PROMENADE—Santa Monica Seeks to Freeze Third Street Restaurant Exodus

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Looking to stem the steady departures of eateries along Santa Monica’s Third Street Promenade because of sharply escalating rents, the Santa Monica City Council is scheduled to vote Nov. 27 on a 45-day moratorium for restaurant-to-retail conversions at the popular shopping district.

The effort follows a report showing that since 1999 more than a quarter of the 26 restaurant locations on Third Street were converted to retail operations.

Restaurants are seen as a key component to the shopping street, although they generally have margins far lower than those of national retail chains that are better able to afford Third Street rents.

Rob York, a consultant at Fransen Co., a retail development consultant hired by the city, said a national retailer could afford to pay about $3 more per foot per month than can a restaurant.

While the moratorium is in place, a task force will be working to develop recommendations for a permanent way to keep the retail/restaurant balance within current levels.

Among the ideas under discussion are municipal subsidies to restaurants, reducing outdoor dining fees, and streamlining permitting processes for those seeking liquor licenses.

Santa Monica Mayor Michael Feinstein said he might like to see some rent control, although it is illegal in California to regulate rents on commercial properties.

“Is it OK for property owners to keep pumping (rent) up and up and up until it hurts the community?” he asked. “Leaving the property owners to their own devices has led to trouble.”

While rent control does not appear to be a realistic option, Third Street property owners are concerned that any measures to regulate the retail mix will hurt the area.


Countering market forces

“As soon at you get in there and start to manipulate things, you just start to screw them up,” said Merlyn Ruddell, who owns and manages various properties on the Third Street as partner in Third Street Ltd.

Ruddell said legislating how many restaurants and retail establishments can co-exist is the wrong way to handle the issue. Better for Third Street and more considerate of property rights would be to find ways to encourage restaurant development, such as allowing eateries to use the upper floors of buildings.

Ernest Kaplan, a principal in Century Commercial Brokerage Co., which owns property on Third Street and adjacent streets, said the city is treading on dangerous ground when it considers legislating property uses.

“If they go further and turn the moratorium into some law, the majority of property owners will challenge it through the legal system,” Kaplan said.

Bayside District Corp., the nonprofit organization that oversees Third Street, has weighed in with its own recommendations. Those include waiving conditional use permits necessary for new liquor licenses and establishing a trigger that would require a development review for restaurant-to-retail conversions when the mix of uses hit a predetermined level.

Feinstein said the city could require conditional-use permits for landlords looking to consolidate storefronts into larger spaces. That, he said, could reduce the number of the big floor plates that are so attractive to national retailers.

“It might get to the point where it would take too long for the market to correct it,” he said. “I want to make sure the pendulum doesn’t swing so far we can’t reverse the momentum.”

John Warfel, vice chairman of the Bayside District and a principal in Santa Monica development company Metropolitan Pacific Capital LLC, said he would like to see the city and Third Street property owners chip in for a fund that would promote “beneficial uses” of space.

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