Proposed Emergency Moratorium to Save Promenade Restaurants Would Have "Chilling" Effect, Bayside District Says

By Jorge Casuso

Wednesday, August 4--Messing with market forces by placing an emergency moratorium on the conversion of restaurants to retail uses on the Third Street Promenade would have a "chilling effect" on the thriving commercial strip.

That warning -- voiced by more than a dozen property owners during a special meeting of the Bayside District Corporation board Wednesday morning -- was heeded by board members, who unanimously agreed there was no emergency and voted to direct the City Council to take no action until they could study the issue.

The moratorium - which is being contemplated by city staff - was spurred by the loss of 13 restaurant spaces in the International Food Court, which will have to move out next month to make room for Be Be, a national chain store. Council members Michael Feinstein and Paul Rosenstein proposed the measure after hearing from restaurant owners fearful that they too would be nudged out by escalating rents, which have reached $12 a square foot.

"I am very concerned about the unintended consequences and the signal this will send to the development and investment communities," said Rob York, a consultant to the Bayside District, which oversees the downtown area including the Promenade. "If someone is going to make an investment and have the rules changed in the middle of the game, that is going to have a very chilling effect."

"It's hard to understand how suddenly we have an emergency," said property owner Ernie Kaplan. "I never heard anybody say there is a problem. We live in a capitalist economy. The market drives what basically will be on the Promenade. The Promenade has been healthy because these market forces have been working."

At least one tenant said a moratorium was necessary.

"I think there is an emergency," said Marvin Zeidler, who owns the Broadway Deli. "I think we need some temporary action to maintain some restaurant presence. We're going to lose restaurants on the Promenade because of competition with retail.

The Bayside Board noted that the Broadway Deli is one of less than half a dozen of the Promenade's 33 restaurants that have less than a year remaining on their leases. As for the food court, the restaurants were notified they would have to move out two years ago and were given six months free rent as part of a settlement, said attorney Chris Harding, who represents the property owner.

The ordinance "will interfere with contractual obligations. That will have an enormous chilling effect. It will have a horrible impact on the ability of the city, businesses and property owners to work together. If they can do it to my client, they can do it to each and every one of you."

"They could do it citywide," warned Herb Katz, who chairs the Bayside District Board. "We could have a city trying to dictate what uses can be allowed in certain locations."

Property owners also warned the measure would backfire because they would be hesitant to rent to restaurants knowing they would be stuck under the moratorium. The measure also could trigger a fire sale to rent to retailers before the moratorium goes into effect.

"Building owners will say, 'We have to get all the retailers right away,'" said Merlyn Wenner Ruddell, who owns several buildings on the Promenade. "In the short run it could backfire and cause restaurants to go."

In addition, a moratorium would unfairly affect negotiations with tenants, which are often dictated by factors other than the amount of rent, such as the cost of converting the building's use.

"It's to everyone's benefit to try to keep existing tenants," said Bill Tucker, who owns several buildings on the Promenade. "Property owners don't want to lose the ambiance. Anything that is a quick fix solution scares (property owners and tenants) because they can't predict the future."

"I don't think it's fair having an emergency situation that affects these negotiations," said property owner Hilde Heidt. "It's very sensitive."

Property owners also reminded city officials that the proposed moratorium was an about face. Just a few years ago the council placed a moratorium on restaurants in an effort to attract retail. The proposed measure, too, could backfire.

"This has been a cash cow for the city," said property owner Bill Imhoff. "I think the city has been stuffing a lot of cash into its pocket. You want to put the brakes on."

Some opponents also noted that a moratorium flies in the face of another council proposal to impose a minimum wage on large restaurants and hotels along the coast.

"There won't be any restaurants left," said Tony Palermo, who owns Teaser's Restaurant on the Promenade.

But Councilman Feinstein, who attended the meeting, said it is the role of government to help direct market forces for the benefit of all.

"As a city we don't want to simply sit back and let the market forces entirely shape an area that is such an important social area," Feinstein said. "I think we're getting to the point where there's too many big box national chains.

"Our role is not to just hope that market forces that go up and down are going to give us everything for everybody. I haven't heard why a freeze for the short term is going to screw things up."