DOWNTOWN — As people flock to movie theaters to check out blockbusters like “Terminator: Salvation,” and Disney’s “Up,” city staff are reviewing two proposals to redevelop a parking structure into a state-of-the-art cinema with ground-floor retail or restaurant space.

The two proposals from AMC and ArcLight theaters include 12 to 13 screens and 2,000 to 2,167 seats with ground-floor retail and the option of include subterranean parking. Both proposals would require the demolition of Parking Structure 3, a five-story structure in the 1300 block of Fourth Street that has 324 parking spaces.

A third proposal was submitted following the City Council’s decision in February 2008 to solicit offers but city staff said it did not include a developer or proposed terms and was considered non-responsive.

Looking to make Downtown a more attractive destination and remain competitive with retail hot spots like The Grove, city officials and business leaders have for years discussed the possibility of updating the area’s aging movie houses, which are more than 20 years old.

There are currently three cinema companies operating four movie houses in Downtown, with a total of 21 screens and over 5,500 seats, according to a city staff report.

The theaters were key to revitalizing Downtown, making the Third Street Promenade an entertainment district unlike any other at the time.

However, as new retail centers have opened, so have new theaters with new technology, sound systems and stadium seating, plus other amenities such as a full wait staff and theaters reserved for those 21 years of age or older, allowing patrons to drink alcohol.

By failing to compete, Santa Monica is losing the battle to attract moviegoers, with the number of patrons declining from a high of roughly two million annually during the 1990s to approximately 1.4 million in 2007, according to a city staff report.

If this trend continues, Santa Monica could lose its ability to attract first-run releases as well as events such as the American Film Market, which attracts over 8,000 industry professionals for eight days in early November, making over $800 million in deals. AFM uses local theaters to host screenings, seminars and red carpet premieres.

“Our theaters are old and they need to be redone,” said Kathleen Rawson, the executive director of the Bayside District Corp., a public-private management company that helps City Hall market and manage Downtown. “We been really focusing on theater redevelopment in Downtown for years now, but it is challenging because we only have so much real estate and theaters can take up a lot of space … .”

The Bayside board will get a look at the two theater proposals tonight during their regularly scheduled meeting.

Since Bayside board member John Warfel of Metropolitan Pacific Commercial Real Estate Service is working with AMC on its proposal, the city attorney has determined that the board may not discuss the proposals in detail and cannot make a recommendation to the council.

That said, city staff will look to Bayside to provide input on how a new theater at the proposed location would impact Downtown and a visitor’s experience.

Rawson said it will be especially important to look at potential theaters’ orientation to the street and how this would impact the pedestrian experience along the promenade.

There are some issues with including subterranean parking on site, including the cost of such an endeavor and the height to which the project would need to be to become viable. Without underground parking, some screens could be located below grade, which would allow the entire complex to be built at a lower height.

In addition to those concerns, city staff also brought up the loss of ground-level uses because a portion of the sidewalk would need to be used for an auto entrance and exit to the parking structure.

There is also the question of where to put parking spaces that could be lost if the council votes in favor of an option without underground parking.

Under the Downtown Parking Program approved by the council in 2006, structures 1,3, and 6 are to be reconstructed and two new structures are to be built for a total of 1,712 new parking spaces. A new Parking Structure 3 was to include over 550 spaces.

City staff will soon conduct a study to see if 1,712 new spaces are needed given development trends.

If the council chooses not to go underground, the spaces lost could be gained by constructing a structure on city-owned property along Fifth Street, said Miriam Mack, economic development director for City Hall.

One thing is certain, any new theater will have to include the latest amenities, Mack said.

“Newer theaters are beginning to offer a whole array of services to make them more attractive to their patrons, so we would hope and expect the cinema operator ultimately selected to be providing those things,” Mack said. “And both are saying that these are the services they would be proposing.”

The council is expected to consider the two proposals this summer.