City Council Meeting: November 13, 2007

Agenda Item: 8-D

To:                   Mayor and City Council 

From:              Andy Agle, Director of Housing and Economic Development

Subject:          Authorization to Request Proposals to Redevelop the Site of Parking Structure No. 3 for Subterranean Parking, Ground Floor Retail and Cinema Development  

 

Recommended Action

Staff recommends that the City Council authorize the solicitation of proposals to redevelop the site of Parking Structure No. 3, located at 1318-20 Fourth Street, for subterranean parking, ground-floor retail, and cinema development.

 

Executive Summary

Development of cinemas along the Third Street Promenade was a key strategy in the revitalization of the Downtown and supported Downtown’s evolution as a retail, dining and entertainment district.  In the past decade, new cinema complexes have been built nearby which offer movie-goers more choices and better amenities than are available in Santa Monica. In 2004, the Promenade Uses Task Force recognized this trend and the threat it posed to the future sustainability of the cinema market in Santa Monica. The Task Force’s report encouraged the City to support the upgrading of cinemas in order to sustain the diversity of activity within the Downtown and to ensure that Santa Monica residents have opportunities to enjoy movies locally.  The Promenade Uses Task Force process immediately followed the efforts of the Downtown Parking Task Force process, which called for the construction of some additional parking and reconstruction of Parking Structures Nos. 1, 3 and 6.  The Promenade Uses Task Force foresaw the opportunity to combine these efforts and suggested that options to enhance the cinema experience “may include combining cinema development with the Downtown parking structure reconstruction and expansion program.”  A recently received, unsolicited proposal from Metropolitan Pacific Capital, LLC and Mann Theaters is offering a way to achieve the City’s goal of upgrading a Third Street Promenade cinema by expanding onto the site of Parking Structure No. 3. Staff believes that this proposal presents an excellent opportunity and recommends that the City solicit proposals to determine private sector interest in a project of this kind on this site.  There are no fiscal impacts associated with this item at this time. Fiscal impacts will be determined if and when a project is proposed.

 

Discussion

Background

In the late 1980’s the City recognized that a key ingredient for the revitalization of the Third Street Promenade was to create an entertainment district to serve as an attraction for movie-goers and encourage co-location of restaurants and retail stores. The Zoning Ordinance was amended to encourage cinemas to locate in the Downtown area by restricting new cinema development outside Downtown.  As shown on Attachment A, the Bayside District now offers four cinema complexes and three cinema operators, with a total of 21 screens and over 5,500 seats. Until recently, these four cinema complexes, plus the Landmark on Wilshire Boulevard, have been competitive with theaters in Westwood, Century City, Hollywood, Culver City, and West Hollywood.

 

However, the continued success of cinemas in the Bayside District is threatened from both internal and external factors.  The existing Bayside cinema complexes only offer between four and seven screens each, which potentially could put them at a disadvantage in competition for first-run movies, as movie distributors prefer to offer their product to theaters that can show movies on multiple screens at multiple times. Furthermore, existing theaters in Santa Monica do not offer stadium seating and other amenities that new theaters offer.  

 

Since 2002, several new cinemas have opened which offer more choices and amenities and directly compete with Santa Monica cinemas. Contemporary cinemas at the Howard Hughes Center and in Culver City directly compete with the Santa Monica cinemas, and have been joined by new cinemas at Westside Pavilion, Century City and the Grove. Both Mann Theaters and AMC Theaters are on long-term leases which expire within the next 15 to 20 years. If cinema patrons and distributors favor other cinema centers, the economic viability of existing operations in Santa Monica will decline, the operators may decide to leave Santa Monica, and Santa Monica residents will be forced to travel outside the City to see first-run films.

 

Based on preliminary studies by the City’s economic consultant, Allan D. Kotin and Associates, it is estimated that, annually, there are about 1,250,000 people who attend cinema in the Bayside District; they spend about $1,250,000 on parking; between 50 and 70 percent of the movie patrons eat at nearby restaurants; and movie patrons spend, on average between $2 and $5 per person on concessions at the movie theater.  Maintaining cinemas in the Downtown is important to the City’s economy, to the diversity of uses in the Downtown and to the convenience of Santa Monica movie-goers.

 

To support cinema activity and to preserve the Bayside District’s competitive advantage, adequate parking is needed.  The EIR for the Downtown Parking Program, approved by Council May 9, 2006, calls for the construction of new parking structures and the reconstruction of parking on the sites of Parking Structure Nos. 1, 3 and 6 (Attachment B). In the report to Council on June 8, 2004, the Promenade Uses Task Force noted that “movie theaters are essential to the success, vitality and mixture of uses of the Bayside District.... Locating new theaters on other downtown streets could help to enliven the entire District….Options may include combining cinema development with downtown parking structure reconstruction and expansion program.”

 

With the assistance of Ira J. Mitchell, cinema consultant, staff has been meeting with cinema operators.  Both Mann Theaters and AMC Theaters have expressed interest in upgrading their cinema presence within Santa Monica. In addition, other cinema operators not currently located in Santa Monica have approached the City and expressed interest in finding downtown locations.

 

Metropolitan Pacific Capital, LLC in a joint venture with Mann Theaters recently presented to staff a concept for upgrading their Santa Monica facility. Currently, Mann operates six screens with 1,526 seats at 1313 Third Street Promenade. They propose to retain the existing entrance on the Third Street Promenade and construct 10 theaters with approximately 2,240 seats and 35,000 sq. ft. of ground-floor retail on Arizona Avenue and Fourth Street by bridging Fourth Court and constructing two levels of cinema over subterranean public parking on the site of Parking Structure No. 3.

 

The proposed project offers several potential benefits to the community.  These benefits include retaining a cinema entrance on Third Street Promenade, which supports the Promenade’s place as the central retail-entertainment destination within Downtown.  The project would also create ground-floor retail space along Arizona Avenue and Fourth Street, expanding the energy of the Promenade to these adjacent streets that are currently challenged by blank walls and parking at street level.  Furthermore, there is a possibility that a private development may succeed in encouraging adjacent owners to participate in the project, thus creating a more efficient site for development and parking.

 

In combination with these public benefits, the proposal also raises several issues, including parking availability.  Dedicating the site of Parking Structure No. 3 for cinema development and only reserving the subterranean area for public parking may not achieve the full parking program that the Downtown Parking Plan envisioned for the site.  This could place pressure on the City to properly plan for additional parking on its remaining city-owned land.  As the City’s efforts to acquire property in support of the Downtown Parking Plan are still underway, this creates an element of uncertainty relative to the overall parking plan.  Another issue for consideration is that making only one site available for new cinema development will not fully satisfy the need to modernize the cinemas in the Bayside District, nor satisfy existing demand for upgraded cinema facilities.  If one cinema operator is able to upgrade successfully using the Parking Structure 3 site, other cinema operators could be at a competitive disadvantage until other opportunities arise.

 

Solicitation of Proposals

To help address some of the issues identified above, staff recommends soliciting proposals for Parking Structure 3, pursuant to the following guidelines:

·        The City will consider proposals for the Parking Structure 3 site which include ground-level pedestrian-oriented space, contemporary cinemas and public parking.

 

·        Preferential consideration will be given to proposals that incorporate creative approaches to maximize the availability of public parking.

 

·        Preferential consideration will be given to proposals that would result in preservation of or modest increases in the total number of cinema seats in Santa Monica.

 

Previous Council Actions

In considering the recommendations of the Promenade Uses Task Force, Council identified upgraded cinemas as a top priority for the Downtown.  On May 9, 2006, the Council certified the Downtown Parking EIR.

 

 

Alternatives

As an alternative to soliciting proposals for the reconstruction of Parking Structure No. 3 for subterranean parking, ground-floor retail and cinema development, the City, acting as its Redevelopment Agency, could:

1.      Enter into an Exclusive Negotiating Agreement leading to an Owner Participation Agreement through sole source negotiations with Metropolitan Pacific Capital LLC and Mann Theaters, specifically for Parking Structure No. 3, as the property is located within the Earthquake Redevelopment Project Area.  Staff does not recommend this alternative as it forecloses on opportunities to review other potentially creative proposals for the site.  In addition, it does not provide for the open process that is normally associated with the City’s disposition of property.  

 

2.      Seek proposals for development of the recently acquired City-owned property at Fifth Street and Arizona Avenue. This site is 45,000 sq. ft. In combination with adjacent properties, the site could accommodate an industry-standard, 18-screen cinema complex. A cinema complex of this size stands the best chance of securing new releases for the Santa Monica cinema distribution zone and therefore would guarantee Santa Monica’s position as a cinema venue.

 

Until film distributors change their policy about issuing films by zones, moving forward with a cinema development on the site of Parking Structure No. 3, and then, at a later date at another location, could dilute the strength of the Santa Monica film market (unless both cinemas are owned by the same company).

 

Lastly, seeking cinema development proposals for an 18-screen theater on Fifth Street offers a better opportunity to expand more broadly the vitality of the Third Street Promenade than does developing a smaller ten-screen theater on Fourth Street.  This alternative is not recommended because the City does not own a site large enough to accommodate a larger cinema complex, and the City's acquisition activities are still underway.  It is also not recommended because it concentrates a major activity-generator on one site in the Downtown.

 

3.      Seek proposals for the same mixed-use development as described above, for all three parking structure sites that are slated for reconstruction (Parking Structures Nos. 1, 3 and 6) and for the property the City recently acquired at Arizona Avenue and Fifth Street.  Staff does not recommend this alternative as property acquisition discussions on parcels adjacent to some of these City-owned sites continue and it would be premature to consider cinema development on the sites.  In addition, such a broad solicitation could result in proposals that exceed the City’s desired level of cinema development.

 

4.      Wait to decide whether to solicit any development proposals until all potential property acquisitions are complete or until the update of the General Plan is complete.  Given the long-term risks of delayed action, staff does not recommend this alternative.

 

5.      Develop a cinema master plan for City-owned properties, as well as any necessary adjustments to the Downtown Parking Plan, before proceeding with any developer recruitment.   As property acquisition activity is continuing, and in light of the long-term risks of delayed action, staff does not recommend this alternative.  In addition, this alternative may not capitalize on the creativity and expertise of private cinema operators.

 

Environmental Analysis

In January 2006, the City prepared and certified a program environmental impact report for the City of Santa Monica Downtown Public Parking Program (SCH No. 2002121122). This program EIR analyzed, in part, the environmental impacts of incorporating cinema space into the future reconstruction of Parking Structure No. 3. Any potential development proposal that the City considers for this site will be examined in light of this program EIR to determine whether additional environmental review must be undertaken and the extent of such review, if required.

 

Public Outreach

The Promenade Uses Task Force public process identified upgraded cinemas as a top priority for the sustaining the health and diversity of the Bayside District.  The Bayside District Board at its Land and Assets Committee meeting on September 11, 2007, and at its Board on September 27, 2007, discussed the proposed cinema strategy. Both recommended that the City seek development proposals for cinema development on Parking Structure No. 3.

 

Budget/Financial

 

Capital expenditures associated with a future public-private development are unknown at this time and would be the subject of in-depth analysis and negotiation, subject to Council approval.

 

 

 

Prepared by:

Miriam Mack, Economic Development Manager

 

Approved:

 

Forwarded to Council:

 

 

 

 

 

 

Andy Agle, Director

Housing and Economic Development

 

P. Lamont Ewell

City Manager