SM BEACH HOUSE — Since opening in April, the Annenberg Community Beach House has been a hit with visitors and an in-demand venue for private parties.
But even so, the public beach club has fallen short of revenue projections and is expected to earn $800,000 less this fiscal year from private events than originally estimated, raising questions about the facility’s unique business model.
Revenue from private functions is meant to subsidize the facility’s $3 million in operating costs and keep general admission fees low on days when the property is open to the public.
City Hall was planning to contribute $1.3 million to the facility this year, but the revenue decline means it will have to spend at least $400,000 more than that, said Barbara Stinchfield, Santa Monica’s director of community and cultural services. (Operating costs have been lower than expected, so City Hall won’t have to make up the entire $800,000 shortfall, she said.)
City Hall had aimed to raise $1.3 million by renting the site out but is now projecting to earn just $500,000 by the end of the fiscal year, Stinchfield said, in large part because of fewer than expected corporate bookings during weekdays.
She said demand for holding weddings, birthday parties and bar mitzvahs has been steady, with 77 social events booked so far, but the weak economy has meant the property’s conference facilities often sit empty.
While she said marketing efforts are paying off, Stinchfield added she now believes City Hall’s revenue projection for private events was “probably optimistic” in light of the recession.
“That was a projection that was developed three years ago, before the economic downturn,” she said.
At City Hall, some officials downplayed the importance of the beach house’s shortfall, noting that the recession has hurt revenues across the board.
“We made our first year estimates before we knew how deeply the recession would affect revenues from private rentals of the property, and we deliberately set rates low to encourage discovery of the site and its amenities,” said Councilman Kevin McKeown. “Those two factors make inaugural revenues look disappointing, but we anticipate fine-tuning the fees and are hopeful that economic recovery will bring with it greatly increased use of this extraordinary public facility.”
Joel Brand, who chairs Friends of 415 PCH, a group formed to advocate for the beach house, said a weak first year of sales is no cause for alarm.
“The beach house is an overwhelming success story from the point of view of the public,” he said.
On days the facility was open to the public reservations usually sold out the first hour they were made available, Brand said. Keeping general admission prices low while earning money through private events, he said, remains a good business model despite the lower-than expected sales.
“That doesn’t mean that the model is broken, it just means that we have challenging economic times and we need to get through this,” he said.
Councilman Bobby Shriver, though, called the latest revenue projection for the facility “a worrying number” and said beach house operations may need more scrutiny.
“If it continues at that low level we’ll [have to] study alternatives to the way we’re managing it now,” he said.
Located at 415 Pacific Coast Highway, the beach house is believed to be the only public beach club in the country. The property was once the site of a 110-room mansion that newspaper tycoon William Randolph Hearst built for the silent film star Marion Davies, who hosted lavish parties at the estate.
In 2005 the Annenberg Foundation donated $27.5 million to redevelop the property into a public beach house that today includes tennis courts, an event house, a pool, gardens and a picnic area.
Stinchfield said there is work underway to boost revenues.
Last month, the City Council approved an amended contract with Hospitality Atelier, the firm that has been marketing the beach house, to expand the scope of its work to include pitching the property to corporate clients and Hollywood producers, who are being encouraged to book the site for film shoots. City Hall is paying the firm $129,000 to market the venue this fiscal year.
One major reason for this year’s shortfall, Stinchfield said, had nothing to do with lack of demand. The facility didn’t begin hosting private events until October, she said, three months into the fiscal year.
While City Hall is contributing an extra $400,000 to the beach house this year, that amount won’t come from the general fund, but from City Hall’s beach fund, a roughly $8 million account dedicated to beach upkeep and operations.
The beach fund gets revenue from fees charged at beach parking lots, not from tax dollars raised by the city, Stinchfield said. So tax payers aren’t bailing out a money-losing pet project approved by the City Council.
And while the beach house is running more in the red than expected, she said for now the beach fund is self sustaining and won’t require a cash infusion from City Hall.
Stinchfield and other beach house supporters said they’re optimistic the facility’s financial picture will improve, but it’s unclear whether the public club will be able to meet its revenue target next year.
“Our hope is that we can continue to increase the bookings,” Stinchfield said. Though as she puts together projections for the next fiscal year, which begins July 1, she said, “we going to be as realistic and conservative as possible.”
While the phone is ringing off the hook for weekend bookings, she said demand for weekday events continues to lag.
“Corporations are very sensitive about going off-site to have their meetings,” she said. “It’s starting to build, but with any new business it takes time to fully meet your long-term projections.”