SR-CC/PA-2
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JAN 9 1990
C/ED:HSG:JG:wp Santa Monica, California
City council and l' , r', ;j { (p
Parking Authority Meeting: 1/9/90 ~ ~ -~ - 1....,.- .
TO: Mayor and city Council Members
Chairperson and Parking Authority Members
FROM: city staff
SUBJECT: Recommendations Regarding the city-Sponsored Mixed
Use Development at 1423 Second street
INTRODUCTION
This report transmits information and recommendations regarding
the mixed use project to be developed by Community corporation of
Santa Monica on the City-owned surface parking lot at 1423 Second
street. The report recommends that the city council and Parking
Authority direct staff to examine the feasibility of alternative
non-theater uses for the ground floor of the project which will
consist of thirty (30) SRO-type housing units and a 7,500 square
foot space for non-residential use. In addition, the report
recommends that the City Council authorize the City Manager to
explore the possibility of programming spanish-language cinema in
an existing movie theater in Santa Monica. Staff would return to
city Council in June 1990 for approval of the ground floor use in ,
the Second Street project and for approval of an agreement
pertaining to Spanish-language programming in an existing
theater.
BACKGROUND
On April 26, 1988, the City Council and Parking Authority
approved in concept the development of a mixed use housing/cinema
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project on the City-owned parking lot at 1423 Second street. The
development as originally approved consisted of twenty-eight (28 )
O-bedroom SRO-type housing units for very low income households
and a two-screen movie theater with a total of five hundred (500)
seats. The project was approved both to help meet the critical
need for affordable housing in the downtown area of Santa Monica,
and to partially replace the "CineLatino" Spanish-language
theater which was displaced from the Third Street Promenade by
commercial redevelopment. Community Corporation of Santa Monica
(CCSM) was designated by the city Council and Parking Authority
to be the developer of the project.
Subsequent to City Council and Parking Authority conceptual
approval of the project in April, 1988, City staff have worked
closely with CCSM, its construction and theater consultants, and
the proposed theater operator to refine the project program and
to develop working drawings and cost estimates. In August 1988,
information was transmitted to the City Council regarding the
structural and financial infeasibility of replacing the existing
parking on-site. The infeasibility of replacing the existing
parking, and the results of the Kaku Associates parking demand
study are discussed below.
DISCUSSION
Replacement Parkinq Analysis
According to the draft Parking Demand Analysis for the Third
Street Promenade prepared by Kaku Associates, the parking
structure adjacent to the proposed mixed use project (Parking
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structure Number Six) has a surplus of available parking spaces
over both current and projected demand. Parking structure Number
six will have 46 or more surplus parking spaces at all times,
even after accounting for increased demand resulting from
projects under development nearby.
Pursuant to City Council direction, staff also analyzed the
feasibility of replacing the twenty-six (26) public parking
spaces currently on the Second street site within the proposed
mixed use project. The results of this analysis were
transmitted to City Council in August 1988, and are discussed in
greater detail below.
Three possible replacement scenarios were analyzed: ( 1)
replacing the parking underground, beneath the theatres or other
ground-floor use; (2) replacing the parking above the theatres or
other ground-floor use, with access from the adjoining public
parking structure; and (3) replacing the parking on grade,
eliminating any other ground-floor use. The following describes
the estimated cost per parking space of each of the scenarios.
Underground Parking: The size limitations of the Second street
site reduce the number of parking spaces which could be provided
under any scenario. The "undergroundll parking scenario is the
most limited in this respect because ramps would occupy a great
deal of the site, leaving room for only approximately 10 parking
spaces per level. Given the high cost of excavation and shoring
adjacent structures, the project architect estimates that a
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single level of underground parking would cost approximately
$490,000, or $49,000 per space.
Above-Ground parkinq: Approximately 17 parking spaces could be
built into a third project level over the theater or other
ground-floor use, with access from the third level of the
adjoining parking structure. These spaces would cost a total of
approximately $500,000, or $29,400 per space. However, serious
questions exist regarding the level of acoustic insulation that
would be required to soundproof the housing and ground-floor use
from the noise and vibration of the parking.
On-Grade Parking: After providing for stairs, an elevator, and
utility rooms for the housing component of the project,
approximately 16-18 parking spaces could be built on the ground
floor of the project if any other ground floor use was
eliminated. The project architect has preliminarily estimated
the cost of on-grade parking at $410,000, or approximately
$24,000 per space.
The cost of replacing parking spaces on-site in the proposed
mixed use project ranges from approximately $24,000 to $49,000
per parking space, depending on the location of the parking. In
contrast, the cost of expanding city-owned parking structures is
estimated to be approximately half or less than this cost, based
on the recent expansion of Parking structure Number Five on
Fourth street.
Gi ven the extremely high cost of replacing parking on-site, the
relatively low cost of adding parking spaces to adjoining public
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parking structures, and the surplus of available parking spaces
in the parking structure immediately adjacent to the proposed
project, staff has concluded that on-site replacement of parking
spaces in the proposed mixed use project is both financially
infeasible and unnecessary.
However, the sale of the property from the Parking Authority to
the City will provide the Parking Authority with funds which
could be used for the provision of additional parking through
expansion of the adjacent structure.
The city Council and Parking Authority action on April 26, 1988
approved in concept a transfer of title from the Parking
Authority to the city, and a below market rate lease payment to
the parking Authority based upon the affordable rent structure.
The proposed project would support a lease payment of $30,000 per
year. In order to make funds immediately available to the Parking
Authority, it is recommended that the project, rather than making
a $30,000 lease payment, pay the capitalized equivalent of the
affordable lease payment to the Parking Authority, equal to
approximately $300,000, or about $11,500 per existing space. This
is equal to the estimated cost of providing new spaces in an
existing structure.
Development Cost of Theater
After preliminary drawings were prepared for the project and
development costs were estimated by CCSM's construction
consultant, it became apparent that the inherent difficulties of
developing on the designated site, as well as higher than
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anticipated construction costs of movie theatres, were increasing
the construction costs of the theater over what was originally
projected in 1988. Due to development difficulties and high
movie theater construction costs, the development cost of the
project is estimated to be approximately $4,435,000.
The housing component of the project makes up approximately
. fifty-five percent (55%) of the total development cost,
or
$2,445,000. Given the various sources of financing available to
the housing component, including private debt financing, tax
credit syndication, and local housing trust fund loans, the
housing component "breaks even tl in terms of project financing
(i.e. it brings in enough financing to cover its own costs).
The theater component of the project, however, does not break
even with respect to project financing. The theater's projected
revenue does not support enough private debt financing to cover
its construction costs, leaving a project financing gap of
approximately $660,000. This shortfall exists despite the fact
that the proposed theater operator has tentatively agreed to
provide approximately $600,000 for tenant improvements. These
funds would be used to both finish the theater's interior
construction and to install seats, a ticket booth, a concession
counter, and sound and projection equipment.
In an effort to close the project's financing gap, City staff
have worked closely with CCSM, its construction consultant , the
project architect , and the proposed theater operator in both
redesigning the project to reduce construction costs, and
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attempting to generate additional project revenues to support
greater private debt financing.
The theater's redesign consisted of minimizing subterranean
square footage, reducing the number of theater seats, reducing
the number of levels in the complex from three to two, and
reducing the square footage of the lobby. These redesign efforts
reduced the construction cost of the theater by approximately
$200,000, reducing the project's financing gap from $860,000 to
$660,000.
CCSM and City staff also examined the possibility of adding
market-rate uses to the project in order to increase revenue and
thereby increase the private financing the project could support.
For example, the addition of one or two floors of market-rate
office space or market-rate residential units to the project was
analyzed as a potential means of making the project break even.
Unfortunately, while such additions would generate suffic.lent
revenue to cover their own costs and provide some return on
investment, they would not generate enough extra revenue to
substantially reduce the project's financing gap.
Despite extensive staff and developer efforts to eliminate or
reduce the theater's financing gap, there is still a gap of
approximately $660,000 between development costs and available
financing. Given this financing gap, staff have concluded that
it is financially infeasible to include a movie theater complex
in the Second Street mixed use project.
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Pursuant to making the above described determination of financial
infeasibility, staff has begun examining alternative ground-floor
uses. According to cost estimates prepared by CCSM's construction
consultant, the ground floor could be develop for a non-theater
cultural use for approximately $798,000. At this cost, the space
would break even at a below-market rate of approximately $1. 53
per square foot per month, with no additional City capital
subsidies required to make the project financially feasible. In
addition, the nulnber of residential units could be increased to
thirty (30). It is recommended that City Council direct staff to
investigate the feasibility of the alternative uses described
below, and return to the city Council for approval of the use and
the terms of the required lease in June.
The discussion below describes the alternative development
proposals for the Second street site and an alternat1ve approach
to providing Spanish-language cinema in the area.
Alternative Proiect Proposals
One use which would address the needs of the community for
affordable cultural, artistic, and performance space would be a
"community Cultural Center" providing performance space for
music and live theater, meeting space for non-profit and public
agencies in Santa Monica, and a central location in the downtown
area for community cultural and artistic activities. The revenue
generated by the cultural space would depend on the operator
selected and the specific use of the space. Over a short-term
start-up phase a cultural Center probably would not generate
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sufficient revenue to cover the break-even lease rate of $1:S3.
In developing final recommendations for the ground floor use,
staff will determine the revenue potential for a Cultural Center
accomodating a range of uses, and determine whether or not such a
use would be financially feasible over the long-term.
While the Center represents the most desirable use of the ground
floor space, it is recommended that staff also be directed to
pursue alternative market-rate commercial uses for the space if
staff's further analysis of the Center's potential costs and
revenues indicate that it cannot be feasibly developed without
excessive City subsidies. staff will examine potential
market-rate retail uses for the space, which could include
bookstores, a musical nightclub, or an affordable restaurant or
cafeteria. staff will return with a specific lease proposal for
the ground floor space for City Council approval in June 1990.
Need for Timely Determination
A determination must be made by the city Council regarding the
composition of the proposed Second Street mixed use development
as soon as possible. In order to maintain project feasibility,
the developer must obtain an allocation of 1990 Federal and state
low income housing tax credits from the California Mortgage Bond
and Tax Credit Allocation Committee. The tax credit program has
only been temporarily extended by the U.s. Congress, and
competition for tax credits will therefore be intense.
Therefore, in order to maximize the probability of receiving a
tax credit allocation, an application for tax credits must be
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submitted to the Allocation Committee as early as possible in
1990. A determination by the City Council that the ground floor
space be dedicated to cultural or retail use, and not to theater
use, will allow the project developer to apply for tax credits
before the end of February, 1990 presuming the lower development
costs of the non-theater project and thirty (30) rather than
twenty-eight (28) residential units.
Potential Alternative Spanish-Lanquage Cinema
In order to continue to address the local need for
Spanish-language cinema, staff has begun exploring the
possibility of arranging for an existing movie theater in Santa
Monl.ca to program spanish-language cinema on an on-going basis,
whereby specific programming choices could be guided by an
advisory group from the Latino community. city staff have met on
a preliminary basis with Mr. Robert Laemmle of the Laemmle
Theatres regarding such an arrangement, and Mr. Laemmle has
expressed a high level of interest in pursuing the concept
further.
On the basis of these preliminary discussions, it appears that
arranging for Spanish-language programming on an existing theater
screen in Santa Monica would be a much less expensive option for
preserving such cinema in Santa Monica than SUbsidizing the
construction of a new theater complex for this purpose.
In order to proceed with exploring the possibility of arranging
Spanish-language programming in an existing movie theater in
Santa Monica, staff recommends that the City council authorize
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the City Manager to initiate more formal discussions with Mr.
Laemmle and other existing theater operators in Santa Monica
regarding the potential costs, revenues, and format of such an
arrangement.
Next steps
Staff will be returning to the City Council and Parking Authority
in June, 1990, with a final recommendation regarding the ground
floor use of the Second street mixed use project (Cultural Center
or market-rate commercial use), and for approval of the lease
agreement to be executed with CCSM for the project site. In
addition, staff will be returning for city council approval of an
agreement with an existing theatre operator in Santa Monica for
Spanish-language film programming if negotiations prove
satisfactory.
FINANCIAL/BUDGETARY IMPACTS
No financial or budgetary impacts are anticipated as a result of
the specific actions recommended in this report. staff will
return in June 1990 for City Council and Parking Authority
approval of specific lease and payment agreements.
RECOMMENDATIONS
It is recommended that the City Council and Parking Authority:
1) direct staff to investigate the feasibility of incorporating
a nCommunity Cultural Center" on the ground floor of the mixed
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use development to be developed by Community Corporation of Santa
Monica at 1423 Second street; and
2) direct staff to return with a lease proposal 'either for the
community Cultural Center, or for an alternative cultural or
retail use if staff determines the Center is infeasible to
develop; and
3) direct staff to prepare the required City council and Parking
Authority resolutions and a Payment Agreement based upon the
transfer of the property to the City as described herein.
It is further recommended that the city council authorize the
city Manager to explore arranging for an existing theatre in
Santa Monica to present Spanish-language cinema on an on-going
basis in partial replacement of the ICineLatino" theatre which
was displaced from the Third street Promenade by commercial
development activity and return with lease proposal if
negotiations yield an acceptable arrangement.
Prepared by: Jeff Mudrick, Acting Housing program Manager
Jack D. Gardner, Senior Development Analyst
Department of Community and Economic Development
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