Conditional Usecommissions.sfplanning.org/cpcpackets/2017-009224CUA.pdf · Changes space to Opera Plaza would include removal of the Cinema marquee on the Van Ness Avenue façade

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Executive Summary Conditional Use

HEARING DATE: MARCH 15, 2018 Date: June 18, 2018 Case No.: 2017-009224CUA Project Address: 601 VAN NESS AVENUE Zoning: RC-4 (Residential-Commercial High Density) Zoning District 130-V Height and Bulk District Van Ness Special Use District Block/Lot: 0762/027 Project Sponsor: Nathan Nishiguchi Opera Plaza, LP 601 Van Ness Avenue, Suite 2000 San Francisco, CA 94102 Staff Contact: Sara Vellve – (415) 558-6263 [email protected] Recommendation: Approval with Conditions

PROJECT DESCRIPTION The Project Sponsor proposes to change the use of a Movie Theatre (Opera Plaza Cinema) use to a Retail Sales and Services use by completing interior modifications of the approximately 6,381 square foot space. An expansion of the existing use size is not proposed. A specific retail tenant has not been identified. The Project does not propose any change to the size, shape, or arrangement of Opera Plaza itself, or the space that is occupied by the Cinema. Changes to the Cinema space would include reorganization of the theatre spaces, removal of the ticket booth and snack counter, and reconfiguration of bathrooms. The only façade change to the Cinema space would be reconfiguration of the storefront window system. Changes to Opera Plaza would include removal of the Cinema marquee on the Van Ness Avenue façade. No new on-site parking is proposed and the existing landscaping, garage screening, and open space would remain.

SITE DESCRIPTION AND PRESENT USE The Cinema is located in the Opera Plaza development, a full block, mixed-use condominium and retail development on an approximately 105,806 square foot parcel, bordered by Van Ness Avenue to the east, Golden Gate Avenue to the south, Franklin Street to the west, and Turk Street to the north. Opera Plaza consists of two commercial levels – a ground-floor plaza commercial level and a mezzanine office level – with a variety of commercial tenants including Peet’s Coffee, Max’s Opera Cafe, Books Inc., and Kaiser Permanente, among others. Residential condominiums are on the upper 11 floors. When Opera Plaza was constructed by the Project Sponsor in 1982, the property was located in the Western Addition A-2 Redevelopment Area. The A-2 Redevelopment Plan expired in 2009, and land use controls for the property were transferred to the Planning Department’s jurisdiction.

Executive Summary CASE NO. 2017-009224CUA Hearing Date: June 28, 2018 601 Van Ness Avenue

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The Cinema, in operation since 1984, is an approximately 6,380 square foot space located on the plaza/street level in the interior of the complex with no direct street frontage. It is comprised of two small movie theater auditoria (with 118 seats and 104 seats, respectively), two “screening rooms” (with 49 seats and 29 seats, respectively), and a concession area and restrooms. The Cinema operates daily, typically between 12 p.m. and 9 p.m. (depending on show times and special engagements), with more activity in the evening hours. The Project Sponsor has worked with Landmark Theatres to revise the Cinema’s lease agreement to retain the Movie Theatre use. For a number of years the Project Sponsor has significantly subsidized the Cinema’s costs to the point where the profit on a square footage basis is significantly less than market rate.

SURROUNDING PROPERTIES AND NEIGHBORHOOD The project site is located in the Van Ness Avenue corridor north of the Civic Center area. Surrounding properties are generally developed with mixed use buildings containing commercial ground-floor uses and residential uses above or government office buildings, including the California Public Utilities Commission building across Golden Gate Avenue and San Francisco City Hall located one block south.

ENVIRONMENTAL REVIEW The Project is exempt from the California Environmental Quality Act (“CEQA”) as a Class 1 categorical exemption.

HEARING NOTIFICATION

TYPE REQUIRED PERIOD

REQUIRED NOTICE DATE

ACTUAL NOTICE DATE

ACTUAL PERIOD

Classified News Ad 20 days 6/8/2018 6/6/2018 22 days

Posted Notice 20 days 6/8/2018 6/8/2018 20 days

Mailed Notice 20 days 6/8/2018 6/8/2018 20 days

PUBLIC COMMENT/COMMUNITY OUTREACH

As of June 18, 2018, the Department has received approximately 17 letters of opposition to the proposal.

The Van Ness Corridor Neighborhoods Council and the San Francisco Neighborhood Theatre

Foundation have expressed interest in retaining the theatre, but the Department is not aware of any specific proposal to further that goal.

ISSUES AND OTHER CONSIDERATIONS Pursuant to Planning Code Sections 202.4 and 303(j) the Project Sponsor has submitted a financial

analysis prepared by Economic & Planning Systems, Inc., which found that the Movie Theatre

Executive Summary CASE NO. 2017-009224CUA Hearing Date: June 28, 2018 601 Van Ness Avenue

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use is no longer economically viable and it cannot effect a reasonable economic return to the property owner and Project Sponsor, Opera Plaza, LLC. The analysis is attached.

The Project Sponsor has been in direct contact with Landmark Theatres and its CEO, Ted

Mundroff, regarding the Sponsor’s desire to bring a new tenant into the subject space. Landmark has not expressed opposition to the application. According to the Project Sponsor, The San Francisco Neighborhood Theater Foundation has contacted them and expressed an interest in partnering with Landmark to lease the Cinema, but has not extended an offer to collaborate.

The proposed use is a Retail Sales and Service Use; however, a specific tenant has not been

identified.

REQUIRED COMMISSION ACTION In order for the project to proceed, the Commission must grant Conditional Use Authorization pursuant to Planning Code Sections 202.4 & 303(j) to discontinue a Movie Theatre Use, or change it to another use.

BASIS FOR RECOMMENDATION • The Project Sponsor has submitted a financial analysis prepared by Economic & Planning

Systems, Inc, which found that the Movie Theatre use is no longer economically viable and it cannot effect a reasonable economic return to the property owner and Project Sponsor, Opera Plaza, LLC.

• The proposal could help to activate the interior retail core of the Opera Plaza development during normal business hours, which could help all retail operators in the development.

• The project meets all applicable requirements of the Planning Code. • The project is desirable for, and compatible with the surrounding neighborhood.

RECOMMENDATION: Approval with Conditions

Attachments: Draft Motion Parcel Map Sanborn Map Zoning District Map Aerial Photograph Site Photos Economic & Planning Systems, Inc. financial analysis Plans

www.sfplanning.org

Planning Commission Draft Motion HEARING DATE: JUNE 28, 2018

Case No.: 2017-009224CUA Project Address: 601 VAN NESS AVENUE Zoning: RC-4 (Residential-Commercial High Density) Zoning District 130-V Height and Bulk District Van Ness Special Use District Block/Lot: 0762/027 Project Sponsor: Nathan Nishiguchi Opera Plaza, LP 601 Van Ness Avenue, Space 2000 San Francisco, CA 94102 Staff Contact: Sara Vellve – (415) 558-6263 [email protected]

ADOPTING FINDINGS RELATING TO THE APPROVAL OF CONDITIONAL USE AUTHORIZATION PURSUANT TO SECTIONS 202.4 AND 303(j) OF THE PLANNING CODE TO ALLOW A CHANGE OF USE OF THE OPERA PLAZA CINEMA FROM A MOVIE THEATER USE TO A RETAIL SALES AND SERVICES USE WITHIN THE RC-4 (RESIDENTIAL-COMMERCIAL HIGH DENSITY) DISTRICT, THE VAN NESS SPECIAL USE DISTRICT AND THE 130-V HEIGHT AND BULK DISTRICT, AND ADOPTING FINDINGS UNDER THE CALIFORNIA ENVIRONMENTAL QUALITY ACT. PREAMBLE On July 21, 2017, Nathan Nishiguchi on behalf of Opera Plaza, LP(hereinafter “Project Sponsor”) filed an Application No. 2017-009224CUA (hereinafter “Application”) with the Planning Department (hereinafter “Department”) for Conditional Use Authorization under Planning Code Sections 202.4 and 303(j) to allow a change of use of the Opera Plaza Cinema (hereinafter “Cinema”) to a Retail Sales and Services Use (hereinafter “Project”) at 601 Van Ness Avenue, Block 0762/027 (hereinafter “Project Site”).

The Planning Department Commission Secretary is the custodian of records; the File for Case No. 2017-009224CUA is located at 1650 Mission Street, Space 400, San Francisco, California. On June 28, 2018, the San Francisco Planning Commission (hereinafter “Commission”) conducted a duly noticed public hearing at a regularly scheduled meeting on Conditional Use Application No. 2017-009224CUA. The Project is exempt from the California Environmental Quality Act (“CEQA”) as a Class 1 categorical exemption.

Draft Motion July 28, 2018

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RECORD NO. 2017-009224CUA 601 Van Ness Avenue

The Commission has heard and considered the testimony presented to it at the public hearing and has further considered written materials and oral testimony presented on behalf of the applicant, Department staff, and other interested parties. MOVED, that the Commission hereby authorizes the Conditional Use as requested in Application No. 2017-009224CUA., subject to the conditions contained in “EXHIBIT A” of this motion, based on the following findings: FINDINGS Having reviewed the materials identified in the preamble above, and having heard all testimony and arguments, this Commission finds, concludes, and determines as follows:

1. The above recitals are accurate and constitute findings of this Commission.

2. Project Description. The Project Sponsor proposes to change the use of a Movie Theatre (Opera Plaza Cinema) use to a Retail Sales and Services use by completing interior modifications of the approximately 6,381 square foot space. An expansion of the existing use size is not proposed. A specific retail tenant has not been identified.

The Project does not propose any change to the size, shape, or arrangement of Opera Plaza itself, or the space that is occupied by the Cinema. Changes to the Cinema space would include reorganization of the theatre spaces, removal of the ticket booth and snack counter, and reconfiguration of bathrooms. The only façade change to the Cinema space would be reconfiguration of the storefront window system. Changes to Opera Plaza would include removal of the Cinema marquee on the Van Ness Avenue façade. No new on-site parking is proposed and the existing landscaping, garage screening, and open space would remain.

3. Site Description and Present Use. The Cinema is located in the Opera Plaza development, a full block, mixed-use condominium and retail development on an approximately 105,806 square foot parcel, bordered by Van Ness Avenue to the east, Golden Gate Avenue to the south, Franklin Street to the west, and Turk Street to the north. Opera Plaza consists of two commercial levels – a ground-floor plaza commercial level and a mezzanine office level – with a variety of commercial tenants including Peet’s Coffee, Max’s Opera Cafe, Books Inc., and Kaiser Permanente, among others. Residential condominiums are on the upper 11 floors. When Opera Plaza was constructed by the Project Sponsor in 1982, the property was located in the Western Addition A-2 Redevelopment Area. The A-2 Redevelopment Plan expired in 2009, and land use controls for the property were transferred to the Planning Department’s jurisdiction.

The Cinema, in operation since 1984, is an approximately 6,380 square foot space located on the plaza/street level in the interior of the complex with no direct street frontage. It is comprised of two small movie theater auditoria (with 118 seats and 104 seats, respectively), two “screening rooms” (with 49 seats and 29 seats, respectively), and a concession area and restrooms. The Cinema operates daily, typically between 12 p.m. and 9 p.m. (depending on show times and special engagements), with more activity in the evening hours.

The Project Sponsor has worked with Landmark Theatres to revise the Cinema’s lease agreement to retain the Movie Theatre use. For a number of years the Project Sponsor has significantly


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subsidized the Cinema’s costs to the point where the profit on a square footage basis is significantly less than market rate.

4. Surrounding Properties and Neighborhood. The project site is located in the Van Ness Avenue

corridor north of the Civic Center area. Surrounding properties are generally developed with mixed use buildings containing commercial ground-floor uses and residential uses above or government office buildings, including the California Public Utilities Commission building across Golden Gate Avenue and San Francisco City Hall located one block south.

5. Public Outreach and Comments. The Project Sponsor has been in direct contact with Landmark Theatres and its CEO, Ted Mundroff, regarding the Sponsor’s desire to bring a new tenant into the subject space. Landmark has not expressed opposition to the application. According to the Project Sponsor, The San Francisco Neighborhood Theater Foundation has contacted them and expressed an interest in partnering with Landmark to lease the Cinema, but has not extended an offer to collaborate.

The Van Ness Corridor Neighborhoods Council has expressed interest in retaining the theatre. As of June 18, 2018, the Department has received approximately 17 letters of opposition to the proposal.

6. Planning Code Compliance. The Commission finds that the Project is consistent with the relevant provisions of the Planning Code in the following manner:

A. Movie Theatre Change of Use. Planning Code Sections 202.4 states that a Conditional Use

Authorization is required for conversion of a movie theatre use, and Planning Code Section 303(j) provides specific findings for such conversions.

The Opera Plaza Cinema has operated at the premises since 1984. The subject proposal is to convert the movie theatre of approximately 6,381 square feet into a Retail Sales and Services Use. (A) Preservation of a movie theatre use is no longer economically viable and cannot effect a

reasonable economic return to the property owner; (i) For purposes of defining “reasonable economic return,” the Planning Commission

shall be guided by the criteria for “fair return on investment” as set forth in Section 102.

The Project Sponsor commissioned an economic analysis of the Cinema, which was prepared by Economic & Planning Systems, Inc., and which has been submitted to the Planning Department, and is an Exhibit to this document. The key findings of this analysis are: 1. The Cinema has been unable to generate a reliable monthly revenue stream since 2008. Between

2013 and 2017, there were eight months of net loss where the Cinema was unable to make any monthly payment and the Project Sponsor subsidized the Cinema’s operation.


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2. The monthly payments, when made, are significantly below both the existing market rate for this space and the per square foot payments made before the 2008 recession, as compared with other Opera Plaza tenants and the current market.

3. The existing lease and lease amendment are structured such that the Project Sponsor is

supporting the operational viability of the Cinema at its own expense. A summary of the Cinema’s financial situation is as follows: Over the last five years, the profitability of the Cinema has deteriorated, such that it is no longer economically viable to the Project Sponsor and property owner, Opera Plaza, LLC. This is due to a number of factors, including its challenging location (in the back of Opera Plaza with no street visibility), its small size, and the changing landscape of the movie industry. Landmark Theaters, which operates the Cinema, pays the Project Sponsor an “Occupancy Cost” that is equal to their Monthly Revenues (i.e., movie ticket / food sales), less Monthly Expenses (i.e., payroll, film rentals, management fees), but does not pay a fixed rent or pay any portion of the Cinema’s operating expenses (including water, electric or trash expenses) or CAM (common area expenses); Project Sponsor pays these expenses directly whether or not there is sufficient income from the Cinema. This is a non-traditional model, as compared with other tenants of Opera Plaza. Since 2011 the Project Sponsor has seen a significant net loss in income from the Cinema for three years (2011, 2012, and 2016). Because there is significant fluctuation in overall income from the Cinema from year to year, due to the popularity of the movies from that year and other market conditions, the economic viability of the current use is best analyzed on an average basis. From a broader perspective, over the last 6.5 years the Project Sponsor has received only $119,000 of total income, which equates to an average annual income of only $18,307, or $2.86 per square foot annually. For purposes of comparison, one of Opera Plaza’s more recent tenants in a 6,214 square foot comparably sized space pays a total of $12,000 in monthly rent, with an additional payment of $6,800 in operating expenses, for a total of approximately $225,000 per year ($36 per square foot net). This provides the Project Sponsor with $144,000 of net annual income (after paying operating expenses), which comes to $18.35 per square foot gross, almost 5 times the revenue associated with the Cinema per square foot. Currently, the market rents that Project Sponsor is achieving are even higher – in the range of $40-$50 per square foot (net). Due to the low net income from the current movie theater use, the Cinema is no longer economically viable and cannot generate a reasonable economic return to the Project Sponsor.

(B) The change of use or demolition of the movie theatre use will not undermine the economic diversity and vitality of the surrounding District. The change in use from Movie Theater to Retail Sales and Services will not undermine the economic diversity and vitality of the surrounding area. Opera Plaza and the neighborhood will continue to have active commercial and retail ground-floor uses, while the addition of a new Retail Sales and Service use in the development’s interior cluster will help to bring a consistent flow of people into the plaza at typical retail hours which will benefit surrounding retail and service uses.


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(C) The resulting project will preserve the architectural integrity of important historic features of

the movie theatre use affected. The Opera Plaza development was constructed in 1982 and has not been designated a historic resource. The building is listed as Category B – Unknown / Age eligible, is only 36 years old and the change in use will not result in a demolition or major alteration of the building. Interior modifications to the Cinema space would be made to accommodate a Retail Sales and Services tenant. The Opera Plaza Cinema was established 1984 and has not been designated a historic landmark, a historic resource, eligible for either the National Register or California Register, nor a contributor to an existing historic district. As the Cinema faces an interior court yard, any storefront modifications would not be visible from Van Ness Avenue. The Cinema’s interior has been reconfigured throughout the years to accommodate the changing theater use.

B. Retail Sales and Services Use: Planning Code Section 209.3 principally permits Retail Sales

and Services uses are on the ground floor in the RC-4 district.

The space to be converted to a Retail Sales and Services Use is located on the ground floor of the Opera Plaza development.

C. Use Size: Planning Code Section 209.3 requires Conditional Use authorization for a non-

residential use size of 6,000 square feet or larger in the RC-4 district.

The Cinema currently occupies a space of approximately 6,380 square feet, and a future Retail Sales and Services Use would not expand the use size. The use size is considered to be an existing, non-conforming aspect of the development and no specific entitlement for the use size is necessary.

D. Parking. Planning Code Section 151.1 of the Planning Code does not require off-street parking for commercial uses in the RC-4 zoning district.

The change of use from a Movie Theater to a Retail Sales and Services Use will not require the addition of any off-street parking. The development includes a fee-based parking garage with approximately 300 spaces available for visitors.

E. Bicycle Parking. Section 155.1.1 of the Planning Code requires one Class 1 and two Class 2 bicycle parking space for the proposed Retail Sales and Services Use.

The Opera Plaza development provides 35 Class 1 and Class 2 parking spaces, sufficient to satisfy this requirement.

F. Signage. Article 6 of the Planning Code controls signage for the site.

Currently, a marquee for the Cinema is located on the Van Ness Avenue façade. Should the Cinema cease to operate, the Conditions of Approval will require its removal. Any new signage would be subject to the Planning Code limitations and require review and approval from the Planning Department.


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7. Conditional Use Findings. Planning Code Section 303 establishes criteria for the Planning Commission to consider when reviewing applications for Conditional Use authorization. On balance, the project complies with said criteria in that:

A. The proposed new uses and building, at the size and intensity contemplated and at the

proposed location, will provide a development that is necessary or desirable, and compatible with, the neighborhood or the community.

The proposed Retail Sales and Services use is compatible with both the surrounding mixed-use neighborhood and the other uses within Opera Plaza. Such uses include dwelling units, restaurants, professional offices, health services, offices, and retail stores. Additionally, existing plaza or street level uses will not be impacted by the conversion, and Opera Plaza as a whole will continue to have active commercial and ground-floor retail uses without the Movie Theater use. The surrounding neighborhood is likewise a mix of retail and professional services uses, governmental offices, and residential mixed-use buildings. The size and intensity of the proposed Retail Sales and Services use is compatible with other such uses within Opera Plaza. For instance, Books Inc. is approximately 5,423 square feet; Max’s Opera Cafe is approximately 5,040 square feet; and the Italian Cultural Institute is approximately 6,214 square feet. Additionally, the Project does not propose to add any square footage to Opera Plaza or subject retail space.

B. The proposed project will not be detrimental to the health, safety, convenience or general

welfare of persons residing or working in the vicinity. There are no features of the project that could be detrimental to the health, safety or convenience of those residing or working the area, in that:

(1) Nature of proposed site, including its size and shape, and the proposed size, shape and arrangement of structures;

The Project proposes no change in the size, shape, or arrangement of Opera Plaza itself, or the space that is currently occupied by the Cinema.

(2) The accessibility and traffic patterns for persons and vehicles, the type and volume of such traffic, and the adequacy of proposed off-street parking and loading;

The Project site is well served by public transit, with multiple public transit alternatives (MUNI Bus lines 5-Fulton, 5R-Fulton Rapid, 7X-Noriega Express, 19-Polk, 47-Van Ness and 49-Van Ness/Mission; Civic Center BART/MUNI; Van Ness MUNI) within one to five blocks. Additionally, the Project site is directly adjacent to Van Ness Avenue and Franklin Streets, both major thoroughfares which provide ready access to those driving.

Parking is available either along surrounding neighborhood streets or within the underground Opera Plaza parking garage, already existing on-site. This garage provides 300 self-park and valet parking spaces available to retail sales and services visitors, and is open to


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the public for an hourly fee. Access to the parking would not change as a result of the subject space’s occupant or use.

The Planning Code does not require off-street loading for the proposed use size, however, an existing loading dock in Opera Plaza along Franklin Street is available should a future occupant need such an amenity.

(3) The safeguards afforded to prevent noxious or offensive emissions such as noise, glare, dust and odor; Appropriate measures will be taken to minimize the generation of and impacts from noise, dust and odor as required by law during the tenant improvement construction. Should future uses be proposed that may cause noise or odor, they will be required to abide by standard conditions of approval applicable to the use.

(4) Treatment given, as appropriate, to such aspects as landscaping, screening, open spaces, parking and loading areas, service areas, lighting and signs; No exterior improvements, beyond façade modifications needed to accommodate the space’s change of use, are proposed for the Project. No other work, such as landscaping, screening or the addition of open space or parking is proposed, or required, for the Project.

C. That the use as proposed will comply with the applicable provisions of the Planning Code and will not adversely affect the General Plan.

The Project complies with all relevant requirements and standards of the Planning Code and is consistent with objectives and policies of the General Plan as detailed below.

D. That the use as proposed would provide development that is in conformity with the purpose

of the applicable Residential-Commercial District.

RD-4 District: The proposed Retail Sales and Services use conforms with the stated purposes of the RC-4 district, which include (1) providing commercial uses that support existing residential uses, (2) at the ground floor level, that (3) meet the needs to nearby residents (4) without generating excessive vehicular traffic. Van Ness Special Use District: The proposed Retail Sales and Services use conforms with the stated purposes of the Van Ness Special Use District, which include (1) a mix of residential and commercial uses and (2) enhancement of pedestrian environment and urban design quality. The Project will add an active use during regular business hours on Opera Plaza’s ground floor, provide a use that will meet the needs of nearby residents, and not generate excessive vehicular traffic given the availability of public transit options in the area. The proposal preserves the existing mixed-use nature of Opera Plaza, and by replacing a low-volume theater with a new Retail Sales and Services use, the Project will help to activate Opera Plaza and thereby enhance the pedestrian environment.


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8. General Plan Compliance. The Project is, on balance, consistent with the following Objectives and Policies of the General Plan:

COMMERCE AND INDUSTRY ELEMENT

Objectives and Policies

OBJECTIVE 1: MANAGE ECONOMIC GROWTH AND CHANGE TO ENSURE ENHANCEMENT OF THE TOTAL CITY LIVING AND WORKING ENVIRONMENT.

POLICY 1.1: Encourage development which provides substantial net benefits and minimizes undesirable consequences. Discourage development which has substantial undesirable consequences that cannot be mitigated.

As found by the analysis of Economic & Planning Systems, Inc, the Cinema is not financially viable, and the costs for maintaining its operation have been consistently borne by Project Sponsor. Thus, there are net losses and undesirable consequences, rather than substantial net benefits. The Project seeks to maximize the potential for the space and replace the existing use with a vibrant Retail Sales and Services use. In so doing, there is a net benefit for Opera Plaza’s other tenants, the surrounding neighborhood, and ultimately the City. Specifically, replacing this underutilized space with a new retail sales and services use will activate Opera Plaza by creating more foot traffic, bring additional visitors to this commercial corridor, and further the City’s policies around activation, urban design, and full utilization of space.

POLICY 1.2: Assure that all commercial and industrial uses meet minimum, reasonable performance standards.

The existing movie theater use is not meeting reasonable performance standards; for the property owner, the Cinema is operating at a net loss in certain years, and is only able to continue operating through subsidies provided by the Project Sponsor. The Project would replace the Movie Theatre use with a Retail Sales and Services use that can meet minimum, reasonable performance standards for the property owner.

OBJECTIVE 6: MAINTAIN AND STRENGTHEN VIABLE NEIGHBORHOOD COMMERCIAL AREAS EASILY ACCESSIBLE TO CITY RESIDENTS.

POLICY 6.1: Ensure and encourage the retention and provision of neighborhood-serving goods and services in the city's neighborhood commercial districts, while recognizing and encouraging diversity among the districts.

The Project retains the neighborhood sales and services uses existing within Opera Plaza, while improving an underutilized space with a new Retail Sales and Service use. The Project Sponsor believes that the overall commercial neighborhood will benefit by installing a use that increases retail activity.


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POLICY 6.4: Encourage the location of neighborhood shopping areas throughout the city so that essential retail goods and personal services are accessible to all residents.

The Project proposes a new Retail Sales and Services use along the Van Ness corridor. The Project Site is well served by public transit, with multiple public transit alternatives (MUNI Bus lines 5-Fulton, 5R-Fulton Rapid, 7X-Noriega Express, 19-Polk, 47-Van Ness and 49-Van Ness/Mission; Civic Center BART/MUNI; Van Ness MUNI) within close walking distance. Additionally, the Project site is directly adjacent to Van Ness Avenue, Franklin/Gough Streets, Golden Gate Avenue and Turk Street, major thoroughfares which provide ready access to those driving. Thus, the Project is easily accessed by residents throughout the city, and will augment and improve an existing neighborhood retail core that needs active and vibrant uses to remain an asset to the community.

POLICY 6.9: Regulate uses so that traffic impacts and parking problems are minimized

The Project will utilize the existing Opera Plaza garage, and does not propose any increase in parking. Additionally, and as noted above, the Project Site is readily accessible by public transit, and is within the pedestrian-friendly Van Ness corridor.

VAN NESS AVENUE AREA PLAN

OBJECTIVE 1: CONTINUE EXISTING COMMERICAL USES AND ADD A SIGNIFICANT INCREMENT OF NEW HOUSING.

POLICY 1.1: Encourage development of high density housing above a podium of commercial uses in new construction or substantial expansion of existing buildings.

The Project is located within an existing mixed-use development, with 11 floors of condominiums above two floors of retail sales and personal service uses, office uses, and a parking garage.

9. Planning Code Section 101.1(b) establishes eight priority-planning policies and requires review of permits for consistency with said policies. On balance, the project does comply with said policies in that:

A. That existing neighborhood-serving retail uses be preserved and enhanced and future

opportunities for resident employment in and ownership of such businesses be enhanced.

The existing active ground-floor retail and commercial uses of Opera Plaza will be maintained. The addition of a new Retail Sales and Services use will increase the potential for resident employment, while also further enlivening Opera Plaza and positively contributing to existing businesses in the development and neighborhood.

B. That existing housing and neighborhood character be conserved and protected in order to preserve the cultural and economic diversity of our neighborhoods.


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The Project is to change the use of a commercial space and does not involve any residential use or dwelling unit. Neighborhood character will remain unchanged as the building envelope is not proposed to change.

C. That the City’s supply of affordable housing be preserved and enhanced, The Proposal is to change the use of a commercial space and does not involve any residential unit or building.

D. That commuter traffic not impede MUNI transit Services or overburden our streets or neighborhood parking.

The Project replaces a Movie Theater use with a Retail Sales and Services use that is not dependent on private vehicle use. The modest amount of traffic associated with the Project will not differ significantly from traffic that was already created by the Movie Theater use, and is not expected to impede MUNI or other public transit, nor neighborhood parking. The Project site is located in a transit-rich area, with multiple public transit alternatives (MUNI Bus lines 5-Fulton, 5R-Fulton Rapid, 7X-Noriega Express, 19-Polk, 47-Van Ness and 49-Van Ness/Mission; Civic Center BART/MUNI; Van Ness MUNI) within close walking distance. It is anticipated that these easily accessible public transportation options will be utilized by the majority of the Project’s visitors. Parking is available either along surrounding neighborhood streets or within the 300-space underground Opera Plaza parking garage, already existing on-site. The Project Sponsor expects that most visits will be from residents of the Opera Plaza development and surrounding neighborhood by public transit or on foot.

E. That a diverse economic base be maintained by protecting our industrial and Services sectors from displacement due to commercial office development, and that future opportunities for resident employment and ownership in these sectors be enhanced.

Discontinuing the Movie Theatre use does not threaten an industrial or service sector establishment at the subject property. Non-Retail Sales and Service Uses, in which the General Office use is included, is not permitted in the RC-4 District.

F. That the City achieve the greatest possible preparedness to protect against injury and loss of life in an earthquake.

All construction associated with the tenant improvement will be done in compliance with applicable San Francisco Building and Fire Code fire and life safety standards, adhering to all emergency code requirements.

G. That landmarks and historic buildings be preserved.

Opera Plaza was constructed in 1982 and has not been designated an historic resource. No demolition or major alteration of the building is proposed. Interior modifications would be made to the space to accommodate a Retail Sales and Services tenant. The Opera Plaza Cinema was established 1984 and has not been designated a historic landmark, a historic resource, eligible for either the National Register or California Register, nor a contributor to an existing historic district. As the Cinema faces an interior court yard, any storefront modifications


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would not be visible from Van Ness Avenue. The Cinema’s interior has been reconfigured throughout the years to accommodate the changing theater use.

H. That our parks and open space and their access to sunlight and vistas be protected from development.

A building expansion subject to Planning Code Section 295 is not proposed.

10. The Project is consistent with and would promote the general and specific purposes of the Code provided under Section 101.1(b) in that, as designed, the Project would contribute to the character and stability of the neighborhood and would constitute a beneficial development.

11. The Commission hereby finds that approval of the Conditional Use Authorization would

promote the health, safety and welfare of the City.


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DECISION That based upon the Record, the submissions by the Applicant, the staff of the Department and other interested parties, the oral testimony presented to this Commission at the public hearings, and all other written materials submitted by all parties, the Commission hereby APPROVES Conditional Use Authorization Application No. 2017-009224CUA subject to the following conditions attached hereto as “EXHIBIT A” in general conformance with plans on file, dated March 20, 2018 and stamped “EXHIBIT B”, which is incorporated herein by reference as though fully set forth. APPEAL AND EFFECTIVE DATE OF MOTION: Any aggrieved person may appeal this Conditional Use Authorization to the Board of Supervisors within thirty (30) days after the date of this Motion. The effective date of this Motion shall be the date of this Motion if not appealed (after the 30-day period has expired) OR the date of the decision of the Board of Supervisors if appealed to the Board of Supervisors. For further information, please contact the Board of Supervisors at (415) 554-5184, City Hall, Room 244, 1 Dr. Carlton B. Goodlett Place, San Francisco, CA 94102. Protest of Fee or Exaction: You may protest any fee or exaction subject to Government Code Section 66000 that is imposed as a condition of approval by following the procedures set forth in Government Code Section 66020. The protest must satisfy the requirements of Government Code Section 66020(a) and must be filed within 90 days of the date of the first approval or conditional approval of the development referencing the challenged fee or exaction. For purposes of Government Code Section 66020, the date of imposition of the fee shall be the date of the earliest discretionary approval by the City of the subject development. If the City has not previously given Notice of an earlier discretionary approval of the project, the Planning Commission’s adoption of this Motion, Resolution, Discretionary Review Action or the Zoning Administrator’s Variance Decision Letter constitutes the approval or conditional approval of the development and the City hereby gives NOTICE that the 90-day protest period under Government Code Section 66020 has begun. If the City has already given Notice that the 90-day approval period has begun for the subject development, then this document does not re-commence the 90-day approval period. I hereby certify that the Planning Commission ADOPTED the foregoing Motion on July 28, 2018. Jonas P. Ionin Commission Secretary AYES: NAYS: ABSENT: ADOPTED: July 28, 2018

Draft Motion June 18, 2018

Exhibit A - 1

Record No. 2017-009224CUA 601 Van Ness Avenue

EXHIBIT A AUTHORIZATION This authorization is for a conditional use to allow a Change of Use from, or Discontinuance of, a Movie Theatre use (d.b.a. Opera Plaza Cinema) located at 601 VAN NESS AVENUE, Block 0672 & Lot 027 pursuant to Planning Code Section(s) 202.4 and 303(j) within the RC-4 (Residential-Commercial High Density) Zoning District, Van Ness Special Use District and a 130-V Height and Bulk District; in general conformance with plans, dated XXXXXX, and stamped “EXHIBIT B” included in the docket for Case No. 2017-009224CUA and subject to conditions of approval reviewed and approved by the Commission on June 28, 2018 under Motion No XXXXXX. This authorization and the conditions contained herein run with the property and not with a particular Project Sponsor, business, or operator. RECORDATION OF CONDITIONS OF APPROVAL Prior to the issuance of the building permit or commencement of use for the Project the Zoning Administrator shall approve and order the recordation of a Notice in the Official Records of the Recorder of the City and County of San Francisco for the subject property. This Notice shall state that the project is subject to the conditions of approval contained herein and reviewed and approved by the Planning Commission on June 28, 2018 under Motion No XXXXXX. PRINTING OF CONDITIONS OF APPROVAL ON PLANS The conditions of approval under the 'Exhibit A' of this Planning Commission Motion No. XXXXXX shall be reproduced on the Index Sheet of construction plans submitted with the site or building permit application for the Project. The Index Sheet of the construction plans shall reference to the Conditional Use authorization and any subsequent amendments or modifications. SEVERABILITY The Project shall comply with all applicable City codes and requirements. If any clause, sentence, section or any part of these conditions of approval is for any reason held to be invalid, such invalidity shall not affect or impair other remaining clauses, sentences, or sections of these conditions. This decision conveys no right to construct, or to receive a building permit. “Project Sponsor” shall include any subsequent responsible party. CHANGES AND MODIFICATIONS Changes to the approved plans may be approved administratively by the Zoning Administrator. Significant changes and modifications of conditions shall require Planning Commission approval of a new Conditional Use authorization.


Exhibit A - 2


Conditions of Approval, Compliance, Monitoring, and Reporting PERFORMANCE

1. Validity. The authorization and right vested by virtue of this action is valid for three (3) years from the effective date of the Motion. The Department of Building Inspection shall have issued a Building Permit or Site Permit to discontinue and change the use within this three-year period. For information about compliance, contact Code Enforcement, Planning Department at 415-575-6863, www.sf-planning.org

2. Expiration and Renewal. Should a Building or Site Permit be sought after the three (3) year

period has lapsed, the project sponsor must seek a renewal of this Authorization by filing an application for an amendment to the original Authorization or a new application for Authorization. Should the project sponsor decline to so file, and decline to withdraw the permit application, the Commission shall conduct a public hearing in order to consider the revocation of the Authorization. Should the Commission not revoke the Authorization following the closure of the public hearing, the Commission shall determine the extension of time for the continued validity of the Authorization. For information about compliance, contact Code Enforcement, Planning Department at 415-575-6863, www.sf-planning.org

3. Diligent pursuit. Once a site or Building Permit has been issued, construction must commence

within the timeframe required by the Department of Building Inspection and be continued diligently to completion. Failure to do so shall be grounds for the Commission to consider revoking the approval if more than three (3) years have passed since this Authorization was approved. For information about compliance, contact Code Enforcement, Planning Department at 415-575-6863, www.sf-planning.org

4. Extension. All time limits in the preceding three paragraphs may be extended at the discretion of

the Zoning Administrator where implementation of the project is delayed by a public agency, an appeal or a legal challenge and only by the length of time for which such public agency, appeal or challenge has caused delay. For information about compliance, contact Code Enforcement, Planning Department at 415-575-6863, www.sf-planning.org

5. Conformity with Current Law. No application for Building Permit, Site Permit, or other

entitlement shall be approved unless it complies with all applicable provisions of City Codes in effect at the time of such approval. For information about compliance, contact Code Enforcement, Planning Department at 415-575-6863, www.sf-planning.org

6. Marquee Signage. The Project Sponsor shall remove the Cinema marquee when the use is

discontinued upon approval of a Building Permit Application..

http://www.sf-planning.org/






Exhibit A - 3


For information about compliance, contact the Case Planner, Planning Department at 415-558-6378, www.sf-planning.org


Parcel Map

SUBJECT PROPERTY

Conditional Use Authorization Case Number2017-009224CUA Opera Plaza Cinema 601 Van Ness Avenue

*The Sanborn Maps in San Francisco have not been updated since 1998, and this map may not accurately reflect existing conditions.

Sanborn Map*

SUBJECT PROPERTY

TURK STREET

FRAN

KLIN

STR

EET

VAN

NESS

AVE

NUE

GOLDEN GATE AVENUE


Aerial Photo

SUBJECT PROPERTY


Zoning Map

SUBJECT PROPERTY


Site Photo on Van Ness Avenue

SUBJECT PROPERTY


Site Photos

Marquee to be Removed

Cinema Entry


M E M O R A N D U M

To: Nathan Nishiguchi, COO & Head of Acquisitions, Pacific Union Development Company (PUDC)

From: Economic & Planning Systems, Inc.

Subject: San Francisco Planning Code Section 303(j) Finding (A) Analysis for the Opera Plaza Cinema; EPS #171143

Date: December 22, 2017

Economic & Planning Systems (EPS) was retained by Pacific Union Development Company (PUDC) to prepare an analysis summarizing the financial information relating to the economic viability of the Opera Plaza Cinema, currently operated by Landmark Theater/Silver Cinemas Acquisition Co. This analysis is meant to provide the San Francisco Planning Commission and Planning Department an evaluation from third party professionals regarding the conversion of the Cinema. More specifically, the findings are to directly respond to 303(j) Finding (A) as directed in the Notice of Planning Department Requirements #1 (see Attachment A).

Key F ind ings

1. The Cinema is struggling with its monthly revenue stream despite the end of the recession. Opera Plaza Cinema had eight months of net loss during 2013 to 2017, resulting in no monthly payments during those periods to Opera Plaza.

2. Over the course of the last five years, monthly payments to the Landlord are significantly below the per square foot payments made before the recession, as compared to other tenants of Opera Plaza, and current market rates.

3. The existing lease amendment is supporting the operational viability of the Cinema at the expense of the Landlord. Without the amendment or other means of financial support, Cinema operations would be infeasible.

Background

The Opera Plaza Cinema (Cinema), located in Opera Plaza and operated by Landmark Theaters/Silver Cinemas Acquisition Co., is a 6,381-square foot movie theater programmed with independent and foreign films. While the Cinema was built in 1984 to attract foot traffic through Opera Plaza’s other amenities (i.e., retail, restaurants, and offices), the 2008 economic recession made the original lease agreement financially challenging for the Cinema.

Memorandum December 22, 2017 San Francisco Planning Code Section 303(j) Analysis for Opera Plaza Cinema Page 2

P:\171000s\171143VanNess\Deliverable\171143_DraftAnalysis.docx

On August 24, 2009, an amendment to the original lease agreement (see Attachment B) was made between Opera Plaza (Landlord) and Landmark Theatre/Silver Cinemas Acquisition Company (Tenant).1 The amendment was initiated in order to preserve the Cinema during the economic downturn by opting for a per-month “Occupancy Cost” payment from the Tenant to the Landlord, as opposed to the original monthly lease rate. In summary, Opera Plaza shared the costs and the revenues of operating Opera Plaza Cinema under the lease amendment. It also eliminated the Cinema’s share of building operation and utilities costs, as shown on an example calculation on Table 1.

Table 1 Example of Operating Cost Payment Structure

As of 2017, the Cinema has demonstrated that it is no longer economically viable through its lease payments under the existing market conditions in the City. As a result, Opera Plaza is looking to a potential termination of the existing lease agreement and proposing to convert the theater space into retail or office uses.

As part of the process to convert the existing Cinema space, Opera Plaza is required to address San Francisco Planning Code Section 303(j) under a Conditional Use Authorization application. The Planning Code states that the conversion of a movie theater requires analysis reflecting that “preservation of a Movie Theater use is no longer economically viable and cannot affect a reasonable economic return to the property owner.”

This memorandum summarizes the findings under the conditions of Section 303(j) for Opera Plaza Cinema.

1 The Lease Term was set as a month-to-month agreement commencing on September 1, 2009.

Item Dollar Amount

(A) Operating Revenues $52,218

(B) Operating ExpensesFilm Rental $15,173Cost of Concessions $1,376Cost of Calendar -Payroll and Benefits $18,760Marketing and Promotions $36Other Expenses (1) $5,261Operating Expense Subtotal $40,606

(C) Management Fee $4,000

Occupancy Cost/ Payment to Opera Plaza (A-B-C) $7,612

Source: Amendment to Lease, August 24, 2009

(1) Other expenses includes, but not limited to equipment, furniture/fixtures, leasehold improvements, purchases, property tax, and property insurance.



Tec hn ica l Rev iew a nd Ana lys i s

Review of Monthly Occupancy Cost Payments

As mentioned, payments from the Tenant to the Landlord are based on a month-to-month Occupancy Cost structure. In the event that the Cinema had a month of negative net return, the Cinema paid nothing to the Landlord. In the last five years, the Cinema has been unable to make payments for eight months, with a total net loss in those months approximating $88,400. These monthly Occupancy Costs translate to an average payment of $1.86 per square foot per month to Opera Plaza, well under the existing market rate, as shown in Tables 2 and 3.

Table 2 Payments from the Cinema to the Opera Plaza

Monthly Payment Comparison

In reviewing the Cinema’s payments to Opera Plaza, EPS compared current payment amounts ($1.86 per square foot per month) to monthly payments received before the lease amendment in 2009, monthly payments of other tenants in Opera Plaza, and monthly market rates within a half-mile radius of the Cinema. These comparisons are shown in Table 3.

Month 2013 2014 2015 2016 2017* Average

January $0 $19,209 $26,635 $33,250 $23,892 $20,597February $2,000 $20,230 $12,446 $9,054 $27,074 $14,161March $5,561 $14,954 $8,717 $0 $4,742 $6,795April $0 $11,601 $4,459 $0 $3,839 $3,980May $3,802 $4,361 $26,135 $4,146 $9,673 $9,624June $12,313 $2,012 $8,606 $3,550 $14,315 $8,159July $14,501 $22,517 $11,661 $3,896 $2,887 $11,093August $28,048 $21,008 $22,630 $4,892 $4,460 $16,208September $33,901 $14,536 $14,819 $14,856 $22,808 $20,184October $4,255 $20,156 $0 $0 - $6,103November $0 $5,391 $0 $5,572 - $2,741December $29,440 $40,813 $13,006 $282 - $20,885

Annual Payment Total $133,822 $196,788 $149,114 $79,498 $113,690 $134,582

Monthly Payment Total $11,152 $16,399 $12,426 $6,625 $12,632 $11,847per Sq.Ft. $1.75 $2.57 $1.95 $1.04 $1.98 $1.86

*Payments for 2017 include up to October 2017; Monthly per Sq.Ft. payments are adjusted accordingly.

Sources: Pacific Union Development Corporation; and Landmark Theatre Corporation/Silver Cinemas Acquisition

Year



Table 3 Comparison of Monthly Payments

Cinema’s Payments before Lease Amendment

Before the lease amendment, from 2005-2009, the Tenant paid the Landlord a base rent of $7,775 per month and a monthly average operating expense of $5,503. The Cinema also paid a flat rate of $280 in utilities per month.2 In total, the Cinema paid approximately $2.12 per square foot or about 14 percent more than the existing monthly payment before the amendment.

Average Opera Plaza Tenant Payments/Lease Rates

Excluding the Cinema, Opera Plaza includes office and retail space leased out to a variety of tenants. It is important to note that these tenants have lease start years ranging from 1981 to as recent as 2017. Thus, the average rents including Common Area Maintenance (CAM) fees are considered conservative estimates and not reflective of existing market rates for newly renovated or constructed space. Even so, the average tenant in Opera Plaza pays approximately $3.32 per square foot a month, 79 percent above the Cinema’s current payment. When evaluated on a land use basis, retailers in Opera Plaza pay a monthly average of $3.55 per square foot, while office tenants pay approximately $3.27 per square foot.3

Market Rate Rent

Current market conditions in the surrounding half-mile radius of the Plaza reflect a range of monthly lease rates. For this assessment, market lease rates were compiled for retail and office spaces with 1) less than 6,400 square feet4 and 2) the total inventory within the defined radius. Spaces with less than 6,400 square feet currently lease for an average rent of $3.50 per square

2 The remaining cost of utilities was paid for by the Opera Plaza.

3 Average is weighted based on square footage of land use.

4 The existing cinema is 6,381 square feet and it is assumed that conversion to another land use will not affect the size of the space.

Retail Office $% More

than Existing

Cinema's Existing Lease Agreement n/a n/a $1.86 0%

Cinema's Prior Lease Agreement (2005-2009) n/a n/a $2.12 14%

Average Tenant Payment (Excluding Cinema) $3.55 $3.27 $3.32 79%

Market Rate Rent within a 1/2 Mile RadiusUnder 6,400 Sq.Ft. (1) $3.25 $3.75 $3.50 89%Total Inventory (2) $3.47 $4.06 $3.76 103%

(1) Retail inventory under 6,400 square feet included 151 comparables and total inventory under 6,400 square feet included 243 comparables.(2) Retail inventory under 6,400 square feet included 45 comparables and total inventory under 6,400 square feet included 1,776 comparables.

Sources: Pacific Union Development Corporation; Landmark Theatre Corporation/Silver Cinemas Acquisition; and CoStar

Avg. Monthly Sq.Ft. Payment/ Lease Rate

Item

Land Use



foot for both retail and office uses. The total inventory of retail and office uses within the half-mile radius averages about $3.76 per square foot, or 103 percent higher than the per square foot payments currently received by Opera Plaza. In addition, the conversion of the existing theater will require significant renovations and tenant improvements, and will likely command rents higher those reflected in the market data.

Analysis of Annual Cash Flow Scenarios

In addition to analyzing the Cinema’s current payments, EPS evaluated the Cinema’s net operating net revenues as if the existing lease amendment were not in place. The analysis is meant to determine whether the Cinema could continue to adequately operate without the existing payment agreement. The Cinema provided monthly summaries from 2013 to 2017 detailing its revenues generated from ticket sales and other concessions and operating costs (i.e., cinema operating expenses and management fees).5 EPS also obtained the Cinema’s share of costs for utilities and building operating expenditures from Opera Plaza. These costs are subtracted from the revenues to reflect the net revenue that would be generated if the Cinema was not under the existing lease amendment and, instead, paid costs typically borne by tenants.6

These net revenues are then evaluated under the assumption that the Cinema would pay a monthly lease rate under four (4) scenarios. These scenarios reflect the annualized monthly rates from the Monthly Payment Comparison section (above) in order to determine whether the Cinema could successfully operate under 1) the lease agreement before the lease amendment, 2) average Opera Plaza tenant lease rates, and 3) market lease rates.

As shown in Table 4, if the Cinema were responsible for the typical costs borne by a tenant, excluding rent, it would result in marginal net revenues from 2013 to 2015 and negative net revenues for 2016. If the Cinema were to also include a higher annual payment of $25.50 per square foot as reflected in the original lease, the Cinema would be insolvent. The same conclusion applies under the average Opera Plaza tenant scenario, and the market rate scenarios.

5 This portion of the analysis excludes 2017 as data provided was MTD and only reflected up to September 2017.

6 Market lease rates reflected are triple net to avoid double counting of building operating expenses.

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Documents

Conditional Usecommissions.sfplanning.org/cpcpackets/2017-009224CUA.pdf · Changes space to Opera Plaza would include removal of the Cinema marquee on the Van Ness Avenue façade