Loading...
SR 01-26-2016 8D City Council Report City Council Regular and Special Joint Meeting: January 26, 2016 Agenda Item: 8.D 1 of 24 To: Mayor and City Council From: David Martin, Director, Planning and Community Development, Planning Commission Agenda (PCD) Andy Agle, Director Subject: Discussion of Concept Plans and Conceptual Business Terms associated with a Development Agreement (15ENT-0225) for the development of a new multi-screen movie theater and retail/restaurant project located at 1318 -1320 Fourth Street. Recommended Action Staff recommends that the City Council: 1. Discuss the applicant’s Development Agreement Concept Plans and direct staff to initiate the Development Agreement negotiation process; 2. Provide direction for negotiating potential community benefits, parameters for site redevelopment, and design alternatives identified by the Planning Commission and staff; 3. Review and comment on the conceptual business terms and direct staff to initiate the negotiations on the Disposition and Development Agreement and Ground Lease Agreement for the project. Executive Summary The applicants, Pacific Theatres Exhibition Corp. and Macerich G3, LLC, propose a Development Agreement to construct a new 4-story (84 feet), 100,000-square-foot mixed-use cinema and retail/restaurant project at the site of Downtown Parking Structure No. 3 located at 1318-1320 Fourth Street. The property is located within the Bayside District Specific Plan area and the Downtown Core LUCE designation. The proposed project consists of:  Demolition/removal of Downtown Parking Structure No.3 and its 344 existing public parking spaces.  Construction of an approximately 100,000−square-foot building, which includes 90,000 square feet of theater floor area with up to 16 auditoriums/screens; approximately 2,700 theater seats; interior restaurant/lounge space available to theater patrons as well as to the public; and approximately 10,000 square feet of ground floor retail/restaurant tenant space leased separately from the theater use. 2 of 24 The City has sought the redevelopment of Parking Structure No. 3 since 2007 and has conducted multiple efforts since that time to implement a mixed-use cinema at the site in an effort to restore opportunities for the Santa Monica community to see a wide range of movies in a contemporary setting without leaving Santa Monica. Since the site is City- owned, a Disposition and Development Agreement (DDA) and Ground Lease Agreement would govern the City’s proprietary interests in the development of the property. The applicant (Development Team), Pacific Theaters/Arclight Theaters (Exhibitor) and Macerich (Developer), have been working with s taff and the City’s consultants to develop foundational conceptual business terms for the project. Staff seeks Council’s direction on the conceptual business terms. A Development Agreement is requested because the proposed design of the structure does not comply with the applicable Bayside District Specific Plan and Zoning Code development standards related to building height, stepbacks, and building volume. The draft Downtown Specific Plan (DSP) is contemplating an 84 -foot height limit for the site; however, until the DSP is adopted, the Bayside District Specific Plan, Interim Zoning Ordinance No. 2490 (CCS), and the 1988 Zoning Ordinance govern development on the site. The draft DSP will serve to inform and assist staff in its processing of the Development Agreement. While a Development Agreement is exempt from compliance with existing zoning standards, such agreements must comply with the General Plan and any applicable specific plans. As such, an amendment to the Bayside District Specific Plan is necessary prior to the final consideration of this Development Agreement by the Council to achieve consistency with the Specific Plan’s height standard for the property. The project shall be consistent with the goals and policies set forth in the LUCE so t hat its design, use, and features will contribute to the community in accordance with the property’s Downtown District General Plan designation. The following is a summary of key issues recommended for consideration by Council in its discussion of the proposed Development Agreement and its formulation of direction to staff and the applicant regarding the proposal:  Consider whether the proposed project is consistent with the neighborhood context and the LUCE vision for the Downtown District.  Consider how the schematic project design fits into the overall streetscape and whether it is responsive to its neighborhood context.  Identify potential negotiation points and/or community benefits that would be appropriate for the broader neighborhood and community.  Identify potential negotiation points and/or public benefits related to additional Transportation Demand Management (TDM) measures in excess of the baseline TDM requirements to reduce future vehicle trips in the area associated with the project and/or increase use of public transit for both project employees and patrons. As part of the project review, a parking study would be prepared that analyzes parking utilization and demand within the context of the City’s broader Downtown Parking 3 of 24 Program. The study will include collection and analysis of current parking utilization data and provide recommendations to maximize the efficiency of the public and private parking supply in the Downtown. Economic analyses will also be prepared to analyze the project’s revenue and costs to the City, and a value enhancement analysis will be prepared based on a project proforma and the effects of the cost of development on the residual land value. The Planning Commission conceptually reviewed the project at a float-up meeting on August 19, 2015. The project was not viewed favorably by the Planning Commission primarily due to the three issues of parking, building height/mass, and a passageway through the alley to Fourth Street, as summarized in Attachment A. The Planning Commission recommended that City Council pay particular attention to items related to the project’s impact to parking in the downtown, building mass and height, community benefits, and neighborhood compatibility. Background In 2001, Council established the Promenade Uses Task Force (PUTF) to address community concerns regarding the Third Street Promenade losing some of its signature diversity and vitality. The PUTF held a series of public meetings during 2002 and 2003 and concluded its work with a set of recommendations for ensuring the continued appeal of the Promenade and surrounding downtown area to residents, employees and visitors. Among the PUTF’s recommendations was a focus on creating high -quality downtown movie theaters. The PUTF’s recommendation recognized that movie theaters play a critical role in Downtown Santa Monica, both in terms of enriching the downtown experience beyond shops and restaurants and in creating local venues that allow the Santa Monica community to enjoy everything from Hollywood blockbusters to foreign films. The PUTF acknowledged that Santa Monica’s cinemas were becoming outdated, particularly with respect to essential amenities such as stadium seating. The PUTF also recognized that the existing cinemas within the downtown were located on sites too small to accommodate stadium seating and that the cinemas had become less appealing to movie-goers and would continue to do so. The PUTF recommended that the Council consider larger sites beyond the Promenade that could accommodate contemporary cinemas while expanding the associated pedestrian energy to the larger downtown beyond the Promenade. Council accepted the PUTF’s recommendation on June 10, 2003 (Attachment D), and on September 9, 2003 (Attachment E), Council directed staff to pursue a work plan for implementing the PUTF recommendations. 4 of 24 The PUTF’s predictions were correct. At its height in the late 1980s, the downtown Santa Monica cinema market included 5,690 seats wh ich generated over two million cinema attendees annually. Since that time, cinema attendance has continued to decline, with market attendance now at approximately 600,000 patrons per year due to aging facilities and the establishment of contemporary cinemas in neighboring areas. In addition, the Criterion 6, with 1,526 seats, has closed, the AMC 7 and AMC Broadway 4 have both reduced their auditoriums by 1,945 seats, and the Laemmle Monica 4 is in the process of reducing its seat count by 719 seats. The only new downtown cinema is the Arclight at Santa Monica Place, which was approved by the City Council on April 22, 2014 (Attachment J), and recently opened with 1,500 stadium seats; however, with other cinema closures and seat reductions there has been a net loss of 2,690 seats (47%) relative to downtown’s seat count of approximately 5,700 for over 20 years. At about the same time that the PUTF was conducting its work, another Council- appointed group, the Downtown Parking Task Force (DPTF), was developin g a strategic parking plan for Santa Monica’s downtown. The task force’s recommendations included the demolition and replacement of Parking Structures 1, 3 and 6. When the work of both Council-appointed groups was completed, many community members identified the potential confluence of the parking plan and the cinema plan. Those discussions eventually focused on the opportunity to demolish Parking Structure 3 on Fourth Street and replace it with a contemporary cinema. Structure 3 was identified as a pri me opportunity because of its relatively central location within the downtown. Community members advocating for the opportunity also recognized that cinemas generally operate as loss leaders within shopping malls, much like department stores. Cinemas and department stores are essentially underwritten by mall owners because they draw foot traffic that supports the other shops and restaurants within the center. Santa Monica’s downtown contains only one shopping mall, Santa Monica Place, and there was concern about focusing too many cinema seats at one location, particularly a location at a gateway edge of downtown. As a result, community members expressed a desire for the City to use its land resources to support cinema development in order to benefit the 5 of 24 diversity of uses downtown and provide the broader community with a breadth and depth of movie-going options throughout the downtown. Council agreed with the approach and on November 13, 2007 (Attachment F), authorized the solicitation of proposals to redevelop the City-owned site of Parking Structure No. 3 into a cinema. On September 8, 2009 (Attachment H), Council authorized staff to enter into exclusive negotiations with AMC Entertainment Inc., in partnership with Metropolitan Pacific Capital Inc., (AMC Development Team) to develop and operate a multiplex cinema on the site. At that meeting, Council directed staff to move forward with the cinema proposal without providing parking on the site, in accordance with the findings in the Downtown Walker Parking Study, as detailed further in the ‘Downtown Parking Program’ section of this staff report below. During the exclusive negotiating period with the AMC Development Team, a draft EIR was prepared and publicly circulated in October 2012. The Exclusive Negotiation Agreement (ENA) with the AMC Development Team expired on November 26, 2012, and AMC informed staff that the development team would not seek an extension to continue exclusive negotiations due to the financial infeasibility of the proposed project. On December 11, 2012 (Attachment I), Council directed staff to negotiate in the open market with prospective cinema exhibitors and developers. At its April 22, 2014, meeting (Attachment K), Council authorized staff to negotiate and enter into an ENA with the Development Team of ArcLight Cinemas and Macerich (Applicant) to develop and operate a contemporary multiplex cinema project on the site. The City and Development Team have executed the ENA and are currently negotiating the conceptual business terms for the project. During the term of the ENA, the applicant will seek discretionary entitlements for the project that will be subject to review pursuant to the California Environmental Quality Act (CEQA); concurrently the City and Development Team will finalize the business terms to the Disposition and Development Agreement and Ground Lease Agreement. Discussion 6 of 24 Because the proposed project is located on City land, Council has regulatory responsibilities (as reflected in a potential Development Agreeme nt) and proprietary responsibilities (as reflected in a potential Disposition and Development Agreement and Ground Lease) related to the project, as discussed below. Development Agreement Development agreements are negotiated contracts between the City and an applicant that specify the design parameters, development standards, and requirements of a project. Development agreements provide some flexibility from the development standards of the Zoning Code in return for some level of public benefit. A development agreement is an alternative to the standard development approval process; in practice it is similar to other public review processes where Council makes the final decision; with the exception that Council has more discretion in imposing conditions and requirements on the proposed project since development agreements are negotiated contracts and adopted by ordinance. On October 13, 2015, Council explicitly enacted new policy direction to de-emphasize discretion for Development Agreements, with clear and specific parameters to be included in the future Downtown Specific Plan – and in fact deferred consideration of most applications for Development Agreements until the DSP was in place. However, this project was explicitly included for continued Council consideration pending the DSP adoption, expected this June. Council direction as part of the float-up review will provide initial direction to staff, and inform the applicant of potential project-related issues in moving forward with the project design and development agreement negotiation, with final approval taking place after the adoption of the DSP. Project Description The applicant proposes to demolish the City-owned Downtown Parking Structure No. 3 (344 spaces) to redevelop the project site with an approximately 100,000 square-foot multi-screen theater and retail/restaurant building (Arclight Santa Monica). The concept includes up to 16 screens and 2,700 seats in 90,000 square feet of theater floor area. Retail and restaurant uses are proposed within 10,000 square feet of ground floor tenant spaces to be leased separately from the theater. The proposal is consistent with 7 of 24 the Council-adopted criteria for the development of a state -of-the-art cinema at the site, including the preservation or modest increase in the total number of cinema seats that have historically existed in the Downtown. The original design proposed for this project is shown in the rendering below, one that was sharply critiqued by the Planning Commission at its Float Up – and a new design responsive to those concerns is detailed below. Both designs called for four stories that measures approximately 84 feet in height, not including parapets and roof appurtenances. Pedestrian access to the theater would be provided on the ground floor from Fourth Street where patrons will access escalators and a grand staircase to the third floor theater lobby and associated theater services (i.e. restaurant, lounge, admission to auditoriums). The theater entrance and ground floor retail/restaurant lease spaces are preliminarily designed with a glass façade that allows transparency into the retail/restaurant uses as well as into the theater lobby and restaurant/lounge area on the third floor. The structure is a zero lot line design so no landsca ping is proposed. Arclight 4th Street Cinema: Original Rendering 8 of 24 The development of cinemas in the Downtown District was a key strategy in the revitalization of the downtown and its evolution as a retail, dining, and entertainment destination. The development of new theaters in neighboring jurisdictions over the past 15 years that offer more choices and modern cinema amenities have caused many residents to leave Santa Monica for their entertainment needs. The current upgrades to the existing AMC and Laemmle theaters will provide some modernized amenities and technologies to compete with the surrounding cinema market, but the scope of the improvements are limited due to site and building constraints. Additionally, the upgrades are occurring at the cost of a significant reduction in the number of seats. Features of the proposed concept include state-of-the-art amenities including at least one Premium Large Screen Format auditorium (i.e. IMAX-style auditorium) with premium immersive sound, stadium seating, 3D format technology, reserved seating, hearing loop technology, and digital projection and sound; a cinema cafe and lounge that can be accessed by the general public as well as theater patrons; enhanced food and beverage service with specialized food areas; and additional ground-floor commercial space fronting Fourth Street for unaffiliated retail or restaurant uses. Community Benefits As part of the entitlement process, a fiscal impact analysis will be prepared to estimate potential project generated revenue to the City as well as any additional municipal service costs. Additionally, a value enhancement analysis on the project will be conducted based on a project proforma to study the effects of the cost of development on the residual land value to determine the potential for community benefits. Potential community benefits preliminarily identified by City staff include the following points that will be included in discussions with the applicant once the development agreement negotiations have commenced:  Require some auditoriums to be available for use by community groups during certain day and/or at non-peak attendance times; 9 of 24  Availability of screens for use during the American Film Market (AFM) or other film markets or festivals that may be hosted in Santa Monica;  Provide public art at the project site (1318-1320 Fourth Street);  Establish and implement a Transportation Demand Management (TDM) Plan in excess of the baseline TDM requirements to reduce the number of vehicle trips associated with the project and to encourage alternative forms of transportation to and from the site for both employees and patrons;  LEED v4 Platinum certification;  Local hiring provisions for theater and concessions. Community benefits that support transportation that may be considered include, but are not limited to:  Additional Contributions to the Transportation Impact fee fund to support pedestrian enhancements in the Downtown.  Pedestrian-oriented, placemaking public art to be located on the site, or participation in combining public arts fees contributions with other development projects to provide a signature piece of art in the immediate vicinity  Build or fund an enhanced crosswalk. Based on feedback from the Planning Commission, Council, and the community, staff will identify additional community benefits for potential implementation in conjunction with the proposed development during development agreement negotiations. Downtown Parking Program On May 9, 2006, Council adopted the Downtown Parking Program (Program), which was developed by the Downtown Parking Task Force to evaluate and improve parking resources in the Downtown. The Program set forth a goal to add 1,712 net new public parking spaces to the Downtown parking supply through the seismic retrofitting of two nine-story parking structures, the demolition and reconstruction of three five-story parking structures, and the addition of up to two new parking structures. The Program recommended that occupancies and projected demand should be evaluated prior to the 10 of 24 construction of any new parking facilities Downtown. As a result, the City hired Walker Parking consultant in 2007 to evaluate the current parking demands, anticipated parking demands, and financing options to better manage Downtown parking resources. The Downtown Walker Parking Study (Study) was endorsed by Council on September 8, 2009 (Attachment G). The Study concluded that the construction of new parking structures is not necessary to achieve the increase of 1,712 spaces sought by the Program, provided that Parking Structure Nos. 1 and 6 are reconstructed and other recommendations such as improved pricing strategies and enhanced operational, technological and informational strategies are implemented. However, the Study goes on to state that potential commercial redevelopment of the Parking Structure 3 site could negatively impact the Downtown supply of parking in two ways, by increasing the demand for parking in the area and eliminating several hundred parking spaces at the same time. Updated parking analyses will be conducted as part of this project’s review to determine existing utilization rates of parking in the downtown, anticipated parking demand for a new cinema use at this location, and to develop recommendations based on its findings. The Study did not foresee nor account for the significant reduction in cinema seats in the Downtown District. However, the Study was cited and discussed by Council on September 8, 2009 (Attachment H), when authorization was given to enter into exclusive negotiations with AMC to develop a movie theater on the site of Parking Structure No. 3 without providing any on-site parking. Council direction was based on the following:  With the implementation of the Walker Parking Study (2009) recommendations, there will be sufficient parking availability in the Downtown to support the demolition of Parking Structure #3 and its replacement with a movie theater;  Providing parking on-site would require a much taller structure than what is currently proposed; 11 of 24  Providing parking on the site would interfere with the pedestrian -oriented design of the proposed cinema;  Providing parking on the site would discourage the pedestrian activity that occurs when significant destinations and primary parking resources are not co -located. One of the key measures identified in the Study to increase parking supply was completed in 2013 in the reconstruction of Parking Structure No. 6, which increased its capacity from 345 spaces to 744 spaces (i.e. 399 parking space increase). At this time, the timing of the reconstruction of Parking Structure #1 is uncertain; however the potential development at Arizona Avenue and Fourth Street may provide public parking spaces as a community benefit that will effectively replace the additional public pa rking spaces contemplated in the Walker Parking Study as part of the reconstruction of Parking Structure No. 1. As part of the ongoing review of parking needs and demand in the Downtown, the City has contracted with two traffic consultants (SP+ Municipal Services and Nelson\Nygaard Consulting Associates) to prepare a study to update and augment the Walker Parking Study findings. The scope of the new study include s an updated assessment of current inventory and utilization of all parking within the Downto wn (public and private), an analysis of the anticipated parking demand for the proposed development, an estimation of potential parking demand of new developments expected in Downtown, and offering of recommendations and strategies to improve parking operations throughout the entire Downtown district. The findings and recommendations of these studies will be used to supplement technical data for the theater project’s EIR, and in staff’s analysis of the project and subsequent recommendation to the Planning Commission and Council as part of the Development Agreement review process. Zoning Ordinance, Specific Plan, & General Plan Consistency Bayside District Specific Plan & 1988 Zoning Ordinance Until such time as the draft Downtown Specific Plan (DSP) is adopted, Interim Ordinance No. 2487 (CCS) provides that the Bayside District Specific Plan and 12 of 24 development standards of the 1988 Zoning Ordinance are applicable to development in the Downtown. Movie theaters are a permitted use in the BSC-2 zoning district. The maximum height permitted is 56’-0” (four stories) with a maximum allowable Floor Area Ratio (FAR) of 3.0. The project’s proposed 84’-00” building height and approximate 3.4 FAR do not comply with the respective development standards of the applicable Bayside District Specific Plan and 1988 Zoning Ordinance. Furthermore, the massing of the proposed structure does not comply with zoning code development standards addressing building stepbacks and building volume envelope requirements above 30’-0” in height. More specifically, Bayside Commercial District standards (SMMC Section 9.04.08.15.060) require that new buildings be stepped back at a 36.9 degree angle measured from the horizontal above 30 feet in height. Additional Project Design and Development Standards (SMMC Section 9.04.10.02.040) in the Zoning Code establish building volume envelope requirements that require a 9’-0” average setback for any portion of a structure between 31’-0” and 35’-0” in height and an 18’-0” average setback between 46’-0” and 56’-0” in height. Due to the unique building requirements for movie theater development, a larger building volume envelope is a typical feature of its design. By eliminating the requirement for upper level building stepbacks above 30’-0” and allowing the additional building height, the building volume necessary for auditoriums with state -of-the-art movie screens and stadium-style seating can be achieved; otherwise, some theater auditoriums would have to be placed below grade. While the proposal wil l require modification to the development standards outlined above pertaining to building volume and upper level stepbacks, the project will comply with other Bayside Commercial District and general project design and development standards, including those that address the building’s relationship to street frontage and require ground floor levels to be designed with pedestrian orientation. Furthermore, the draft Downtown Specific Plan (DSP) is contemplating an 84-foot height limit for a Tier 3 project at this site, which was authorized by Council for use in studying the upper height limits for the DSP EIR. 13 of 24 Consistent with the City’s formal design review process, the Architectural Review Board will be required to review and approve the final building design, materials, colors, and signage for the project. Consistency with the Draft Downtown Specific Plan The project is located within the City’s Downtown Core where the draft DSP envisions enhanced public spaces and improved pedestrian accessibility. Project design considerations should occur in consultation with the designers of the project at Arizona Avenue and Fourth and Fifth Streets to ensure optimal pedestrian access between the two projects, and to provide a seamless transition at this vital corner of the Downtown. This project should provide an enhanced pedestrian relationship to the street, the corner, and the City plaza and public spaces across the street. These types of enhancements support the pedestrian oriented vision of the draft DSP and could include features such as enhanced street crossings, additional pedestrian storage space, and on-site bicycle parking. In particular, an enhanced crosswalk at the same level of design as the crosswalk between Tongva Park and City Hall, or the design fo r the new crosswalk between Santa Monica Place and Sears should be considered. In accordance with the current draft of the proposed DSP, the project should be set back by three feet along the 4th Street frontage for a total width of 15 feet, and provide convenient short-term bicycle parking nearby the building’s main entrance. Downtown Core District Land Use Designation & Bayside Specific Plan The subject property is located in the Downtown Core District of the adopted General Plan Land Use Element. Policies in this District are geared primarily toward reinforcing the Downtown as the focus of the City, encouraging the concentration of land uses and activities which create activity in both the daytime and evening hours. The proposed movie theater and retail/restaurant building is consistent with Land Use Policy 1.3.3 which encourages the construction of major entertainment or cultural uses Downtown and with Bayside Specific Plan Policies 4.1.1 and 4.1.3 which support retail and other complementary uses on or near the Third Street Promenade as necessary to 14 of 24 maintain a vibrant downtown environment and provide for the development of uses necessary to maintain the economic viability of the Bayside District, including entertainment facilities such as theaters. Consistency with the Land Use and Circulation Element Update (LUCE) The LUCE Downtown District land use designation supports the area as a thriving, mixed-use urban environment for people to live, work, be entertained and be culturally enriched. The Downtown District designation capitalizes on Downtown being the terminus of the Expo Light Rail with a station planned for Fourth Street and Colorado Avenue, located within walking distance of the subject property. The LUCE also encourages development that will capitalize on Downtown as an already transit rich environment, in particular the presence of major bus routes on Fourth Street. As well, the LUCE vision for the Downtown District addresses the provision of parking: “A parking management approach for the Downtown, the Expo Light Rail station and the Civic Center areas, and potentially the Beach and Oceanside Districts utilizes a shared pool of parking resources, creating a true shared parking district, which balances variable parking demand and economic return. This will require an optimal mix of investment in new parking, coordinated management of existing parking, access improvements and transit augmentation.” With respect to land uses, Downtown District Policy D7.1 encourages a broad mix of uses that create dynamic activity in both the daytime and evening hours including retail, hotels, office, high-density residential, entertainment and cultural uses in the Downtown. Downtown District Policy D1.2 encourages the construction of new or rehabilitated movie theaters in the Downtown to assure that these entertainment venues are competitive in the marketplace. 15 of 24 Finally, the Downtown District’s Land Use Parameter Policy D8.3 states that buildings should be constructed with a variety of heights, architectural elements and shapes to create visual interest along the street. The proposed building will create a new entertainment venue on Fourth Street, and provide a use that will generate activity and enhance the pedestrian environment, in particular during the evening hours. Planning Commission Float-Up Review The Planning Commission conducted a float-up review of the project on August 19, 2015. The project was not viewed favorably by the Planning Commission primarily due to three issues (parking, building height/mass, passageway through alley). Ultimately, the Planning Commission approved a motion to recommend to Council that negotiations proceed with attention to a number of items related to parking, building design, community benefits, and neighborhood compatibility. A detailed summary of Planning Commission comments is provided in Attachment A. Height and Design Considerations As a result of the Planning Commission’s comments, the Development Team has reviewed design alternatives reducing the height and overall massing of the building. One option to reduce the height significantly is to excavate approximately 30 feet below grade. Doing so would add several million dollars to the tight project budget and cause it to become economically infeasible. The City’s economic consultant concurs with the conclusion. Staff also notes that AMC employed a similar approach to a project that they ultimately determined to be infeasible. A second option for reducing the height is to significantly reduce the number o f seats and auditoriums in the cinema. However, a reduced -sized project presents a series of challenges for the Development Team and for the City. For the Development Team, it creates a project that could struggle operationally since cinema complexes can not compete effectively for either film or audience without a critical mass of screens and seats. (Staff notes that the proposed cinema and the cinema at Santa Monica Place would operate as one from a market standpoint and are expected to be large enough to 16 of 24 allow ArcLight to show virtually every current film across its large number of screens.) For the City, a reduced-size cinema means that Downtown would be unable to serve the full movie-going needs of Santa Monica, including the ability to see most, if not all, films in current release in a variety of seating formats (both stadium seating and sloping auditoriums with wide seats.) It could also affect the inclusion of a premium large - format (IMAX-style) auditorium, which is an important feature for many Santa Monica movie-goers. (See the discussion below of the Santa Monica movie -going market.) While either scenario for reducing the height of the cinema to 56 feet has significant negative implications for the feasibility of the project, in response to Planning Commission concerns, the Development Team has considered concepts intended to reduce the perceived building massing by creating an upper-level set-back of the top- floor auditoriums, as well as incorporating additional architectural elements to address the building volume. At this point, the alternative design concept is largely schematic, as shown in the rendering below. Specific colors and materials have not yet been identified, but the concept does provide a general idea of an alternative direction for the project design. The alternative design maintains the overall 84-foot height while scaling back elements of the building massing at the upper levels, where permitting, to maintain a project objective of providing large screen format auditoriums. The alternative design replaces the very modern, highly visible design with a more traditional, classic concept that is more compatible with the existing context along Fourth Street in terms of both design and massing, which were expressed as significant concerns by the Planning Commission. The new design reinforces compatibility with the immediate area in how it references and relates to adjacent structures more effectively than the previous design, and achieves more consistency in street wall height. Staff and the Development Team seek Council feedback on the alternative design direction illustrated below. 17 of 24 Arclight 4th Street Cinema: Alternative Design Concept Disposition and Development Agreement Disposition and development agreements (DDAs) are negotiated contracts between the City and a developer that specify and govern the City’s proprietary interests in the development of City-owned property. A DDA sets forth the terms of the development of a property and is considered following Council’s approval of a project’s entitlements and development agreement. An approved DDA remains in place while a developer is pursuing building permits and construction financing and establishes a developer’s performance requirements that must be met in order to execute a ground lease agreement, which controls the use of the property and project and stipulates the business terms and obligations such as the amount of ground rent, the term of the ground lease, permitted uses and assignment, and other project requireme nts. Project Financing and Feasibility 18 of 24 To supporting the City in its proprietary capacity, consultants with expertise in public - private partnerships and cinema development and operations have reviewed the proposed project to understand it development and operational feasibility. The following are some of the key findings as the conceptual stage of the project. The estimated cost of the structure, exclusive of furniture, fixtures and equipment (FF&E) and tenant improvements to the retail space, is est imated at $40 million to $42 million, excluding City development impact fees. Traditionally, cinema complexes are built on development-ready pads as single-story projects on large contiguous parcels. However, due to the constrained site of the proposed cinema project and the need to have a sufficient number of seats and screens to be operationally and economically feasible, the project must be built as a multi-level cinema. The primary factor contributing to the project’s cost is the building’s inefficien cies created by the site conditions and constraints. The construction of a multi-level cinema requires, among other things: (1) Significant additional costs for duplication of concession, restroom facilities, and internal circulation on each level; (2) Construction of expensive vertical transportation systems (i.e. elevators, escalators) normally not needed within a cinema complex; and (3) The general increase in construction cost associated with multi-story buildings. Another major and atypical source of additional cost is the substantial cost of demolition of the existing parking structure and preparation of the site, as most cinema projects occur within larger buildings such as a mall or on “development -ready” pads. The inefficiency of the multilevel cinema also significantly impacts the costs of FF&E and operations because of the inherent duplication of many facilities on multiple levels. While a single-level theater requires essentially one bank of restrooms and one set of concession stands, a multilevel theater requires them for each level as well as additional ushers and circulation personnel. This adds materially to both labor and 19 of 24 utility costs. Additionally, because the proposed cinema will be in a free standing building and not within a shopping center or other developer-owned complex, the stand- alone cinema has to cover the majority of the associated common area maintenance expenses. These additional and non-typical costs include maintenance of exterior walls, miscellaneous cleaning, and restoration charges not typically borne by cinema operators. Demolition of the parking structure and construction of the mixed -use cinema is estimated to cost between $40 million and $42 million. With the inclusion of development impact fees, including a parking in-lieu payment, the total project cost rises to $57 million to $59 million. The City’s economic consultant has estimated that a total project of approximately $40 million is just minimally economically feasible (Attachment O). However, with the addition of development impact and parking in-lieu fees, the project quickly becomes infeasible. If Council authorizes staff to continue negotiations, one option is to give the developer a credit against development impact fees for the cost of demolishing the existing public improvements, in order to help make the project feasible. Conceptual Business Terms Staff from Economic Development and the City Attorney’s Office, with the assistance of economic development and cinema consultants, have been conductin g a high-level evaluation of the economics of the project. A critical issue in the evaluation is the market reality that a cinema is generally unable to pay full market rent due to the inherently high cost of constructing and operating a multi-level, mixed-use cinema project. The City’s consultant evaluated the project’s proforma and has preliminary opined that the economics of the project would not support a traditional market -rate land rent. Staff seeks Council’s direction on the proposed conceptual business terms to assist staff in further negotiations as the project’s design is refined and the entitlement process continues, if authorized. The project’s scope and conceptual business terms reflect the broad goals for Downtown cinema revitalization which includes a contemporary multi-screen cinema 20 of 24 complex that provides such amenities as stadium seating, at least one large screen format (IMAX-style) auditorium, state-of-the-art technology and limited in-theater food and beverage sales. If Council authorizes staff to proceed with further negotiations of the DDA and Ground Lease Agreement, staff will return to Council with a detailed financial evaluation and recommendation of business terms for consideration as part of the DDA and Ground Lease. The conceptual business topics discussed to date for the project are described below and are defined further in Attachment N. Staff and the Development Team are in general agreement regarding many of the conceptual business topics, including specific terms involving th e base rent formula, terms of the ground lease, cinema participation formula, changes in use, and requirements upon closing. However, staff and the Development Team have been unable to agree on the term of a cinema operating covenant and whether the retai l space should include a participation formula. With respect to the areas of agreement, staff recommends a ground lease with a base term of 35 years with four, five -year option periods for a total ground lease term of 55 years. In addition, staff recomme nds a base ground rent of $100,000 annually, plus additional rent if the cost of the project that is less than a pre-specified amount. The rent payment would adjust annually every five years by ten percent beginning on the sixth year of the lease. The City would receive percentage rent if attendance exceeds one million tickets sold annually and an additional rent for every ticket sold in excess of 1.25 million annually. The Development Team could not change the primary use from cinema to an alternative use without presenting compelling evidence that a cinema use is no longer financially feasible in the space. If a new use is proposed, the ground rent would be adjusted to reflect the new use. Finally, once the ground lease was executed, the Development Team would be required to proceed with the project, other than for defined, unforeseen site conditions. Staff also recommends that any change in use would trigger a revaluation of rent with the understanding that no use would be allowed other than as an ArcLight Cinema during the cinema operating covenant period and any change in use contemplated after the cinema operating covenant period expires would be subject to the condition that 21 of 24 Macerich demonstrate compelling evidence that cinema use is no longer feasible. While details have yet to be fully negotiated, the Development Team is in general agreement. There are two primary areas of disagreement as to the conceptual business terms. The first area of disagreement relates to the term of the cinema operating period. Staff recommends a 15-year operating covenant period for the use of the cinema space as an ArcLight Cinema. ArcLight has countered with a 10-year operating period. The second area is disagreement relates to whether Macerich should pay percentage rent for the retail space after Macerich has achieved a fair return on capital. Staff recommends additional rent to the City in the event the retail space achieves a certain level of success. Macerich does not support the concept of percentage rent. Staff seeks Council direction to continue to negotiate the two open issues. Cinema Market Evaluation Staff engaged Alan D. Kotin and Associates (ADK) and Economic and Planning Systems (EPS) to complete a market evaluation of the proposed cinema (see Attachment P.) While it is atypical for the City to commission a market evaluation of a proposed development, the study was completed because the City is the landowner and can benefit from understanding whether demand exists for a use proposed for valuable City property. A market study can also help identify the locations of the likely users of the cinema. The study prepared by ADK and EPS concludes that there is sufficient market demand to support the proposed cinema, based on a market area that is primarily composed of Santa Monica and the immediately adjacent areas. Understanding the primary market area helps answer the question of whether the cinema would need to be a regional draw in order to be successful. The study finds that the cinema can be successful drawing upon the local market. The conclusion is understandable from an intuitive standpoint as well, given that ArcLight cinemas serve the different parts of the region, including the San Fernando Valley / Sherman Oaks, Central Los Angeles / Hollywood, San Gabriel Valley / Pasadena, Southwest Los Angeles / Culver City, and South Bay / El Segundo. The study also confirms that even with the opening of the ArcLight at Santa Monica Place, the local market is underserved 22 of 24 by cinemas and will continue to be underserved unless a cinema of the approximate size proposed in the project is built. Until then, movie-goers in Santa Monica will have to leave Santa Monica to see a full range of films in a contemporary setting. Public Outreach & Community Meeting A community meeting was held for the project on May 28, 2015, at the Santa Monica Main Library. The only attendee present at the meeting outside of the development team and City staff was a representative from Downtown Santa Monica, Inc. Environmental Analysis CEQA review is not required for the purpose of a preliminary discussion of the feasibility of a potential project and the appropriateness and potential community benefits of a Development Agreement for the site (State CEQA Guidelines Section 15262). Environmental factors will be considered and analysis will be completed and circulated for public review, in accordance with CEQA Guidelines, prior to consideration of the formal Development Agreement application by the Planning Commission and City Council. Conclusion The Planning Commission’s recommendations regarding the appropriateness of the applicant’s proposal and any potential public benefits and project requirements will help inform Council’s discussion and direction regarding the Development Agreement review and negotiation process for the development of a new multi -screen movie theater and retail/restaurant building at 1318-1320 Fourth Street. Direction regarding the conceptual business terms will assist staff in negotiating the Disposition and Development Agreement. Alternative Actions In addition to the recommended action, the Council could consider the following with respect to the project: 23 of 24  Continue discussion with the applicant regarding additional project options  Do not initiative DA negotiations and conclude ENA negotiations. Financial Impacts & Budget Actions There are no immediate financial or budget impacts associated with the actions recommended in this report. Prepared By: Ariel Socarras, Associate Planner Approved Forwarded to Council Attachments: A. Planning Commission August 19, 2015, Float-Up Comments B. Architectural Review Board June 15, 2015, Float-Up Comments C. Public Correspondence D. 6/10/03 City Council Review of Promenade Uses Task Force Recommendations E. 9/9/03 City Council Study Session Report on Proposed Work Plan for Implementation of Promenade Uses Task Force Recommendations F. 11/13/07 City Council Report to Authorize Solicitation of Proposals to Redevelop the Site of Parking Structure 3 G. 9/8/09 City Council Report to Implement Walker Parking Study H. 9/8/09 City Council Report to Enter Into Negotiations with AMC 24 of 24 I. 12/11/12 City Council Report Authorizing Staff to NEgotiate for Cinema Development at Site of Parking Structure 3 J. 4/22/14 City Council Report Approving Arclight at Santa Monica Place K. 4/22/14 City Council Report Authorizing ENA with Arclight and Marcerich for Theater Development at Site of Parking Structure 3 L. Walker Parking Study, June 24, 2009 (Downtown Parking Program Update) M. Arclight Rendering N. Conceptual Business Terms O. Economic Feasibility Analysis P. Cinema Market Study Q. Written Comments R. Powerpoint - 1 S. Powerpoint - 2 Attachment A Summary of August 19, 2015, Planning Commission Float-Up Review The Planning Commission conducted a float-up review of the project on August 19, 2015. The project was not viewed favorably by the Planning Commission primarily due to three issues (parking, building height/mass, passageway through alley). Ultimately, the Planning Commission approved a motion to recommend to City Council that authorization to proceed with negotiations should occur with attention to the following items:  The project appears too big and too tall for the project move forward; The height, mass, and bulk of the building is too large for, and is not compatible with, the scale of Fourth Street;  The size, height, and scale of the building need to be reduced;  The parking study must look at the circulation and accessibility of parking in the Downtown in addition to determining that there are a sufficient number of parking spaces to serve the demand;  A passageway through the site should be provided to connect the Promenad e to Fourth Street;  The building height should be guided by compatibility with the historic fabric of Fourth Street; and  City Council’s decision should be guided by compatibility with existing historic fabric of Fourth Street. Generally, the Planning Commission expressed that the project appeared incompatible with the surrounding neighborhood, and that the development team was unresponsive to the suggestions raised. In addition to the adopted motion, the Planning Commission expressed concerns related to the following:  There is a significant shortfall in parking as a result of the removal of Parking Structure #3 and the lack of any on-site parking associated with the proposal. The availability of the potential sources to cover the shortfall are not direc tly tied to the opening of the theater and should be better coordinated;  Strong TDM measures should be included to reduce the overall vehicular and parking demand of the uses;  Consideration should be given to lowering a portion of the building below grade to accommodate theater auditorium space and ultimately reduce the overall height of the building;  A reduction in the number of theater auditoriums and/or number of seats should be considered;  The extension of a passageway could connect to an enhanced mid -block crosswalk on Fourth Street to connect to the potential development at Arizona Ave./5th Street;  The secondary facades should be more articulated, and special attention should be given to the relationship with the alley;  The existing public parking structure includes a trash bin room that is used by the commercial tenants in the area. The new development should provide a replacement trash bin room so bins are not stored in the alley; and  The ability to achieve LEED Platinum certification should be evaluated. Twelve of the 14 members of the public who spoke at the float -up meeting were in support of the project and the quality movie -going experience that Arclight would bring to Downtown Santa Monica. The two speakers in opposition expressed concern s about the removal of public parking and the increased parking demand that would result from the proposed uses. Additionally, staff received 19 emails (Attachment D) in response to the public notification for the August 19, 2015, Planning Commission mee ting. Fifteen of the emails were in opposition to the project and concerns were primarily focused on the proposal to remove public parking and construct a new commercial development with no on-site parking. Additional correspondence received in favor of the request state that the proposed use is a needed and welcomed upgrade to the Downtown area. Attachment B Summary of June 15, 2015, Architectural Review Board Float-Up Review The project was presented as a ‘float-up’ to the ARB on June 15, 2015, where it was generally viewed favorably by the Board. T he following comments were received from the Board members at the meeting:  Design consideration should be given to create more of a stepback effect along the upper levels of the building;  The Krion material proposed for the building exterior may produce an undesirable glare;  The Krion material may present difficulties in maintenance and cleaning;  The visual permeability of the building should be revisited;  The project’s relationship to the street and its appearance looking down Fourth Street should be examined, including consideration of context with pending nearby development such as The Plaza at Santa Monica ;  A photovoltaic green roof should be considered;  The theater could possibly succeed without a retail component, avoiding potential tenant vacancies at the ground level and allowing the theater to benefit from the ground floor transparency;  More differentiation along the side and rear elevations should be provided. More specifically, the alley elevation is large, flat, and expansive. Each of the elevations should be articulated and responsive to the views exposed on each side and the potential shadows cast on the level surfaces; The Planning Commissioner representative at the meeting stated that the alley should not be ruled out as an entry, and that a pedestrian access from the alley to Fourth Street is important to help invigorate Fourth Street via an easily accessible pedestrian connection from the Promenade. Concerns about the mass and shape of the building were also presented. The Commissioner expressed concerns about the mass and form of the building and commented that the design is obtrusive and conceptually not developed enough to achieve the desired scale, design, and pedestrian accessibility. Attachment L Conceptual Business Terms Provision Term Ground Lease Term 35 year base term with four, five year options totaling 55 years. Ground Lease Payment Base ground rent of $25,000 annually during the estimated two years of construction. Upon completion of the project a base ground rent payment of $100,000 plus 3.5 percent of the amount of the cost of the project that is less than $40 million. The rent payment will adjust annually every five years by ten percent beginning in the sixth year of the lease term. Percentage Rent The City will have a percentage rent condition for the cinema use in which the City will receive one dollar for each ticket sold if attendance is greater than one million to 1.25 million tickets sold annually and two dollars for every ticket sold in excess of 1.25 million. The City is seeking a profit participation formula for the retail use, the developer is not in agreement. Operating Covenant A term of either 10 or 15 year Operating Covenant Period to require the cinema use has not yet been agreed upon. Attachment F Preliminary Estimated Project Economic Feasibility Residual Land Value (RLV) Analysis for the Proposed Project The proposed cinema project is proceeding as a multi-level negotiation involving the City, the Developer (Macerich) and the Exhibitor (ArcLight). Each has a unique financial position that is relevant to estimating a reasonable RLV for the site, if developed as currently proposed. The role of each of these three entities is briefly described below with a summary of the key Project financial parameters summarized in Exhibit 1.  The City of Santa Monica: As the Master Lessor, the City will continue to own the site and will collect ground lease payments as specified below.  The Developer (Macerich): Macerich will finance the development of the Proposed Cinema, estimated at between $40 and $42 million and will also serve as the Master Lessee. In this capacity it will manage the overall property, collect lease payments from the Exhibitor and retail tenants, and be responsible for ground lease payments to the City, specified under the current deal terms at $100,000 per year for a 55-year term. The development costs exclude city permits and fees, which if fully charged would equal about $18.8 million (including parking fees estimated at over $14 million).  The Exhibitor (ArcLight): ArcLight will operate the cinema portion of the project and will responsible for all business expenses associated with movie exhibition and marketing as well as lease payments and 89 percent of property taxes. Under the current deal structure, Arclight’s lease payment to Macerich is roughly equal to 7 percent of total development costs (excluding cinema furniture, fixtures, and equipment such as seats, screens, projection technology, and concession equipment). Arclight will also oversee the development process. Exhibit 1 Key Financial Assumptions for Proposed Project (4th St. Cinema Complex) Category Low High Development Costs (excludes City fees and parking)1 $40,000,000 $42,000,000 Amount Allocated to Cinema 89%$35,600,000 $37,380,000 Amount Allocated to Retail 11%$4,400,000 $4,620,000 Lease Payment to Developer Cinema Portion 7.0%of allocated costs2 $2,358,545 $2,483,145 Retail Portion3 $6.00 / sqft. / month $792,000 $792,000 Total $3,150,545 $3,275,145 Annual Property Tax 1.22%of AV (Table A-5)$793,133 $823,535 Annual Ground Rent (To City)$100,000 $100,000 Term of Lease Developer (Lessee)55 55 Cinema Operator 35 35 Avg. sales per sq. ft. for retail3 $1,250 / Year $13,750,000 $13,750,000 [2] Approximation as final number will be very slightly lower due to exclusion of certain cost from 7% rate. [3] Retail market assumptions based on estimates from York Consulting Group LLC. Assumption / Factor [1] Excludes approximately $175,000 in City permits and $18.8 in impact fees, including $14.2 million in parking fees (See Appendix A). Amount As noted above, the RLV calculation for the Proposed Project is based on the capitalized value of the Developer’s annual land lease payment to the City and thus not directly tied to the financial performance of the cinema or retail. However, the Developer’s annual lease payment to the City has been negotiated in part with consideration to the projected sub-lessee rent received by the Cinema complex tenants (i.e. ArcLight and retail). Consequently, the financial performance of the cinema and retail factor indirectly into the RLV for the site. While the projected rents from the retail component of the Project can be e stimated from prevailing market rates at nearby establishments, the cinema is less straight-forward. Consequently, this analysis incorporates a cash-flow pro forma model that simulates the financial performance of the cinema operator based on known Project parameters and additional analysis. The projected investment and annual cash flow for the proposed 12 screen, 2,600 seats Fourth St. cinema is illustrated in Exhibit 2 and further described below:  Annual Attendance: The “high” and “low” market attendance estimate are based on the findings from the Santa Monica Cinema Market Study prepared by EPS and ADKA to inform the City’s consideration of the Proposed Project.  Operator Start-up Costs: These include the initial investment by ArcLight to equip and prepare the movie theater complex for operation, including furniture, fixtures and equipment as well as initial marketing expenses. The estimates are based on data provided by Arclight and validated through other sources.  Annual (stabilized) Operating Revenues: Operating revenues are generated primarily by ticket sales (52 percent) and concessions (49 percent).  Costs of Goods Sold: These include fees and royalties paid to film distributors as well as non-labor food and beverage expenses.  Annual Operating Cost: These include all other operating costs, including labor, utilities, and advertising.  Annual Occupancy Costs: These primarily consist of ArcLight lease payments to Macerich as well as property taxes.  Net Operating Income and Return on Investment: The NOI calculation subtracts “cost of goods” and Annual Occupancy Costs from the “Annual Operating Revenue”. “Return on Investment”, in turn, divides annual NOI by the “Operator Start-up Cost”. ArcLight has indicated that an investment of this nature would require an annual return of in the range of 20 to 30 percent on its initial occupancy related investments. The “low” and “high” range estimates shown in Exhibit 2 roughly correspond to this range. Exhibit 2 Cash-Flow Pro Forma for Proposed Project (4th St. Cinema Complex) Return thresholds for mainstream movie exhibitors that should be considered adequate to entice investment are difficult to verify given the highly proprietary nature of the industry. However, the highly competitive and volatile nature of the industry, as well as the single use nature of the underlying assets (including building and equipment) implies a level of investment risk that is likely to require returns that are well above normal yields in real estate and related sectors (see Santa Monica Cinema Market Study prepared by EPS and ADKA). Moreover, industry experts report that a 25 percent return on costs represents a common “rule of thumb” expectation for mainstream exhibitors. Cash-Flow Item Low High Annual Attendance 815,000 896,500 Operator Start-up Costs Furniture, Fixtures & Equipment2 $548,750 Avg. / screen $8,780,000 $8,780,000 Other Pre-opening Expenses3 (e.g. planning, marketing)$1,000,000 $1,000,000 Subtotal $9,780,000 $9,780,000 Annual (Stabilized) Operating Revenues Admissions $13.5 Avg. ticket price $11,002,500 $12,102,750 Concessions and related sales 48%of ticket sales $5,281,200 $5,809,320 Subtotal $16,283,700 $17,912,070 Cost of Goods Sold Film exhibition costs 55%of ticket sales $6,051,375 $6,656,513 Food and beverage costs 17%of F&B $897,804 $987,584 Subtotal $6,949,179 $7,644,097 Annual (stabilized) Operating Costs Labor 12.5%of total Revenue $2,035,463 $2,239,009 Utilities 3.0%of total Revenue $488,511 $537,362 Advertising 3.0%of total Revenue $488,511 $537,362 Repairs and Maintenance 1.5%of total Revenue $244,256 $268,681 Other / Miscellaneous 3.0%of total Revenue $488,511 $537,362 Liability Insurance 1.5%of total Revenue $244,256 $268,681 Subtotal 24.5%of total Revenue $3,989,507 $4,388,457 Annual Profit before Occupancy $5,345,015 $5,879,516 Occupancy Costs Lease Payments 7.0%of allocated costs $2,483,145 $2,358,545 Property Tax 89%of prop. tax + FF&E $840,062 $813,004 CAM & Property Insurance $1.00 / sq. ft $89,000 $89,000 Subtotal $3,412,207 $3,260,549 Net Operating Income (excludes start-up costs)$1,932,808 $2,618,967 Return on Investment 20%27% [3] Excludes any other non-traditional soft costs incurred in connection with the non-standard construction and development pattern associated with this project. Assumptions1 [1] Based on review of operating budget for publicly traded exhibitors, discussions with industry experts, and input from ArcLight. [2] Typically includes seating, screens, projection and sound technology as well concession equipment, restroom fixtures, paint, carpet, art, and related design elements. Amount (@ 2,700 Seats; 16 Screens) Attachment N Report Santa Monica Cinema Market Study Prepared for: City of Santa Monica Prepared by: Economic & Planning Systems, Inc. With support from Allan D. Kotin & Associates January 19, 2016 EPS #154027 ADK&A Table of Contents 1. Introduction and Summary of Findings ........................................................................ 1 Project Overview and Context .................................................................................... 1 Summary Findings .................................................................................................... 3 2. Santa Monica Cinema Market Conditions and Trends ..................................................... 5 Trends in Movie Distribution ....................................................................................... 5 Santa Monica Cinema Trade Area Definition ................................................................. 6 Trade Area Competitive Supply and Positioning ............................................................. 8 Santa Monica Trade Area Market Demand Trends ........................................................ 11 Market Share Dynamics .......................................................................................... 14 3. Santa Monica Cinema Market Projections ................................................................... 17 Trade Area Demand Projections ................................................................................ 17 Market Share Scenarios........................................................................................... 18 4. Additional Economic Implications of a New Cinema ...................................................... 21 Local Spending Impacts .......................................................................................... 21 Other Economic Benefits to Downtown Santa Monica ................................................... 23 List of Tables and Exhibits Exhibit 1 Proposed Development Program for Fourth Street Cinema Complex ..................... 2 Exhibit 2 U.S. and Canada Historic Box Office ................................................................ 5 Exhibit 3 U.S. and Canada Admissions and Admissions/Capita 2005-2014 .......................... 6 Exhibit 4 Primary and Secondary Trade Areas ................................................................ 7 Exhibit 5 Primary and Secondary Trade Areas Detail ....................................................... 8 Exhibit 6 Competitive Set ........................................................................................... 9 Exhibit 7 Competitive Positioning ............................................................................... 10 Exhibit 8 Santa Monica and West Los Angeles Box Office ............................................... 12 Exhibit 9 Santa Monica and West Los Angeles Box Office by Theater ............................... 12 Exhibit 10 Santa Monica and West Los Angeles: Seats and Admissions .............................. 13 Exhibit 11 Santa Monica and West Los Angeles: Utilization .............................................. 14 Exhibit 12 Change in Santa Monica Seat and Screen Share by Operator ............................ 15 Exhibit 13 Market Demand Assumptions ....................................................................... 17 Exhibit 14 Market Demand Estimate ............................................................................. 18 Exhibit 15 Santa Monica Estimated 2020 Admissions Scenarios ........................................ 19 Exhibit 16 Estimated “off-site” Spending by Patrons of Proposed 4th St. ArcLight Cinema ..... 22 Economic & Planning Systems, Inc. 1 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx 1. INTRODUCTION AND SUMMARY OF FINDINGS This Report evaluates the market support and impacts associated with a multi-screen cinema complex in Downtown Santa Monica proposed for development on Fourth Street at the location of the current Parking Structure 3. It has been prepared by Economic & Planning Systems (EPS), as a sub-consultant to and with support from Allan D. Kotin & Associates (ADK&A), to inform the City of Santa Monica (Client) in its consideration of project entitlements and related approvals. This market Report serves as a complement to a Value Enhancement Analysis (VEA) that is being prepared by the same authors for presentation to the City under separate cover. The VEA focuses on the financial performance of the entire Fourth Street cinema complex (both cinema and a retail component, as described below), as well as its fiscal impact on the City’s General Fund. While this market Report and the VEA are to be delivered under separate cover, both analyses have been coordinated and incorporate findings from the other, as appropriately referenced throughout. Project Overview and Context Consideration for a new, multi-screen cinema complex at the location of Parking Structure 3 on Fourth Street was formally initiated in 2004, based in part on recommendations from the Promenade Uses Task Force. The Task Force identified cinemas located near or along the Third Street Promenade as playing a critical role in sustaining the Downtown’s evolution as a successful retail, dining, and entertainment district. The Task Force also recognized that new cinemas built in neighboring cities were capturing market share from Santa Monica by offering movie-goers more screen options and better amenities. As documented in subsequent sections of this Report, Santa Monica’s position in the cinema market has continued to erode since the Task Force recommendations were made. The City is currently engaged in exclusive negotiations with ArcLight Cinema (Exhibitor) and Macerich (Developer) for the development of a 16-screen, 2,700-seat cinema in conjunction with 10,000 square feet of retail (see Exhibit 1). This project is proceeding on two parallel tracks, one involving the negotiation of the ground lease and the other involving the securing of the appropriate entitlements. The City’s direct interest in this project stem from the following: 1. The proposed project is on City-owned land. The proposed ArcLight cinema project would be built on City-owned land that currently includes a 344-space parking garage. Under the current proposal, the land would be leased to the Developer on a 55-year ground lease, with the precise terms to be specified in a Disposition and Development Agreement and Ground Lease negotiated with the City and ultimately approved by the City Council. 2. The proposed project is not allowed under existing zoning: The current ArcLight proposal does not comply with the applicable building height, setbacks, and volume envelope requirements for projects above 30 feet, as specified in the applicable Bayside District Specific Plan and Zoning Code. While the site is located within the Downtown Core and the draft Downtown Specific Plan is contemplating an 84-foot height limit for the site, until adopted the Bayside District Specific Plan and development standards of the 1988 Zoning Ordinance remain in effect. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 2 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx 3. The proposed project cannot pay market rents: A new cinema development at the site (or anywhere in the City) is unlikely to be viable without City support. High development costs and relatively low revenues per-square-foot often make new movie theaters “loss leaders” as real estate development projects in most locations. In addition, in Santa Monica strong market support for other uses (e.g. residential, retail, office, etc.), make land costs prohibitive for a new cinema. Moreover, the developer and exhibitor have presented information to the City suggesting that they cannot pay full market rent for the City-owned site and that they will be unable to pay the standard development impact fees, the parking in-lieu payment, or any material public benefit expenditures. These issues are to be further evaluated in the VEA. Exhibit 1 Proposed Development Program for Fourth Street Cinema Complex In addition to the direct considerations above, the City has a broader objective supporting a diverse and thriving commercial district in the Downtown. Towards this end, the City has requested a market study to better understand the underlying economic implications and potential community benefits of a new theater. This includes the potential impact that the proposed project will have on cinema patronage, increased activity and expenditure in Downtown Santa Monica, and the restoration of the City’s position as a place to see a wide variety of movies in a contemporary setting. Category Metric Land Area Square Feet (200' x 150')30,000 Acres 0.69 Building Square Feet Cinema 90,000 Retail 10,000 Total 100,000 Building Height Floors 4 Height (Feet)84 Screens 16 Seats 2,700 Source: Planning Commission Meeting: August 19, 2015; Agenda Item: 10-A Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 3 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Summary Findings The following Summary Findings provides a topline overview of the major conclusions and implications of this Report. 1. Santa Monica’s position as a regional movie theater destination has steadily declined over last 15 years. The City’s cinemas have experienced a steady drop in attendance due to structural changes impacting the sector overall and the dated, uncompetitive nature of the City’s outlets in particular. While physical constraints of infill locations and high land costs have made it difficult for existing outlets to upgrade and expand, substantial investments in cinemas in West Los Angeles and Playa Vista have allowed competitors such as the AMC Century City 15 and Landmark Westside Pavilion to capture a portion of Santa Monica’s share of the movie-going market. 2. Technology has led to a vast increase in media distribution channels, program choices, and playback options—a glut of competition that has pressured cinema’s share of total media consumption, especially among younger consumers. Despite this market share decline, theatrical distribution remains important to media conglomerates as the front end of a multi-platform sales and marketing effort that pushes original movie content through multiple distribution and merchandising channels. Consequently, many industry analysts believe theatrical exhibition will remain an important—if declining—sector of the entertainment industry. 3. In this highly competitive environment, theater circuits require economies of scale to achieve per-seat operating efficiencies and to maintain bargaining power with film distributors to ensure exhibition rights to major releases. A majority or dominant share of screens and seats within a geographical zone allows the operator to negotiate licenses with distributors for desired first-run films, even in the presence of a competitor attempting to enforce clearances (i.e., exclusive access to desired releases). In addition, strong market share gives the operator power to negotiate more favorable “splits”—the terms by which box office revenues are shared with distributors over the duration of a first-run release. 4. A new, large and effectively operated cinema will bolster Downtown Santa Monica’s entertainment offerings. ArcLight is a highly successful cinema operator in Southern California that has begun to expand to other U.S. markets. The proposed state-of-the art Fourth Street Cinema will restore Santa Monica seat counts, which have fallen 47 percent since 2013, and win back lost market share from competitors (in West Los Angeles and Playa Vista). With the proposed theater, Santa Monica cinema admissions are estimated to grow to 1.63 million by 2020—nearly double 2014 box office. In this scenario, the proposed ArcLight Fourth Street can be expected to sell between 770,000 and 900,000 tickets. At the higher projection, the theater’s rate of seat utilization is a conservative 20 percent. By comparison, three years after opening, the Landmark Westside Pavilion and AMC Century City 15 achieved 35 percent utilization and 29 percent utilization rates, respectively. 5. Expanded movie patronage can provide spill-over benefits to the rest of Downtown Santa Monica. The “off-site” economic benefits of a successful cinema include spending at local businesses as well as other indirect economic benefits from the increased economic activity. Based on various case studies of moviegoer behavior before or after a show, bars Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 4 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx and restaurants appear to be the most frequently visited venues although other local businesses can also benefit. The “off-site” spending by patrons of the proposed ArcLight Cinema is estimated to range from $5 to $27 million per year depending on projected theater attendance and the assumed average non-theater spending levels per patron. In addition, a well-designed, operated, and successful cinema will provide increased market exposure to local business as well as “place-making” benefits that will help the Downtown sustain its brand as a premier, mixed-use entertainment district. 6. A new cinema development Downtown is not financially viable without City support. High development costs and relatively low revenues per-square-foot often make new movie theaters “loss leaders” as real estate development projects. Strong market support for other Downtown Santa Monica uses (e.g. residential and retail), make land costs prohibitive. The VEA finds that the proposed Cinema project results in a substantial reduction in value relative to a hypothetical residential mixed-use “baseline” project. Economic & Planning Systems, Inc. 5 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx 2. SANTA MONICA CINEMA MARKET CONDITIONS AND TRENDS This Section provides an overview of existing market conditions and industry trends that will affect the long-term performance of movie theaters in Santa Monica. Trends in Movie Distribution The outlook for cinema attendance in Santa Monica is heavily influenced by the structure of the media industry and the ongoing transformation of movie distribution and exhibition. The most prominent change factor influencing theatrical distribution is growing competition driven by technology, which over the last twenty years has vastly increased the number of distribution channels, programming choices, and playback options available to consumers. Within this competitive environment, cinema performance has experienced a pattern of both revenue growth and admissions decline. Box office revenue, as shown in Exhibit 2, has grown at an annual rate of 1.8 percent since 2005. Exhibit 2 U.S. and Canada Historic Box Office Sources: Rentrak, MPAA However, the annual growth for total and per-capita admissions, shown in Exhibit 3, has been negative at –0.9 and -1.9 percent respectively. All recent revenue growth can thus be attributed to the price of movie tickets, which has grown since 2005 at a 2.7 percent average annual rate. $0 $2 $4 $6 $8 $10 $12 20 1 4 20 1 3 20 1 2 20 1 1 20 1 0 20 0 9 20 0 8 20 0 7 20 0 6 20 0 5 20 0 4 20 0 3 20 0 2 20 0 1 20 0 0 19 9 9 19 9 8 19 9 7 19 9 6 19 9 5 19 9 4 19 9 3 19 9 2 19 9 1 19 9 0 19 8 9 19 8 8 19 8 7 Bi l l i o n s Historical U.S. and Canada Box Office Non-3D Box Office 3D Box Office Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 6 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 3 U.S. and Canada Admissions and Admissions/Capita 2005-2014 Sources: Rentrak, MPAA Despite the decline in box office admissions, theatrical distribution remains extremely important to large media conglomerates at the front end of a multi-platform sales and marketing effort that pushes original movie content through various distribution and merchandising channels. In an increasingly fragmented consumer environment, a theatrical opening remains the best way to assemble a mass audience and achieve marketing and mindshare economies of scale. Consequently, many industry analysts believe that theatrical exhibition will remain an important—if declining—sector of the entertainment industry. In response to increasing competitive pressure, theater chains have pursued operating economies of scale by constructing multiplex theaters, and negotiating economies of scale by consolidating ownership. Between 1995 and 2014, North American screen count grew from 27,000 to nearly 40,000. At the same time, screen ownership by the top-five exhibition chains grew from 31 percent to 53 percent. A large market share nationally and a dominant multiplex locally provide operators per-seat operating efficiencies and negotiating power with movie distributors to obtain top titles. Santa Monica Cinema Trade Area Definition A cinema Trade Area represents the geographic region containing the primary elements of demand and supply that largely determine the size of the overall market opportunity. Trade Area boundaries are influenced by drive times, competition, geography and infrastructure, and other considerations such as nearby amenities. The Trade Area considered by this study is bounded by Interstate 405 to the east, Mulholland Drive to the north, and Route 90 to the south, and divides into Primary and Secondary Areas. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ad m i s s i o n s / C a p i t a Ad m i s s i o n s ( B i l l i o n T i c k e t s ) U.S. and Canada Box Office Admissions and Admissions/Capita Admissions (Billion Tickets)Admissions/ Capita Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 7 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx • The Primary Trade Area is defined as the area from which the drive times to Santa Monica theaters near the Third Street Promenade (including the proposed ArcLight Fourth Street, ArcLight Santa Monica Place, AMC Santa Monica 7, AMC Broadway 4, and Monica Film Center), are actually or perceived to be shorter than to competitive cinemas in Playa Vista and West Los Angeles. For the Primary Trade Area, market capture by Santa Monica theaters is assumed to be 80 percent of the residential population. • The Secondary Trade Area is defined as the area from which drive times to Santa Monica theaters are equal to drive times to competitive cinemas. The Secondary Trade Area includes two theaters (AMC Dine-In Marina 6, AMC Marina Marketplace 6) and assumes market capture by Santa Monica theaters of 50 percent of the residential population. Trade Area boundaries and locations of competitive outlets are shown in in Exhibit 4 and Exhibit 5. Exhibit 4 Primary and Secondary Trade Areas Source: ESRI Business Analyst, GoogleMaps, Economic & Planning Systems, Inc. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 8 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 5 Primary and Secondary Trade Areas Detail Source: ESRI Business Analyst, GoogleMaps, Economic & Planning Systems, Inc. Trade Area Competitive Supply and Positioning Santa Monica’s movie theaters compete within a robust market that includes multiplexes in Playa Vista, West Los Angeles, and Marina Del Rey, as well as a number of single-screen art houses. As shown in Exhibit 6, the Trade Area inventory of 4,028 seats (excluding the proposed Fourth Street ArcLight) is roughly one quarter of the 15,577 total seats in the competitive set. All theaters in the competitive set have either been constructed or renovated within the last ten years (as shown in Exhibit 6), reflecting two recent waves of capital investment by the exhibitor sector. The first wave, which began in the 1990s, emphasized construction of megaplex theaters (facilities with more than eight screens, often integrated into a mall), which provide exhibitors operating economies of scale and bargaining power in negotiations with distributors for new releases. Prime examples of such megaplexes in the Santa Monica competitive area include the National Amusements’ 18-Screen/Imax theater at the Bridge Howard Hughes Center built in 2001 (now the Cinemark XD), the AMC Century City 15/Imax theater built in 2005, and the Landmark 12 at Westside Pavilion built in 2007. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 9 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx One indirect consequence of the rise of the multiplex was a concurrent decline of traditional neighborhood theaters with one or two screens, which could not compete with larger circuits to obtain new releases. The NuWilshire and the Brentwood 1 & 2 were two such traditional Santa Monica theaters that closed during this period. Notably, there were no new theaters or major renovations of existing theaters in Santa Monica during this period due primarily to the logistical and economic challenges of multiplex construction in downtown environments. Exhibit 6 Competitive Set The second—and ongoing—wave of capital investment includes enhancements to upgrade the cinema experience to be more competitive in today’s media marketplace. When ArcLight launched in Los Angeles in 2002, it prioritized a pure cinematic experience with innovations such as reserved seating, plush chairs, and improved picture fidelity that have since been adopted by rival circuits and become a baseline for competitive viability. After falling behind state-of-the-art rivals such as the AMC Century City 15 and Landmark Westside Pavilion for years, Santa Monica’s remaining theaters all underwent renovation beginning in 2014 and now feature a more contemporary mix of amenities, as shown in Exhibit 7. Trade Area and Theater1 Primary Trade Area Proposed Arclight 4th Street Santa Monica ArcLight 12 2,700 TBD Mainstream, Indie 0 Infill ArcLight Santa Monica Place Santa Monica ArcLight 12 1,500 2015 Mainstream, Indie 0 Mall AMC Loews Broadway 4 2 Santa Monica AMC 4 405 2015 (reno)Mainstream 0 Infill AMC Santa Monica 7 3 Santa Monica AMC 7 724 2015 (reno)Mainstream 0 Infill Monica Film Center 4 Santa Monica Laemmle 6 372 2016 (reno)Indie, Foreign 0 Infill 41 3,001 Secondary Trade Area AMC Marina Marketplace 6 Los Angeles AMC 6 600 2014 (reno)Mainstream 4.2 Strip AMC Dine-in Theatres Marina 6 Los Angeles AMC 6 427 2013 (reno)Mainstream 4.1 Strip Subtotal 12 1027 West Side and Playa Vista AMC Century City 15 Los Angeles AMC 15 2,900 2005 Mainstream 7.1 Mall Landmark at Westside Pavilion Los Angeles Landmark 12 1,710 2007 Mainstream, Indie 4.5 Mall ArcLight Culver City Culver City Arclight 12 1,565 2015 (reno)Mainstream, Indie 6.9 Infill Cinemark Playa Vista & XD Los Angeles Cinemark 9 1,650 2015 Mainstream 7 Infill The Bridge Cinemark XD Los Angeles Cinemark 18 3,300 2014 (reno)Mainstream 8.6 Mall iPic Westwood iPic 6 424 2014 Mainstream 4.7 Infill Subtotal 72 11,549 TOTAL (excluding 4th St.)125 15,577 Notes (1) Competitive set excludes traditional "specialty" and second-run theaters such as the Aero and Royal Theaters (2) 1,144 seats until 2015 renovation (renovation loss of 739) (3) 1,930 seats until 2015 renovation (renovation loss of 1,206) (4) Formerly the Laemmle Monica 4plex with 4 screens and 1,091 seats (renovation loss of 719) Sources: Company web sites, general literature search, Economic & Planning Systems Programming Mi. from Prom- enade Location Type City Operator Screens Seats Built / Re- modeled Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 10 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 7 Competitive Positioning Typical enhancements upgrading the cinema experience fall into the categories of picture, comfort and convenience, and food and beverage, which are described further below. • Picture Enhancements, which include features such as digital projection, sound technologies like Dolby ATMOS, and screen formats such as digital 3D and Premium Large Format (PLF) (including variants such as IMAX and RealD), differentiate cinema-going from the small-screen experience of viewing at home or on a hand-held device. Digital projection is now standard throughout North America with a 97 percent share of outlets, but PLF is still relatively scarce, with only 374 screens in North America as of mid- 2014. The importance of PLF is reflected in its box office popularity and ability to command a price premium, indicated by 2014 box office share of 5.5 percent of total revenues from a base of only 0.9 percent of total screens. There are PLF screens in Century City and Playa Vista currently; the proposed Fourth Street cinema would offer the first and only PLF screen in Santa Monica. • Improved Comfort and Convenience from reserved seating, plush seats, stadium seating, and recliners treat movie goers to features once found only in private screening rooms. Reserved seating and plush seats, which were introduced by ArcLight in 2002, have since Trade Area and Theater Premium Large Format (PLF)3-D Reserved Seating Plush Seats Stadium Seating Reclining Seats Dine-In Service 1 Alcohol2 En- hanced Food Option3 Primary Trade Area Proposed Arclight 4th Street 1 yes yes yes yes no no TBD TBD ArcLight Santa Monica Place no yes yes yes yes no no yes yes AMC Loews Broadway 4 no no yes yes no yes no no no AMC Santa Monica 7 no yes yes yes yes yes no no4 partial Monica Film Center no no maybe yes partial yes no yes yes Secondary Trade Area AMC Marina Marketplace 6 no yes yes yes no yes no no partial AMC Dine-in Theatres Marina 6 no yes yes yes no yes yes yes yes West Side and Playa Vista AMC Century City 15 2 yes yes yes yes no no no yes Landmark at Westside Pavilion No no yes yes yes no no partial yes ArcLight Culver City No yes yes yes yes no no no no Cinemark Playa Vista & XD 1 yes yes yes yes yes yes yes yes The Bridge Cinemark XD 1 yes yes yes yes minimal partial partial yes iPic no yes yes yes yes yes yes yes yes Notes (1) Food is delivered to patron in-seat (2) Alcoholic beverages may be consumed in-seat (3) Options for in-seat dining more typical of a restaurant than a cinema (4) Pending license Sources: Company web sites, general literature search, Economic & Planning Systems Amenities and Features Picture Comfort Food & Beverage Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 11 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx become standard for competitive theaters. Reclining seats, reduced seating per screen, and stadium seating, on the other hand, provide operators with a differentiating feature as well as an opportunity to charge an additional ticket premium. The recent renovations of the AMC Loews Broadway 4 and AMC Santa Monica 7 have reduced seat-counts to install reclining seats, which implies a strategic decision by AMC to occupy more of a niche role in the Santa Monica market. The ArcLight Santa Monica Place and proposed Fourth Street Theater, on the other hand, have standard non-reclining seats, presumably because ArcLight has determined the benefits of greater seat capacity (coupled with still-very-comfortable seats) outweigh the economic benefits of premium pricing for the recliners. • Upgraded Food and Beverage Options include a wide range of choices beyond traditional popcorn and candy that aim to capture a greater share of consumer nightlife expenditure. These options may include, depending on the operator, on-site restaurants, on-site bars, and extensive and/or premium menus at the concessions counter. Examples in the Santa Monica competitive area include the variety of eating options at the Landmark Westside Pavilion and the Cinemark Playa Vista as well as in-seat dining at the AMC Marina Dine-In 6 and IPic. ArcLight’s focus on reducing distractions to promote the pure cinematic experience has largely precluded such options (although ArcLight Santa Monica Place serves food and alcohol in the lobby). All movie theater enhancements discussed above add a ticketing premium. While this has helped revenues to grow despite declining admissions, some analysts worry the trend could eventually price cinema-going out of reach for a large proportion of the population and make non-cinema alternatives an even more attractive value. Santa Monica Trade Area Market Demand Trends Trends in movie admissions and revenues in the Santa Monica competitive market area mirror those on the national level. As shown in Exhibit 8, combined box office revenues of Santa Monica and West Los Angeles have plateaued and may be in decline. Viewed on a theater-by-theater basis, as shown in Exhibit 9, it is clear the revenues of newer multiplexes in West Los Angeles and Playa Vista (including the Bridge 17, the Century City 15, and the Landmark 12) far outperform the smaller and aging Santa Monica outlets. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 12 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 8 Santa Monica and West Los Angeles Box Office Note: Includes combined performance of AMC Century City 15, Landmark Westside Pavilion 12, AMC Santa Monica 7, AMC Broadway 4, Mann Criterion 6 (since closed), the Nu Wilshire (since closed), and the Laemmle Monica 4 (under renovation). Source: City of Santa Monica and Economic & Planning Systems Exhibit 9 Santa Monica and West Los Angeles Box Office by Theater Source: City of Santa Monica and Economic & Planning Systems Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 13 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx As shown in Exhibit 10, the historical decline in Santa Monica box office admissions appears to result from several factors, including declining seat inventory (from closure of the Nu Wilshire and the Criterion 6 theaters) and the opening of the AMC Century 15 and Landmark 12 in West Los Angeles. However, it is also notable that the admissions decline actually pre-dated these events, which may have only accelerated a larger structural decline in the Santa Monica marketplace. Likewise, after an initial blip of enthusiasm around the opening dates of the state- of-the-art West Los Angeles cinemas, admissions there may also be in decline. Exhibit 10 Santa Monica and West Los Angeles: Seats and Admissions Note: West LA seat inventory before 2007 unavailable. Source: City of Santa Monica and Economic & Planning Systems The newer cinema outlets in West Los Angeles and Playa Vista are larger than those in Santa Monica and are thus expected to generate greater admissions. However, as shown in Exhibit 11, the West LA and Playa Vista outlets also exhibit much higher seat utilization (calculated as actual admissions divided by total potential admissions) than those in Santa Monica. While this is due in part to the competitive disadvantage of the City’s older facilities, it also appears to be a consistent historic characteristic: even at Santa Monica’s admissions high point in 1997, when 2 million tickets were sold, seat utilization peaked at 19 percent, compared with 34 percent at West LA’s high point in 2010. This relatively low utilization rate is likely attributable to the City’s Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 14 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx coastal location, which effectively limits the trade area potential to half that of an inland location.1 Exhibit 11 Santa Monica and West Los Angeles: Utilization Note: West LA box office performance and seat inventory before 2007 unavailable. Source: City of Santa Monica and Economic & Planning Systems Market Share Dynamics Santa Monica’s inventory of screens and seats is in transition due to the competitive and technological trends discussed above. Since 2013, the Mann Criterion closed and the AMC Loews Broadway 4, AMC Santa Monica 7, and Laemmle Monica Fourplex have undergone renovations removing a net 2,664 seats. Even with the 2015 opening of the ArcLight Santa Monica Place and expected 2016 re-opening of the Laemmle Monica Fourplex as the Monica Film Center, total Santa Monica seat inventory of 3,001 will have fallen 47 percent from 5,691, as shown in the “Estimated 2016” column in Exhibit 12. 1 Santa Monica is also a major tourist destination with 11,000,000 visitors per year, but out-of-town tourists typically have minimal impact on cinema attendance. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 15 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 12 Change in Santa Monica Seat and Screen Share by Operator Theater1 Screens Seats Screen Share Seat Share Screens Seats Screen Share Seat Share Screens Seats Screen Share Seat Share Screens Seats Screen Share Seat Share Arclight ArcLight 4th Street 0 0 0 0 0 0 16 2,700 ArcLight SMP 0 0 0 0 12 1,500 12 1,500 AMC AMC Loews Broadway 4 4 1,144 4 1,144 4 405 4 405 AMC Santa Monica 7 7 1,930 7 1,930 7 724 7 724 Laemmle Monica Film Center 2 4 1,091 17%24%4 1,091 27%33%6 372 21%22%6 372 13%12% Mann Mann Criterion 3 8 1,526 35%27%0 0 0%0%0 0 0%0%0 0 0%0% Total 23 5,691 15 4,165 29 3,001 45 5,701 (1) Set excludes traditional single-screen theaters such as the Aero or the Laemmle Royal (2) Formerly the Laemmle Monica 4plex. Renovation expected complete in 2015 (3) Closed in 2013 Sources: City of Santa Monica, Economic & Planning Systems 2013 2014 Estimated 2016 48%73%54%38% 0%0%0% Proposed 20%74%38%24% 0%41%50%62%74% Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 16 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx The resulting mix of screens and seats is likely to continue to leak sales to competitors in West LA and Playa Vista, for several reasons. The renovated AMC theaters on the Promenade, while considerably improved with plush recliners, are still older and non-cutting-edge facilities. The new ArcLight at Santa Monica Place, with relatively small screens and a less desirable location that attracts less foot-traffic, is at a competitive disadvantage with the Landmark Westside Pavilion and Century City theaters, which offer easier consumer access from within the facility. What’s more, relative competitive parity of ArcLight with AMC, as shown in the “Estimated 2016” column in Exhibit 12 (which shows 12 ArcLight screens compared with 11 AMC screens and 1,500 ArcLight seats compared with 1,129 AMC seats) may allow AMC to continue to enforce film “clearances,” which is the practice by which AMC punishes distributors that don’t grant it exclusive access to certain first-run titles by boycotting the distributor’s movies entirely. While boycotts cause the distributor and exhibitor to both lose revenue, the boycotts are successful because distributors typically have more to gain by complying with requests for exclusivity from market-leading exhibitors like AMC. While AMC is no longer the clear market leader in Santa Monica, competitive parity, coupled with dominance in many other sub-markets locally and nationally, still give it bargaining power in the competitive trade area. For example, AMC appears to have enforced a “clearance” policy in Santa Monica with regard to Star Wars: The Force Awakens, which played at the ArcLight Santa Monica Place but not at the AMC Loews Broadway 4, AMC Santa Monica 7, AMC Marina Marketplace 6, or AMC Dine-In Theatres Marina 6. The proposed Fourth Street Theater, with 2,700 seats, would not only restore Santa Monica’s seat inventory to 2013 levels, but with PLF, 16 large screens, ArcLight’s reputation for quality, and a Promenade-adjacent location, it would make Santa Monica’s cinema portfolio highly competitive with all other West Side locations for Santa Monica customers. Furthermore, with 74 percent of seats and 62 percent of screens in Santa Monica, ArcLight would gain flexibility to optimize the mix of offerings for Trade Area demand while at the same time reducing or eliminating the ability of AMC to enforce “clearances” and conduct an effective boycott.2 2 The Antitrust Division of the U.S. Department of Justice has since begun an investigation into exclusionary boycott practices and potential violations of federal antitrust laws related to the enforcement of clearances. Resolution could eventually render this issue moot. Economic & Planning Systems, Inc. 17 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx 3. SANTA MONICA CINEMA MARKET PROJECTIONS This section estimates the future market performance of the Santa Monica Cinema sector assuming the proposed Fourth Street Theater is successfully developed as currently defined. Trade Area Demand Projections Trade Area demand is estimated by multiplying trade area population by both an area capture rate and a per-capita attendance rate. Key assumptions used in the estimate are shown in Exhibit 13. The per-capital attendance rate of 6.5 is higher than the North American average of 3.75 but lower than the highest typically measured per-capita rates of 7 and 8 in Pacific Northwest markets like Portland and Seattle. The rate is also consistent with what ArcLight uses to estimate Santa Monica Trade Area potential. The assumption that 90% of demand comes from the Trade Area reflects the fact that most movie attendance is local, especially in a market like Los Angeles where geographical subareas are independently served by a local supply of screens. Exhibit 13 Market Demand Assumptions Trade Area population in 2015 is 318,000 and estimated to grow to 328,000 by 2020. At the assumed attendance and capture rates, this translates into potential demand of 1.58 million tickets in 2015 and 1.63 million in 2020, as shown in Exhibit 14. Assumption Metric Annual Movies per Capita 6.5 Primary Trade Area Capture Rate 80% Secondary Trade Area Capture Rate 50% % of Total Demand from Trade Area Residents 1 90% ArcLight Fourth Street Capture of Trade Area Demand 50%-55% Source: Economic & Planning Systems, Inc. (1) In other words, approximately 10% of attendance is estimated to come from visitors who live outside the Primary and Secondary Trade Areas. This is conservative given Santa Monica's status as a major tourist destination. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 18 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 14 Market Demand Estimate Market Share Scenarios From an estimated 1.63 million tickets purchased at Santa Monica theaters in 2020, the proposed ArcLight Fourth Street can be expected to sell between 772,000 and 897,000 tickets, based on the three scenarios shown in Exhibit 15. Item Capture Rate 2015 2020 Trade Area Population Santa Monica 92,416 95,178 Rest of Primary Trade Area 107,923 110,936 Secondary Trade Area 117,755 121,539 Total Trade Area 318,094 327,653 Attendance @ 6.5 Annual Tickets/Capita Santa Monica 80%480,563 494,926 Rest of Primary Trade Area 80%561,200 576,867 Secondary Trade Area 50%382,704 395,002 Capture from Outside Trade Area1 158,274 162,977 Total Trade Area (rounded)1,583,000 1,630,000 Notes: (1) Assumes 10% of total attendance from outside Trade Area (e.g., from tourists and from beyond Trade Area boundaries), so estimated Trade Area attendance is then 'grossed up' by 90% Sources: ESRI Business Analyst Online; ArcLight; Economic & Planning Systems, Inc. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 19 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Exhibit 15 Santa Monica Estimated 2020 Admissions Scenarios 1.2.3. Ticket Share Tickets Sold Implied Utiliz- ation1 Ticket Share Tickets Sold Implied Utiliz- ation1 Ticket Share Tickets Sold Implied Utiliz- ation1 Seats ArcLight 4th Street 2,700 47%771,970 17%50%815,000 18%55%896,500 20% Other Santa Monica Outlets 2 3,001 53%858,030 17%50%815,000 16%45%733,500 15% Total 5,701 100%1,630,000 17%100%1,630,000 17%100%1,630,000 17% Total 20133 5,691 100%800,000 8% (1) Assumed 32 showings per week and 52 weeks per year (3) 2013 the last full year before AMC Broadway 4 and Santa Monica 7 renovations/seat reductions Source: Economic & Planning Systems All Outlets Prorated by Seat Share 4th Street at 50% Ticket Share; Remaining Demand Distributed to Other Outlets2 4th Street at 55% Ticket Share; Remaining Demand Distributed to Other Outlets2 (2) Other Santa Monica outlets include ArcLight Santa Monica Place, AMC Loews Broadway 4, AMC Santa Monica 7, Laemmle Monica Film Center Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 20 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx • In Scenario 1, all Santa Monica theaters are estimated to sell tickets at a rate prorated by share of seats. Thus, with 47 percent of all seats, the proposed ArcLight sells 47 percent of tickets, or 772,000. At 5,701 total seats, average utilization for all theaters computes to 17 percent, which is more than double actual Santa Monica utilization for 2013.3 • In Scenario 2, the Fourth Street Cinema captures 50 percent of all tickets sold, a rate 6 percent higher than the pro-rata average, for a total of 815,000 tickets. This would be a conservative estimate for the most state-of-the art theater in the city. At 50 percent share, the Fourth Street Cinema achieves 18 percent utilization, which is lower than the 19 percent average for Santa Monica during its peak year of 1997. • In Scenario 3, the Fourth Street Cinema is estimated to capture 55 percent of all tickets sold, a rate 17 percent higher than the pro-rata average, for a total of 897,000 tickets. At 55 percent share, the Fourth Street Theater achieves a 20 percent utilization rate, which is significantly lower than either the Landmark Westside Pavilion (35 percent) or AMC Century City 15 (29 percent) achieved three years after their openings. 3 Utilization is calculated as: 1.63 million tickets / (5,701 seats * 32 showings per week * 52 weeks per year). Economic & Planning Systems, Inc. 21 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx 4. ADDITIONAL ECONOMIC IMPLICATIONS OF A NEW CINEMA The foregoing analysis has focused on the direct economic impacts of the proposed 4th St. Cinema project on movie patronage in Santa Monica. However, it is widely acknowledged that cinemas have a variety of off-site or “indirect” impacts that are generally more difficult to quantify but nevertheless significant. These indirect impacts relate to the role that theaters can play in attracting people to surrounding businesses or even a broader commercial district (e.g., a downtown). This section provides a high level review of the potential economic impacts that an additional cinema could generate for the City of Santa Monica and in the Downtown in particular. These effects include increased spending at local businesses as well as other indirect economic benefits from the increased economic activity. While the indirect economic impacts of cinemas on local geographies are more difficult to quantify, and can vary significantly depending on context, they have been documented in the popular, professional, and academic publications. Local Spending Impacts In addition to the spending captured at the cinemas (i.e. movie tickets and concessions) moviegoers may contribute to a local economy through ancillary spending at nearby commercial establishments prior to or after a movie. Strong evidence shows that cinema visits are frequently undertaken in conjunction with another principal activity such as shopping, dining, or other entertainment.4 Based on various case studies of movie patron behavior before or after a show, bars and restaurants appear to be the most frequently visited venues, although other local businesses can also benefit. While there are few definitive studies that have quantified these impacts, several reviewed as part of this analysis shed light on the range of additional spending that might be expected. These include: • A 2001 study of the economic impact of the AMC Kabuki Theaters in San Francisco’s Japantown found that nearly 50 percent of patrons frequented nearby commercial establishments before or after a show, spending an average of about $17.35 each.5 • A 2012 study on the economic impact of the Fox Theater goers in Downtown Tucson found that 80 percent of the moviegoers spend money at other downtown businesses, averaging $56.75 per party, or $21.41 per person.6 4 “Cinema Provision Preston City Centre,” 2014 5 “AMC Kabuki Theaters Social. Cultural, and Economic Impact on Japantown” by Porat Consulting, Nov. 2001. 6 Economic Impact of Fox Theatre on Downtown Tucson, Direct Spending by Fox Theater Patrons at the Fox and other downtown businesses.” By AZ Economic Research. October, 2012. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 22 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx • A 2005 study in London found that approximately 11 percent of the visitors had a meal at a local establishment, while another 9 percent of patrons had visited a local bar.7 It is important to note that research suggests that the level of “off-site” spending by movie-goers can vary significantly depending on a variety of factors, including the convenience, quality and range of nearby commercial venues as well as a cinema’s own “in-house” options. For example, more recently built and upscale theaters have begun to provide upgraded food options and alcohol. These enhanced options may promote spending at the theater, and less on local establishments. For illustrative purposes, Exhibit 16 shows the range of possible outcomes for “off-site” spending by the additional patrons of the proposed ArcLight Cinema. The amount ranges from $5 to $27 million per year in “off-site” sales depending on projected theater attendance and the assumed average non-theater spending levels per patron. Given that Downtown Santa Monica possesses a wide range of dining, retail, and related amenities to attract movie-goers either before or after a show, the spending impact is likely to be on the higher end of this range. This effect may be further reinforced by the fact that parking for the proposed cinema will be “off- site”, which means that many patrons will likely pass by nearby commercial establishments on the way to and from a movie. Exhibit 16 Estimated “off-site” Spending by Patrons of Proposed 4th St. ArcLight Cinema 7 “The Impact of a Local Cinema,” Film London, 2005 Category Formula Low High Projected Annual Attendance at ArcLight 4th St.1 a 815,000 896,000 Avg. "Off-site" Spending Per Patron2 b $6 $30 Total Increase in Annual "Off- Site" Spending = a * b $4,890,000 $26,880,000 Amount [2] Based on case studies of movie patron spending levels at other downtown cinemas. [1] "Low" and "high"estimates corresponds to Arclight 4th St. attendance Scenario #2 and Scenario #3 from Exhibit 15, respectively. Santa Monica Cinema Market Study Report 01/19/16 Economic & Planning Systems, Inc. 23 P:\154000s\154027SantaMonicaCinemaImpact\Reports\154027DraftReport011916.docx Other Economic Benefits to Downtown Santa Monica In addition to the “off-site” spending of theater patrons, successful cinemas also have other less tangible but nevertheless important economic benefits to neighborhoods and jurisdictions in which they reside. Several economic or market benefits most relevant to downtown Santa Monica are discussed below. Increased Market Exposure A new cinema can generate substantial foot traffic that essentially serves as “free advertising” opportunity for nearby commercial establishments. In other words, even if movie patrons do not spend money in nearby establishments before or after a particular show, they are exposed to new venues or attractions that they may return to as part of a separate visit. To the extent that the patrons would not have otherwise come downtown, local businesses gain an indirect form of market exposure by reaching new and / or untapped segments of the population. Place-making and Brand Enhancement Well-designed, operated and successful entertainment venues generally project a positive image of a downtown as a fun and exciting place to be. They also contribute to foot traffic and a vibrant street scene, supporting a critical mass of activity and overall sense of a “happening place” where you can go to “see and be seen”. Cinemas also add to the overall diversity of land uses which has been shown as a key element to sustaining economically vibrant downtowns, allowing them to that cater to a range of population and user groups and support complimentary economic relationships and interactions. For example, strong entertainment districts have been shown to support increased demand for office and residential uses. jerde partnership inc 2016 In r e s p o n s e t o c o m m e n t s r e c e i v e d d u r i n g t h e A r c h i t e c t u r a l R e v i e w B o a r d a n d P l a n n i n g C o m m i s s i o n fl o a t - u p r e v i e w s w e h a v e i n c l u d e d i n t h i s A l t e r n a t e S t u d y f o r r e v i e w . Th e s t u d y i s i n t e n d e d t o a d d r e s s s o m e o f t h e c o n c e r n s o f t h e o r i g i n a l “ f o l d e d ” d e s i g n m a s s ( s h o w n o n t h i s p a g e ) b y : 1. E x p l o r i n g w a y s t o r e d u c e t h e m a s s b y a d j u s t i n g t h e e x t e r i o r e n v e l o p e t o a d d r e s s t h e a u d i t o r i u m v o l u m e s s e p a r a t e l y f r o m n o n - a uditorium areas. 2. C r e a t i n g v a r i a t i o n i n t h e e l e v a t i o n t o b r e a k t h e m a s s b o t h v e r t i c a l l y a n d h o r i z o n t a l l y 3. A d d i n g m o r e g l a s s t o c r e a t e m o r e d e p t h a n d a s t r o n g e r i n t e r i o r / e x t e r i o r r e l a t i o n s h i p 4. A l i g n i n g e l e v a t i o n e l e m e n t s i n a s c a l e t h a t r e l a t e s t o t h e e x i s t i n g m a s s i n g c h a r a c t e r o f 4 t h S t r e e t 5. C o n s i d e r i n g u s e o f m a t e r i a l s a n d c o l o r s t o h e l p t h e b u i l d i n g b l e n d i n t o t h e e n v i r o n m e n t m o r e , t h u s r e d u c i n g t h e i m p r e s s i o n o f mass 6. U t i l i z i n g t h e e x i s t i n g l a n d s c a p e t o p r i o r i t i z e v i s i b l e a n d n o n - v i s i b l e a r e a s . al t e r n a t e d e s i g n s t u d y a p p e n d i x january 12 jerde partnership inc 2016 4t h S T R 4t h S T R 4t h S T R 4t h EE T EE T R .E . I . Pa r k i n g Pa r k i n ar e St r u c t u r tr u c t u r ru c t u r e e e S A N T A M O N I C A B L V D . 4 th C O U R T Ch a s e Ch a s e Ch a s e B a n k 4t h S T R R EE T EE T ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW ONE jerde partnership inc 2016ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW ONE jerde partnership inc 2016 4t h S T R E E T R .E . I . Pa r k i n g e S tr u c t u r e S A N T A M B O N I C A B L V D . D D L V D 4 th C O U R T C ha s e Ba n k ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW TWO jerde partnership inc 2016ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW TWO jerde partnership inc 2016 4t h S T R E E T R .E . I . Pa r k i n g e St r u c t u r e T A M S A N T A O N I C A B L V D . 4 th C O U R T Ch a s e B a n k ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW THREE jerde partnership inc 2016ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW THREE jerde partnership inc 2016 4t h S T R E E T R .E . I . Pa r k i n g e St r u c t u r e S A N T A M O N I C A B L V D . 4 th C O U R T Ch a s e B a n k ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW FOUR jerde partnership inc 2016ARCLIGHT 4TH STREET CINEMAS 2016_0112 VARIATION A VIEW FOUR 4TH STREET CINEMAS SANTA MONICA, CA.PLANNING COMMISSION PRESENTATION AUGUST 19 2015 ARCLIGHT-HOLL YWOOD LOBBYARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 ARCLIGHT -SHERMAN OAKS CAFE BARARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 A R C L I G H T - L A J O L L A A U D I T O R I U M ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 A R C L I G H T - L A J O L L A I M A G E W A L L ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 G R A N D B U D A P E S T H O T E L D I S P L A Y ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 A R C L I G H T Q & A W I T H L E O N A R D O D I C A P R I O ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 SA N T A M O N I C A P L A C E A R C L I G H T 12 A U D I T O R I U M S AM C L O E W S B R O A D W A Y 4 A U D I T O R I U M S PROPOSED ARCLIGHT T.B.D.AMC SANTA MONICA 7 7 AUDITORIUMS LA E M M E L M O N I C A F I L M C E N T E R 6 A U D I T O R I U M S CINEMA LOCATIONSARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819   S A N T A M O N I C A A T T E N D A N C E D I A G R A M ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 2 . 0 1 . 8 2 . 0 2 . 0 2 . 0 1 . 9 1 . 9 1 . 7 1 . 8 1 . 8 1 . 7 1 . 7 1 . 6 1 . 5 1 . 4 1.2 1.1 1.0 1.0 0.9 0.8 0.6 0. 0 0. 5 1. 0 1. 5 2. 0 2. 5 19 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 E s t . A n n u a l A t t e n d a c e Sa n t a M o n i c a T h e a t e r P e r f o r m a n c e Sa n t a M o n i c a Z o n e Br i d g e 1 7 Ce n t u r y C i t y 1 5 La n d m a r k 1 2 La n d m a r k 1 2 Re b u i l d Ce n t u r y C i t y 1 5 Re b u i l d Br i d g e 1 7 Op e n s So u r c e : R e n t r a k LA Live 14 Opening 4t h S T R E E T PR O P O S E D CI N E M A SI T E We l l s Fa r g o R. E . I . Parking Structure 1 Pa r k i n g Lo t 2 7 3r d S T R E E T P R O M E N A D E 5t h S T R E E T S A N T A M O N I C A B L V D . A R I Z O N A A V E . 3r d C O U R T 4t h C O U R T Post Office Ch a s e Ba n k Ba n k o f Am e r i c a 2n d C O U R T Fo o d Co u r t AM C - S a n t a Mo n i c a 7 N ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819SITE AREA 29,807 sq. ft.PROPOSED NUMBER OF CINEMAS 16 PROPOSED NUMBER OF SEATS 2700 SITE PLAN N ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 FIRST FLOOR PLAN PL F SECTION BARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 4TH STREET ELEVATION ARCLIGHT 4TH STREET CINEMAS - planning commision presentation 2015_0819 3RD COURT RENDERING DI S C O V E R ME M O R A B L E PL A C E . . . City Council January 26, 2016 1318-1320 Fourth Street Proposed 4th Street Arclight Cinema 1318 –1320 4th Street 15ENT-0225 January 26, 2016 City Council January 26, 2016 1318-1320 Fourth Street History Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits •Birth of the Third Street Promenade •Promenade Uses Task Force •Downtown Parking Task Force •Walker Parking Study City Council January 26, 2016 1318-1320 Fourth Street Decline of Attendance City Council January 26, 2016 1318-1320 Fourth Street 405 SEATS 724 SEATS 2 City Council January 26, 2016 1318-1320 Fourth Street Market Area City Council January 26, 2016 1318-1320 Fourth Street Cinema Efforts Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits •RFP for Cinema (2007) •AMC Proposal (2008) •AMC ENA Expired (2012) •Open Market Soliticitation (2012) •ArcLight/Macerich ENA (2014) City Council January 26, 2016 1318-1320 Fourth Street Existing Conditions 724 City Council January 26, 2016 1318-1320 Fourth Street Purpose Introduce project concept to City Council and public; Opportunity to review and discuss the concept plans; and Provide direction on negotiation points and potential community benefits Float-Up Review City Council January 26, 2016 1318-1320 Fourth Street Property Location •West side of Fourth Street between Arizona Ave & Santa Monica Blvd. •Downtown Core (DSP) / Bayside District Specific Plan / BSC-2 zone •IZO# 2490(CCS) requires DA for project over 32ft. in height. ZoningLUCEDowntown Specific Plan •Removal of Parking Structure #3 •100,000 sf theater/retail development •90,000 sf theater use / 10,000 sf ground floor commercial Subject Site City Council January 26, 2016 1318-1320 Fourth Street Existing Conditions Fourth Street facing north Fourth Street facing south Surrounding Uses Banking Retail / Services Office Residential City Council January 26, 2016 1318-1320 Fourth Street Project Description Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits •Demolition of Parking Structure #3 (344 spaces) •100,000 sf theater / retail development •4-stories / 84 feet in height •3.4 FAR Ground Floor 2nd Floor3rdFloor4thFloor •10,000 sf ground floor commercial •90,000 sf theater use •Up to 16 theater auditoriums (up to 2,700 seats) •Interior restaurant/lounge BSC-2 •4-stories / 56 feet in height •3.0 FAR City Council January 26, 2016 1318-1320 Fourth Street Project Description North ElevationSouth Elevation City Council January 26, 2016 1318-1320 Fourth Street Necessary Approvals Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits 1988 Zoning Ordinance (BSC-2 zoning district) Does not meet building massing (height, stepbacks, and building volume) requirements. 3.0 FAR 56’ height Upper level stepbacks above 30’ in height Bayside District Specific Plan Project exceeds maximum allowable height (56 feet). Development Agreement City Council January 26, 2016 1318-1320 Fourth Street Necessary Approvals Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits Parking Study Inventory of public and private parking opportunities. Analysis of utilization of existing parking structures. Future parking demand and supply. Estimate potential parking demand from new Downtown developments. Provide recommendations based on Study’s findings. City Council January 26, 2016 1318-1320 Fourth Street Community Benefits Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits Availability of screens for use during film markets or festivals that may be hosted in Santa Monica; Auditorium availability for use by community groups; Provision of public art; Enhanced TDM plan; Enhanced Transportation Impact fee contributions; Build or fund an enhanced crosswalk; Provide pedestrian access from alley to Fourth Street; LEED certification Community Benefits City Council January 26, 2016 1318-1320 Fourth Street Architectural Review Board Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits ARB Float-Up June 15, 2015 More upper level stepbacks should be considered. More evaluation of the effects of the Krion material. Provide more visual permeability. The project’s relationship to the street should be further examined. PV panel opportunities should be explored. Is ground floor retail component necessary? More differentiation should be provided along side and rear elevations. Pedestrian access from the alley to Fourth Street should be provided. City Council January 26, 2016 1318-1320 Fourth Street Planning Commission Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits PC Float-Up August 19, 2015 Height, mass, and bulk of building are too large. Building height and Council direction should be guided by compatibility with historic fabric of 4th St. Parking study must also consider circulation and accessibility to parking. Pedestrian access from the alley to Fourth Street should be provided. City Council January 26, 2016 1318-1320 Fourth Street Alternative Design Concept City Council January 26, 2016 1318-1320 Fourth Street Process / Next Steps Appropriateness of building mass and scale for the intersection; Quality of proposed design at downtown gateway intersection; Relationship with future light rail station; Consistency with the LUCE; Level of desired consistency with draft DSP; and Potential Community Benefits CEQA process Staff negotiations with developer Planning Commission review of DA -Recommendation to City Council City Council review of DA ARB review of project (post DA approval). DA Process / Next Steps City Council January 26, 2016 1318-1320 Fourth Street Conceptual Business Terms In Agreement: Ground Lease –35 years with 4, 5-year options (50 years total) Lease Payments •$25,000 annually during construction •$100,000 with 10% increases every 5 years Percentage Rent on the Cinema Use –based on attendance In Disagreement: Operating Covenant –term of 10 years vs. 15 years Percentage Rent on the Retail Use City Council January 26, 2016 1318-1320 Fourth Street Comments or Questions ArcLight Cinemas 4th Street Downtown Santa Monica, Inc. Kathleen Rawson, CEO 93% of locals visit Downtown at least once/year Theater Seats THEATER HISTORIC PROPOSED AMC Santa Monica 7 1,930 724 AMC Broadway 4 1,144 405 AMC Criterion 1,600 0 Laemmle Monica 1,091 372 ArcLight Santa Monica Place 0 1,500 ArcLight 4th Street 0 2,700 TOTAL 5,765 5,701 Parking Availability BEFORE PS6 REDEVELOPMEN T AFTER PS6 REDEVELOPMEN T PROPOSED AFTER THEATER DEVELOPMENT 6,316 6,727 6,391 NET GAIN: 75 SPACES Downtown Accessibility Breeze Bike Share Car Share Big Blue Bus / Metro Bus Expo Lightrail Transportation Network Companies (Uber, Lyft) Pedestrian Action Plan Transportation Management Organization