Rising rents force restaurants from Third Street Promenade
The owner of the restaurant Matisse has sold the remaining six months on his lease and next week plans to auction off every possession inside the space. Mark Mahallati, the owner of the Third Street Promenade establishment, said he’s closing up shop because he can no longer afford the rent.
“The problem is corporations and chains came in and pushed the rents up to where only corporate America can afford it,” he said. “Small independent operators, like restaurants, just can’t afford to pay $10 a square foot.”
Matisse’s rent was $21,000 a month. To break even, the owner said he would have to do $200,000 a month in business -- a figure even his successful restaurant could not meet.
In three months, the Promenade has lost three restaurants. Seven others have moved or shut down in the past two years. Santa Monica’s city council has deemed the worsening restaurant climate an emergency situation.
The city froze all restaurant leases on the Promenade this week to stop the hemorrhaging, deciding that such rents shouldn’t be allowed to rise sharply as leases expire. But store owners say it’s too little too late.
“This isn’t the same Promenade,” said Mahallati. “And it won’t ever be the same again.”
“This isn’t the same Promenade, and it won’t ever be the same again.” — — MARK MAHALLATI Owner of Matisse restaurant
Landlords say the city’s regulations are only going to hurt business and scare new businesses away.
“Now is not the time to be intervening -- the restaurants are only a little nervous. But because of this action owners are afraid to rent to restaurants now, because they are afraid they will be stuck. ” said Bill Tucker, Promenade property owner and Bayshore District Committee Board Member. “The living wage ordinance has made things tough on restaurants. But we’re seeing the economy turning around, so this (moratorium) isn’t needed.”
Tucker contends bigger restaurants are having a harder time staying on the Promenade because of the sheer size and shape of their spaces, with the depth from front to back. Most patrons want to sit by the street. Smaller restaurants, with large outdoor dinning sections, are doing fine and remaining strong, he noted.
“I think for a big space there is a differential in rents. In the smaller spaces, I don’t know if such a differential exists,” Tucker said. “Smaller restaurants have smaller spaces and are able to stay at par.”
The city contends it has a long history of regulating the Promenade. When a glut of restaurants choked the Promenade six years ago, the city enacted a plan to attract retailers to balance out the equation. Now, they say, similar regulation is needed to protect existing restaurants and attract new ones.
However, landlords contend that the city’s regulation was not what brought in the retailers or turned the Promenade around.
“The city did regulate in the past, the marketplace turned itself around. Market forces over time have a way of equalizing things,” said Tucker. “We’re seeing restaurants failing because of the general state of the economy, but as that improves so will the general state of the Promenade.
As the character of the Promenade changed, so too have the people who frequent it. The crowds became younger, and the locals all but disappeared.
“The whole idea was to give the Promenade a European feel. The absence of the restaurants will destroy that feeling,” said Raul Da Costa, part-owner of Promenade restaurant Yankee Doodle. “Without that synergy, this will become just another mall,” Mahallati quipped. “Or a Rodeo Drive.”
Both businessmen agreed the damage has been done and the only way to bring the rents down is to either chase out the retailers or subsidize small business rents - - a fate neither businessman thought plausible.
But don’t worry about Mahallati’s Matisse. With the proceeds from the auction and his lease buyout, Matisse will re-open soon -- this time in West Hollywood.
Originally published in the Santa Monica Daily Press print edition on December 1, 2001. Read the original PDF.