CITY HALL — Restaurants may see their rents rise on outdoor dining facilities in two years after the City Council voted to increase rent on city sidewalks to bring them in line with improved property values.
The decision will raise license fees that restaurants pay to use public sidewalks from $1.90 per square foot of sidewalk space to between $2.50 and $3.13 per square foot, depending on location and whether or not the dining area is enclosed.
Hardest hit would be three restaurants located on Ocean Avenue, which would pay $5.83 per square foot under the new schedule — The Ivy, iCugini and Il Fornaio.
Most restaurants in the city could see their rents go up an average of $314 per month if they have some sort of a barrier blocking the public’s view of the dining, and $82 per month without a barrier, according to a staff report.
Those three are looking at increases of $30,000 per year, said Sam King, president and CEO of King’s Seafood Company, which owns iCugini.
“I think reevaluating is a great idea,” King said. “The surprise was how high they’re talking about.”
The recommended increases are actually less than those put forth by an appraiser hired by City Hall to reevaluate the rents paid on the properties.
According to a staff report, those fees were last updated in 2005, and they have been increased in line with the Consumer Price Index each year.
The latest appraisal, completed in June 2010, noted that the rent rates were below market value, and that rent should vary for outdoor dining that is fully enclosed, partially enclosed with only a barrier or completely open.
Those estimates were based on looking at comparable restaurants in similar cities such as Pasadena and Huntington Beach, said Donna Rickman, a senior analyst with the Economic Development Division.
“There were similarities in size, and in location in terms of downtown to downtown,” Rickman said. “We looked at beach cities to see what they were charging per square foot even on private property.”
Businesses should not balk at paying the increased rents, considering they’re less of what the appraiser suggested, said Councilman Kevin McKeown.
Charging “fair rent” was seen as a way to raise additional revenue for City Hall coffers, and restaurants will have two years to prepare for the new rent reality, he pointed out.
“We’ll raise fees on recreation programs, bus fairs and children’s rides on the carousel, but not businesses?” McKeown asked at the City Council meeting last week when the new rents were approved. “They’re not nonprofits.”
Councilman Bobby Shriver was similarly unsympathetic.
“Restaurants have benefited for many years, and pocketed it in the fat years,” Shriver said.
Kathleen Rawson, CEO of Downtown Santa Monica Inc. (formerly the Bayside District Corp.), appeared on behalf of the restaurants on the Third Street Promenade to speak against the measure.
Given the prohibition on restaurants on that strip converting to a retail use, any additional burden could result in vacant fronts on the promenade, she said.
“While the city does deserve to get fair rent for patios, we believe it’s ill-timed,” Rawson said.
Mayor Richard Bloom pointed out the ultimate conundrum of the vote — putting forth a disincentive for restaurants to create a lively Downtown atmosphere, or the city losing money on prime real estate.
“We do not want to discourage restaurants,” he said. “But we’d lower the value tremendously in exchange for what, more sidewalks? I don’t think we’re prepared to do that tonight.”
King, whose company owns 18 restaurants in Southern California, said that although he did not disagree with paying some rent, a $30,000 increase could lead his restaurant to abandon outdoor dining altogether.
The other option would be cutting back on staff and reducing reinvestment in the business, he said.
“If you have a restaurant that’s making money, it’s not going to mean they’ll close,” King said. “It does take $30,000 out of operating income. Businesses get demonized because they make profits, but you reinvest profits.”
Despite objections, the council voted 4-2, with council members McKeown and Bob Holbrook against, to implement staff’s suggested rent increases, delaying implementation until the fiscal year 2014 as a nod to the difficult economic times. Holbrook wanted to reevaluate the rents at a later date to see if the economy improves.