Gap in Moratorium Puts Promenade Restaurant on Ropes

By ANDY FIXMER
Staff Reporter

The people-watching and cool ocean breezes enjoyed by the street-side patrons of Santa Monica's Trastevere restaurant belie a behind-the-scenes effort by the property's landlord to search for a new tenant despite a city moratorium prohibiting conversions from restaurants to retail.

While the moratorium runs through September and could easily be extended Beitler Commercial Realty is using a clause that allows swings of 5 percent in the retail/restaurant mix for each block of Third Street Promenade, where the locally owned Italian eatery is located.

The center block of the Promenade has roughly 31,000 square feet of restaurant-occupied space. Under the 5 percent calculation, Beitler would be able to convert one-third of Trastevere's 5,000-square-feet into retail if the balance remained a restaurant. The restaurant's lease is up at the end of the month, although it has an option to renew.

The amount of space to be converted would make up the entire 5 percent ceiling for the block, precluding other landlords from further conversions until at least September.

Barry Beitler, president of Beitler Commercial, could not be reached for comment. But a source familiar with the negotiations said his firm is in discussions with several national chains willing to pay market rents for the location. The source declined to name prospective retailers and restaurant operators.

Because of skyrocketing rents, the pedestrian street has been transformed into a strip of national chains not unlike standard-issue shopping malls. Local retailers and restaurateurs who were operating on Third Street have been forced to find cheaper space at less desirable locations, leading to an ongoing debate in the city about whether controls should be placed on national chains signing leases on the Promenade.

No plans to leave

Santa Monica City Council enacted an ordinance in late 2001 prohibiting further conversions of restaurants to retail uses for a year while a task force studied ways to stop the hemorrhaging of restaurants. The moratorium was renewed until September.

Barbara Tenzer, a part owner of Trastevere, said its ownership group wants it to stay on the Promenade and that negotiations with Beitler about extending the lease were ongoing.

"We have a legal right to extend our lease and we intend to take full advantage of that," said Tenzer, who is president of Tenzer Commercial Realty, a downtown Santa Monica brokerage. "We're not going anywhere."

But a source close to the negotiations said that if Trastevere, located at Third Street and Santa Monica Boulevard, can't match rents offered by other potential restaurant and retail tenants, Beitler has no obligation to close a deal with it.

"It's the landlord's right not to extend the lease," the source said. "And more often than not, landlords on the Promenade are not extending those options any more."

Rob York, a Fransen Co. consultant who tracks the Promenade, said the two spaces that could be carved out of Trastevere would be competitive for retail and restaurant purposes.

Before the moratorium was enacted, at least seven restaurants had left the Promenade in five years, according to the Bayside District Corp., a city-funded group that manages the downtown area. Since its adoption, none of the strip's eateries has been lost.

Average rents paid by new retailers on the Promenade are nearing $10.50 per square foot per month. Using a restaurant industry standard of 7 percent of revenues allotted to rent, Trastevere would need annual sales equal to $1,542 per foot to afford monthly rents of even $9 per foot.

Even the Cheesecake Factory, one of the nation's most successful restaurant chains, only boasts annual averages of $1,005 per square foot more than double the industry standard for casual dining but not nearly enough to justify the higher rent.

"I can't believe any restaurant could pay anywhere near 10 bucks a foot," said Tony Palermo, owner of Tony P's Dockside Grill in Marina del Rey.

Palermo was part owner of Teasers, which moved out its location across from Trastevere because the rent was raised from $18,000 to $54,000 a year.

He said at current rents, restaurants would have to make more than $6 million annually to afford a location on the Promenade. Only a few national restaurant chains, like a higher-than-average Cheesecake Factory unit, can pull that off, he said.

"They're crazy," he said of Trastevere's desire to stay.

The task force completed its study at the end of March and is expected to formally present its recommendations, which focus on streamlining the permit process for restaurants, to city council in late June.

Jeff Mathieu, director of Santa Monica's Resource Management Department, said as a result of the group's recommendations new restaurant tenants have become more interested in locating on the Promenade.

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