The City Council voted unanimously Tuesday to explore ways to reduce the prohibitive fees that prevent entrepreneurs from converting vacant retail spaces into restaurants, a move officials say is critical to the city's economic recovery.
The council directed the city manager and city attorney to analyze options for a pilot program that would waive, defer or reduce fees for businesses seeking to transform empty storefronts into restaurants and hospitality venues in areas including downtown and the Third Street Promenade.
Council Member Lana Negrete, who co-sponsored the measure with Mayor Pro Tem Jesse Zwick, said she has personally been bringing business contacts and colleagues to the city manager's office to explore opening establishments in Santa Monica — only to watch them balk at the conversion costs.
"One of the biggest things is looking at turning these existing retail spaces into restaurants, and these fees create a huge roadblock," Negrete said during the meeting. She noted that business owners from outside California were watching the council's deliberations.
Converting a vacant retail space into a restaurant requires extensive and expensive upgrades including grease interceptors, ventilation systems, ADA compliance modifications, fire and life safety improvements, and wastewater infrastructure changes. The cumulative costs can stop a project before it begins, Negrete said.
During public comment, local leasing agent Luke Kane illustrated the financial burden, telling the council that a business owner seeking to convert a retail space into a 50-seat restaurant faces a wastewater mitigation fee of $1,400 per seat — totaling $70,000 just to obtain permits.
Kane urged the council to act, warning that the city "can't afford a misstep" as businesses are finally beginning to return to commercial corridors like the Promenade.
The council action came as part of a broader push to revitalize Santa Monica's commercial districts. Earlier in the same meeting, the council approved a sweeping package of zoning amendments designed to streamline the commercial permitting process, including downgrading certain permit requirements and expanding exemptions for alcohol sales.
Zwick linked the two measures, explaining that while the zoning changes made new business uses legal and easier to permit, the fee reduction study was necessary to make them financially viable.
"We did amazing work tonight in making it easier from a zoning and permitting perspective to create the kind of vitality that we're seeing," Zwick said. "When it comes to restaurants and other hospitality uses, as mentioned, when you're converting a sort of blank box retail space, it's expensive and complicated."
Negrete said the proposal reflects lessons learned from previous efforts. Several years ago, she explored whether the city could provide wastewater fee relief to existing restaurants, but was told it was not viable under the current structure. The new approach focuses on supporting conversions and new investment rather than retroactive relief.
"We're not eliminating standards, we're not compromising safety," Negrete said. "We're just exploring how to strategically lower barriers so that small operators can activate storefronts."
The council's underlying philosophy centers on restaurants as economic catalysts.
"Restaurants drive foot traffic, foot traffic drives retail, and retail drives our economic recovery," Negrete said.
City staff will now analyze the legal and fiscal framework for a potential pilot program and return to the council with options. The analysis will examine ways to support tenant improvements including grease interceptors, ventilation, ADA upgrades, fire and life safety modifications, and utility changes that currently impede retail-to-restaurant conversions.