It seems to me a weird call. The Sondheim Theatre has only 1,046 seats, and because of the elimination of the Special Theatrical Event Tony category, it'll be hard pressed to win any major awards (and assuming it sticks to a limited run, wouldn't get any benefit from it anyway). Why not instead go to the Beacon Theatre, which has 2 to 3 times the number of seats?
What size theater in LA? Maybe a bad financial decision (unless, of course, someone didn't think they could fill the seats), but seems like a smart creative decision. I assume the original stage production was in a small space, and I'd bet it demands intimacy. My husband (insane for Little Shop in its original Off-Broadway run) felt like the larger size of the theater was a big part of the revival's problems (among many, many others for him). PeeWee is probably just meant to be more intimate and not really a Big Splashy Prodcution.