. During his two terms as mayor, Hunter and Councilman Irv Pickler have been unabashed in their support of the Disney project.

“One of the essential things is to keep moving,” Pickler said of the approval process. “This project will make Anaheim a more beautiful place, alleviate congestion--it’s a fabulous project.”