City Council Meeting: June 11, 2013

Agenda Item: 8-A

 

To:               Mayor and City Council 

From:           Karen Ginsberg, Director of Community and Cultural Services

                    Andy Agle, Director, Housing and Economic Development

Subject:        Options for the future of the Santa Monica Civic Auditorium

 

 

Recommended Action

Staff recommends that the City Council:

1.     Review and comment on an interim use plan for the Civic Auditorium.

2.     Review and comment on options to manage and operate the Civic Auditorium.

3.     Review and comment on strategies to generate revenue for the renovation and operation of the Civic Auditorium.

4.     Review and comment on the concept of a Civic Auditorium as the hub of a Civic Center creative district and mixed-use cultural campus and preferred uses of the district.

5.     Direct staff to proceed with a community process and associated market feasibility and economic analyses and return to Council with recommendations for preferred uses and proposed modifications to the Civic Center Specific Plan as necessary.

6.     Authorize the budget changes as outlined in the Financial Impacts and Budget Actions section of this report.

 

Executive Summary

City Council held a study session on October 23, 2012 to discuss the future of the landmark Santa Monica Civic Auditorium (Civic) that will close on June 30, 2013.  At the study session Council directed staff to conduct additional research on potential sources of financing for the necessary renovation along with operating models that would allow the Civic to function as a cultural resource.  This report details the findings of this research and outreach, outlines a proposed interim use for the facility, and recommends a series of next steps to advance a long term plan for the Civic Auditorium Campus.


Background

The City cannot continue to operate the Civic “as is” for a variety of reasons, including:

 

 

 

 

 

 

Over the last seven years the City has examined a number of different ways to revitalize the Civic (see Attachment A – Annotated Bibliography for a complete list.) Prior to the dissolution of Redevelopment the City had planned to close the Civic Auditorium in summer 2013 to commence a $50M renovation.  However on August 14, 2012 Council authorized the suspension of the Civic renovation project as part of the contingency plan to address the impact of the loss of redevelopment funds on priority projects, and directed staff to develop alternatives for the rehabilitation of the Civic for a Council study session.

 

On October 23, 2012 Council held a study session to consider the future of the Civic.  At that meeting Council affirmed the intent to close the facility as planned and directed staff to return once additional research had been completed.  Specifically, staff was tasked with talking with stakeholders and experts in various fields to explore operating models that would allow the retention of the landmarked facility as a cultural resource; and to research potential sources of financing for the required renovation.  Council also expressed concern about the impact that mothballing might have on the building over time and asked that other interim options be explored.


Discussion

Interim Use

In response to Council’s concern, staff developed a plan that would help to ensure regular use of portions of the facility, and the on-going monitoring of key building systems, while keeping the area around the Civic in active use.  Under this plan the East Wing would be available for limited public events, as well as City activities such as community workshops, staff training activities, and personnel exams. Due to seismic safety concerns, use of the Main Hall would be restricted to non-public assembly uses, such as filming.  In addition, the parking lot could continue to be rented for a limited number of events, such as the Ford Fusion launch or base camps for film companies, as well as continuing to provide public parking.  Staff from the Community and Cultural Services Department would coordinate these activities.  Should any new policies or rates need to be established, staff would return to Council for approval at a later date.

 

Revenue from these interim activities, estimated at $155,000, would help to offset the associated staffing costs and on-going, nominal operating costs that are deemed necessary to maintain this historic asset, including utilities, insurance, security, custodial and landscaping services. Staff estimates that the basic costs of maintaining the facility would be approximately $250,000 annually.  In addition there would be some one-time costs associated with the closure in the amount of approximately $160,000.  Costs associated with the interim use are projected to be $115,000 for a total estimated expenditure of approximately $525,000 in FY 13-14 and $365,000 in FY 14-15.

 

Research and Outreach

In response to Council’s direction at the October 2012 study session, an interdepartmental group, including representatives from Community and Cultural Services, Housing and Economic Development and Planning Departments, conducted interviews with community stakeholders, such as the ‘Save the Civic’ group and experts in the fields of entertainment, financing, adaptive re-use and real estate development (please see Attachment B for a complete list of interviewees) to gather input on the following three broad questions:

 

In addition to the interview process, staff worked with the Urban Land Institute to convene a panel of experts to explore these and related questions.  On May 9 and 10, 2013, six high-level volunteer professionals in the fields of entertainment, architecture, convention center management, real estate development and public finance came together for two days of research and analysis, culminating with a public presentation of their findings. The executive summary of the panel’s report is included as Attachment C.

 

Finally, staff held a public meeting on June 4, 2013 to gather additional community input on these topics.  A summary and highlights of the community meeting will be included in the staff presentation to Council.

 

Summary of Key Findings

The additional research, interviews, focus groups and community meetings yielded a great deal of information which is summarized in this report in two broad sections: operating models and funding sources.  Additionally, staff believes that a number of assumptions and considerations emerged from the research that provide context for the policy discussion.

·       Needs in the current market include concerts, film/screening rooms and live theater.  Flexible space is important to accommodate different types of events. Black box theater spaces and smaller screening rooms are cheaper to build and equip than a grand concert venue.  However, a smaller space would not accommodate special “flagship” events, such as film festivals and award shows, or be financially viable for concerts.

 

·       Cultural facilities typically require subsidies for their construction and operation.

 

·       If the Civic is to be renovated as a large-scale, mixed-use, performing arts venue, the presence of a high profile “anchor” as a long-term partner (e.g. Golden Globes or the Independent Spirit Awards) could be leveraged for sponsorship revenue.

 

·       Any renovation of the Civic or building of additional improvements should make full use of the location, including incorporating outdoor space such as patios, balconies or rooftops.  Additional outdoor spaces could be utilized for performances, film screenings, dining space, and other activities or events.

 

·       Even with the arrival of light-rail, it is important to incorporate adjacent parking on or near the site, particularly for a performance venue.  

 

·       The overall site should better tie-in with the surrounding area.  The renovation of the Civic is an opportunity to activate the edges of the site along Pico Blvd and 4th St., as well as the intersection of Main/Pico.  Pedestrian/bike pathways through the site could promote enhanced connections to the surrounding neighborhoods. 

 

·       The Civic site is a great location with a large amount of underutilized adjacent land. 

 

·       The sooner the City moves forward in identifying a process and a project, the less potential negative impact the closure will have on the community, the building, its mechanical systems and its market position in the region.

 

 

Operating Models

Staff met with representatives from the major promoters and event operators in town, including AEG/Golden Voice, Live Nation, the Dolby Theater and Nederlander Entertainment.  Based on these interviews, and those with other entertainment industry experts, there continues to be a great deal of interest in the Civic Auditorium, primarily as a venue for concerts, and special events such as award shows and movie premieres.  Hotel operators and business partners such as the Convention and Visitors Bureau remain interested in the venue both for meeting space and as a venue for special events, such as a major film festival in conjunction with the American Film Market.  

 

In terms of operating the Civic as a mixed-use cultural facility, the City could:

 

Most of these options would require full renovation, at a cost of at least $50 million; although there were some stakeholders that felt that if basic infrastructure upgrades, such as seismic and ADA were completed the Civic could be a viable venue with additional facility improvements made over time.  The cost of such basic infrastructure upgrades was estimated at approximately $23 million, if undertaken as a stand-alone project.

 

There was no consensus among the experts interviewed on what might be the optimal approach in terms of the types of uses and operations beyond a general agreement that the Civic could be managed more cost effectively by the private sector, and the opinion that, cultural facilities with civic functions (e.g. non-commercial), require some level of direct or indirect subsidy.  Finally, it was noted that such facilities do have the potential to generate a great deal of ancillary economic activity, that produces indirect spending such as dining, shopping, hotel stays and parking revenue.  Please see Attachment D for a study completed by the Strategic Advisory Group on the potential economic impact of a renovated Civic Auditorium.

 

In summary, the experts interviewed felt that there is market demand for the facility, in particular due to its west side location and its demographic market, proximity to the beach and area attractions.  Additionally the economy has improved since the 2009 RFQ was issued by the City, which may generate more partnership/operating/management responses than before.

 

When the experts were asked about operational assumptions in areas such as programming, community use and the amount of investment that might be expected from a partner or lessee, staff consistently heard that there were different trade-offs to be anticipated for each, and that ultimately the final mix would be based on the specific


terms negotiated and the amount of risk that the City would be willing to bear.  The trade-offs could be viewed as a continuum where greater control over community use and programming content would require a greater investment/subsidy on the part of the City and diminished control over the facility and programming would most likely result in greater third-party investment.

 

Funding Sources

To raise the millions needed, depending on the amount and type of renovations to be made to the Civic, the City may need to seek voter-approved funding as well as leverage private resources.  In all likelihood, a combination of funding sources would be needed in order to fully renovate the facility and establish the type of mixed-use cultural venue envisioned by the community and documented through numerous planning efforts.  The specific combination of funding sources and/or financing approaches used would depend on the type of project ultimately programmed, the type of uses supported, the development/management model selected by the Council and, in particular, if the adjacent surface parking area is leveraged.  The two general financing approaches are described in greater detail below.

 

1.     Private Financing

Along with entertainment industry experts and community stakeholders, staff met with a number of private developers including Clarett West, Metropolitan Pacific, and the Related Companies.  The interview process confirmed that a sale or a long-term lease of the adjacent surface parking area to allow commercial development could produce significant financial return to the City.  Foreign investment, historic tax credits, and a fundraising campaign, including naming rights, could all also be viable sources of funding but would not generate adequate sums on their own.

 

The consensus was that the parking lot could be leveraged to generate a substantial revenue source as well as synergistic uses to support the Civic.  Options discussed included:

·       utilize the funding generated by a long-term ground lease on the adjacent site to fund the full renovation of the Civic of which:  a) the developer is responsible for the actual renovation and operation of the Civic; or b) the proceeds from the ground lease are used by the City to select another entity to renovate and operate the Civic;

 

·       seek a more cost effective adaptive re-use of the Civic, such as creative office, and utilize the funding generated by a long-term ground lease to construct a new, adjacent performing arts facility on the adjacent site.

 

·       a hybrid approach involving a combination of the concepts as outlined above.

 

However, it is possible that, depending on the types of permitted uses and overall approved density, this approach would not produce enough funding to finance the entire renovation of the Civic Auditorium.

 

Further, there was general agreement that this site offers opportunities to establish uses that will complement the Civic, help to create a new cultural campus and better integrate the site into the community.  Suggested examples of complementary uses included post-production and film director’s offices that would utilize the Civic’s screening rooms or recording studio amenities; small theatrical or rehearsal spaces, restaurants and bars to cater to cultural venue attendees; a hotel with meeting room space and catering to provide additional event space and meeting options in conjunction with the Civic.  They also felt that there is opportunity to attract expanding “Silicon Beach” firms to move to an arts and cultural district at the site.

 

2. Voter Approved Funding

Assessments, taxes and bonds are the three most common forms of voter-approved funding if an alternative revenue stream cannot be identified to finance a capital project.  The most likely option for the Civic Auditorium is a General Obligation (GO) bond.  Staff asked the City’s financial advisor to analyze a GO bond for the Civic Auditorium.  Under a GO bond, the tax levy to be assessed to property owners would be approximately $12.00 per $100,000 of assessed value.  Further, the City’s financial advisor felt that if this were to proceed, the optimum timing would most likely be 2016.  This is a large financing, and one that might be competing against other local priorities, such as any bonds or parcel taxes that might be proposed by the Santa Monica-Malibu Unified School District or Santa Monica College during the next 18 months.

 

Urban Land Institute (ULI) Findings and Recommendations

ULI is a 501(c) 3 non-profit research and education organization supported by its more than 35,000 worldwide members.  The mission of the organization is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.  ULI advisory services panels provide strategic advice to sponsors on complex land use and real estate development issues.  Panel members are volunteers.  The Santa Monica Civic Auditorium panel was chaired by John H. Alschuler, former Santa Monica City Manager and Chairman of HR&A Advisors, a firm that specializes in integrating finance with design to create distinctive places.  For example, the High Line in New York is one of their projects. Panel members included John S. Fisher, AIA, John Sergio Fisher & Associates (theater designer); Dan Massiello, Senior Vice President, Public Finance, Kosmont Companies (public finance expert); Mike Ross, Chief Executive Officer, Pasadena Center (convention and civic auditorium operator); Melani Smith, AICP, Principal, Melendrez (urban designer); Thomas W. Wulf, Senior Vice President, Lowe Enterprises (real estate developer).  Their process included review of an extensive briefing book, along with two days of interviews and discussion on site followed by a public presentation of their findings and recommendations.  As previously noted, the executive summary of the panel’s report is attached (Attachment C).

 

The findings enumerated in this report regarding the options for operating and financing the Civic Auditorium were reiterated and confirmed by the ULI panel.  They started their public presentation with the statement that “the City should save the Civic due to its cultural history, landmark status and the unusually high level of civic pride associated with the structure, even though it is not cost-effective to restore the building.”  And the panel noted that while there is no ‘silver bullet’, Santa Monica is fortunate to have options. 

 

In addition they stated that it is time to update the Auditorium Special Use District within the Civic Center Specific Plan and that the proposal to develop a soccer field as a shared use with Santa Monica High School is outdated.  Further the panel noted that the costs estimated of $50M for renovation were likely low for a top performing flexible space.

 

Finally they offered a clear vision for the creation of a new arts and cultural district, one that would encompass the entire 10 acre site.  In this vision, the Civic Auditorium becomes the hub of a diverse and dynamic mixed-use cultural campus that offers expanded events; accessible, flexible, programmed, public open space; complements Tongva Park; and knits together the urban fabric along Pico, Fourth and Main.  This vision is achieved by considering the Civic Auditorium within the context of a group of complementary revenue generating uses and developing the adjacent land in a harmonious way and that builds upon the growth of local creative industries.  

 

The ULI panel stated that implementation would require sustained commitment and the crafting of an imaginative, long-term and economically viable plan.  They recommended that the new district be managed by a separate non-profit entity, formed to oversee multiple private partners and manage the transparent use of cross-subsidies that would make the district’s operating budget possible.  Further they recommended that the City formulate a clear vision for the Civic Auditorium and the adjacent land prior to seeking partners or establishing such an entity. 

 

Timeline

The timeline for the renovation of the Civic Auditorium depends on the process and the approach that the City Council decides to pursue.  It is anticipated that any scenario would take a minimum of five years, and likely more, due to the need to complete or put in place the following elements: community visioning, financing, partnership development, planning, design and construction.  If the approach selected requires amending the Civic Center Specific Plan (CCSP), then the timeframe would be even longer.  Any change in land use, or modifications to the Civic Auditorium building beyond the 20,000 square feet envisioned in the CCSP, are examples of the types of changes that could likely trigger the need to amend the CCSP and completion of environmental review in accordance with the California Environmental Quality Act (CEQA).  Therefore, the sooner the City embarks on a process the less negative the impact of the closure will be on the building, its systems and the Civic’s position in the regional market.

 

Next Steps

There has been strong community and Council support for the renovation of the Civic Auditorium and enriched cultural programming at the landmark facility.  Prior to the loss of redevelopment the City had committed to renovating the building and operating it as a mixed-use cultural facility that would host concerts and theatrical productions, along with special events such as award shows and film screenings.  The lack of capital improvement funds has required the reevaluation of this vision and the overall economic viability of this approach.  If the Civic is to have a future as a signature community cultural resource for Santa Monica, a mix of funding from all available sources is likely to be needed for both the renovation and the long-term operation of the facility.  The ULI recommendation of the establishment of a cultural district where a renovated Civic Auditorium is the hub of a mixed-use creative campus offers a strategy to achieve this goal.

 

Staff requests Council direction to undertake the next steps in this process which would entail the completion of a community planning process akin to that which was undertaken for Bergamot Station Arts Center to clarify the preferred complement of uses at the site, as well as the preparation of associated market feasibility and economic analysis for the various cultural use and development options.  Concurrently staff would research and analyze existing examples and potential models for a non-profit management organization.  This process is envisioned to take approximately eighteen months at which time staff would return to Council with recommendations for preferred uses including identification of modifications to the Civic Center Specific Plan if necessary.

 

Alternatives

The City Council could decide not to proceed with a community planning and market feasibility/economic modeling process, and could instead pursue one of several options:

 

1.     City Council could direct staff to work with community members to identify and develop a local non-profit management group, who would be responsible for fundraising and overseeing the renovation and operations of the Civic.  The building would be “gifted” to the non-profit as a long-term $1/year ground lease.  This is akin to the Santa Barbara Bowl model, which has been very successful over time.  Per the Foundation’s website, over a twenty year period the organization prepared a master plan and then raised over $25M for the improvements that they have undertaken to date, with additional phases yet to be funded.  It is important to note that this approach is dependent on the emergence of a strong community group and that group’s ability to secure substantial funding for the initial renovation and long-term improvements.

 

2.     City Council could direct staff to issue an open-ended RFP for the renovation and long-term lease of the Civic Auditorium for any use, not simply a cultural use, with the understanding that the successful lessee would need to invest in bringing the building up to code.  This would result in saving the building, but not necessarily the civic function.  If the building were not utilized as a cultural facility, the proceeds from the ground lease could be invested in funds to support the arts and culture in Santa Monica. 

3.     City Council could sell the building to a private entity, for adaptive re-use, such as a technology or research campus, and invest the proceeds in a new cultural venue adjacent or elsewhere in Santa Monica, or in a fund to support the arts and culture in Santa Monica.  If the City were to pursue such an option, given the landmark status of the building and the significant seismic needs, the sales price could be relatively low.

 

Financial Impacts & Budget Actions

Costs associated with the basic maintenance of the facility as well as the interim use are projected to be approximately $525,000 in FY 13-14 and $365,000 in FY 14-15.  Revenues are anticipated to be approximately $155,000 a year.   The proposed FY13-15 budget included a preliminary estimate in the amount of $475,000 in expenditures and $105,000 in revenues.  Staff will adjust the amounts in the final budget to reflect the updated estimate for Council approval.

 

Implementing the recommendations to proceed with a community process and associated market feasibility and economic analyses will result in a one-time cost of approximately $260,000.  The remainder of the funds in the Civic Auditorium fund balance will be set aside to cover these costs.  Staff would return to Council to seek authorization to contract for specific professional services as needed.

 

Additional funding will be needed to cover future costs associated with any environmental review that may be required as a result of proposed amendments to the CCSP.

 

Prepared by: Jessica Cusick, Manager, Cultural Affairs

                    Jason Harris, Manager, Economic Development

Approved:

 

Forwarded to Council:

 

 

 

 

Karen Ginsberg, Director

Community and Cultural Services

 

 

_________________________________Andy Agle, Director

Housing and Economic Development

 

Rod Gould

City Manager

 

 

 

 

Attachments:

A – Annotated Bibliography

B – Interview List

C – Executive Summary – ULI Report

D – SAG Economic Impact Report