I think based on the concept art, it will be an outdoor setting, but maybe enclosed like Super Nintendo World, to ensure it's fully immersive.
So perhaps they extend the facade (yellow), you can keep Fairfax Market, Schmoozies, but basically close off the current entrances to the backlot with a Hollywood facade.
Build a new exit for Philharmagic, that comes back out directly onto the street (pink arrow). Green arrows possible entrance and or exits for Avatar, through the wall?
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ETA:
Think Epic Universe portal into World of Avatar type thing?