Merchants Leery of Mall Revival Costs

Although tenants and property owners in Santa Monica’s depressed Third Street Mall generally approve of the city’s $13-million plan to revive the shopping area, they are divided over ways to pay for it.

The City Council last week adopted a plan to save the aging outdoor mall by increasing parking and improving public areas and alleys and by starting an aggressive promotion campaign to bring in more businesses and customers.

At its meeting Tuesday the council must choose a method for financing. Under the plan developed by city’s Third Street Mall Corp., about $10 million could be raised through the sale of tax-exempt bonds. The city would provide an additional $3 million from the general fund.

Fee Would Be Assessed

Under the proposed formula the property owners would be assessed a fee, based on the number of square feet of space in their buildings, to pay off the bonds over 30 years. But merchants, who will face an increase in their business license tax to help pay for the maintenance of the mall, fear that the property owners will pass on their assessments to their tenants in the form of higher rents.

Mall merchants Faiz Rasul and Sylvia Gentile have formed the Third Street Mall Tenants Alliance to fight the proposed financing formula.

“The way the proposed financing is set up the tenants will pay the majority of the costs,” Rasul said.

Reacting to merchants’ concerns, the council last week supported Councilman Dennis Zane’s suggestion to direct the city staff to search for alternatives.

“The staff all along has been anxious to find an equitable and reasonable funding option,” Zane said. “We will look at it carefully.”

But he cautioned that a funding formula must be approved on Tuesday so the city has enough time to raise money by selling bonds before a change in the federal tax laws. The change, scheduled to go into effect Sept. 1, prohibits the sale of certain types of bonds. “The choices for the mall are either a slow death or an opportunity for a rebirth,” Zane said.

But mall tenants say the financing plan will enable the property owners to avoid paying for the benefits they get under the revitalization plan. And many merchants, who say they are struggling to stay in business, fear that they will pay most of the bills for the new mall.

Ed Wenner, a real estate developer on the mall and president of the Third Street Mall Property Owners Ass., acknowledged that most property owners will pass the assessment along to their tenants.

“That is always the case because the only way the property owner gets any money is from the tenants,” he said. “But he can’t get blood from a turnip, so he has a responsibility to create an environment to improve the tenants’ business.”

Joint Meeting

Wenner said he has called for a joint meeting of property owners and tenants on Aug. 26 to discuss way to cooperate in promoting the mall.

The mall improvements are designed to attract $100 million in investments, said Thomas Carroll, executive director of the Third Street Development Corp., which was formed to develop the rescue plan.

He said the mall will feature outdoor dining and specialty shops along with offices and residential units in an effort to bring business back to the mall while avoiding head-on competition with the neighboring Santa Monica Place indoor shopping mall.

The Third Street Mall--three blocks of shops in downtown Santa Monica--was built in 1965. After some initial success, it declined through the 1970s. When Santa Monica Place was built in 1980, it had an immediate negative effect on the mall, Carroll said.

Rasul suggested that property owners delay passing on the assessments to tenants until improvements on the mall are completed in August, 1989.

“Until that time the landowners should be not be able to pass on the assessments,” he said. “Once we see the benefits of the plan, there should be a gradual increase in our share of the assessments.”

Zane said that delaying some payments until after construction is completed is an idea worth evaluating. “The question is whether the city can afford it.”

Wenner said he did not know whether members of his organization would go along with Rasul’s suggested moratorium.

Wants Tenants to Stay

“But personally, if my tenants are disadvantaged, I will work with them because I want them to stay,” he said. “People have to take into account that there are two ways to solve the problem, one working together and the other passing the buck.

“Depending on the situation, sometimes somebody should absorb the costs, sometimes somebody else should absorb.”

The proposed assessment is $1.07 per square foot of building space on the mall, Zane said. If the city sells the bonds for a lower-than-anticipated interest rate, that could result in a lower rate of about 97 cents a square foot, he said.

But as more new businesses come into the mall, the assessment will decrease, Zane said. With more people paying, individual bills for each property owner or merchant will decrease.