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The Price of Success: The Third Street Promenade Celebrates 10 Years

By Ed Moosbrugger and Jorge Casuso

It is the late 1980s and Third Street in downtown Santa Monica is a blighted row of struggling shops and vacant storefronts. Some locals brave the panhandlers and visit the three-block strip by day, but they avoid it after nightfall, when the parking structures become the staging ground for robbery and rape. After midnight, a loud fluttering of wings can sometimes be heard above the desolate streets as a great horned owl swoops down in its hunt for pigeons.

"Seedy is a nice word," said Herb Katz, an architect who sat on the City Council during the early stages of the Third Street Promenade's stunning transformation. "We used to joke that this is a hell of a place to go at noon. We joked about turning it into porno alley."

Flash forward to the present. As many as 15,000 visitors per block squeeze on weekend nights into the narrow strip that stretches from Broadway to Wilshire Boulevard. Throngs gather 'round a wild assortment of street performers who draw, play, bang and dance for donations till well past midnight. Diners fill sidewalk tables, and moviegoers form long lines to enter sold-out shows.

In ten short years, the Third Street Promenade has gone from blight to boom, drawing an estimated 4 million visitors a year from across the region and around the world. It is the proverbial goose that lays the golden eggs, only the eggs keep getting larger and larger.

"It just took off," said Katz, who now chairs the Bayside District Corp. board, which oversees the downtown district, including the Promenade. "It was so instantaneous. It was like winning a million bucks. What do you do?"

Last year, the Promenade's 150 establishments generated $158.7 million in gross taxable sales, a 440 percent rise in ten years, according to the city. And more than $500 million has been pumped into the strip over the past decade.

The unprecedented success of the Promenade, which celebrates its tenth anniversary this year, has made it a model for the new urban core - a cross between an old fashioned central plaza and a commercial strip, a place where people can stroll, dine and shop amidst cool ocean breezes.

"It's not a mall," said Kathleen Rawson, the Bayside District's Corp.'s executive director. "It's an entertainment district."

"There wasn't any road map, we were writing the road map," said former Mayor Dennis Zane, the politician widely credited for helping to usher in the boom years. "The success of the Promenade has confounded the expert thinking of the time."

But Third Street's prosperity has placed the city in the unusual position of managing - if not reining in -- success. During the past month, the City Council has approved a measure to better manage the flow of cars, cabs, trucks, pedestrians and bicyclists that often clog the intersections and alleys and to encourage the crowds to spill over into flanking streets. The council also passed an unprecedented ordinance that requires street performers to rotate spots every two hours and trim the size of their setups and displays. And it is contemplating a moratorium to stem the flood of retailers that threaten to price out the restaurants that give the promenade much of its lively ambiance.

"Yes, the Promenade is far more active and has far more people than we ever imagined it would, especially on weekend nights," Zane said. "For many people in the community, I think it's fair to say there are too many people. The best thing that could happen to the Promenade is if Westwood had a resurgence."

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The wild success of Third Street has recently pitted a liberal council, which fears skyrocketing rents threaten to turn what's left of the eclectic strip into a faceless row of corporate retailers, and property owners, who champion the free market forces that have in large part led to the remarkable boon for their pocketbooks as well as the city's coffers.

Rents have shot up from a dollar or two a square foot in 1989 to around $6 to $8 today - with some spaces going for as much as $12 today, prices that are second in the Los Angeles area only to those of opulent Rodeo Drive in Beverly Hills. In fact, space is such a precious commodity that one tenant was reportedly offered $300,000 to vacate the premises so another store could move in, said Barbara Tenzer, whose real estate firm brokers many of the deals on the Promenade.

In the mid 1980s, "I had to beg people to rent space down here for 50 cents (per square foot) a month," said Tenzer, president of Tenzer Commercial Brokerage Group Inc., based on the Promenade. "Nobody wanted to come here. It wasn't aesthetically pleasing, it wasn't clean, it didn't appear safe."

"It has gone from where there was very little interest to where it is a premier location to open new concepts and flagship stores on the West Coast," said Robert O. York, partner in The Fransen Co. of Santa Monica, a consulting firm hired to help lure businesses to the Promenade.

By 1996, the Promenade had become the West Coast launching pad for a number of retail chains and new retail concepts. Urban Outfitters helped set the tone when it selected the Promenade for its first West Coast store in 1992. The store did so well that the company chose the Promenade for the first of its Anthropologie stores on the West Coast, which opened in 1996. Also in 1996, the New York-based clothing chain The French Connection opened its first West Coast store on the Promenade.

The success has drawn some two dozen major retailers to the bustling strip, where the marquee presence in front of millions of strollers a year is perhaps as valuable as the retail dollars they bring in. The chains include The Gap, Banana Republic, Pottery Barn, Guess?, Barnes & Noble, Borders, Abercrobie & Fitch, Disney Store, Restoration Hardware, Rockport and J. Crew, with a Discovery Channel Store on its way in. Some foreign companies, such as adidas and Puma, have chosen the Promenade for their first U.S. stores.

The fallout has helped some independents - such as Puzzle Zoo and Undercover - which have cashed in on the boom. It took Undercover owner Adam Shaffer one visit to decide to open shop on the Promenade in 1993. "I came on a Friday night," said Shaffer, whose store sells high end women's apparel. "I never saw so many people in one place except for Disney World." Shaffer sold his business on the east coast and headed west.

Now, he would like to see other high-end stores follow suit. And while he acknowledges that the larger stores are turning the strip into a more mainstream street, he believes the chains also have helped. "The image of the Promenade has come far from where it was five years ago," Shaffer said.

Jay Demircift, who runs the successful Puzzle Zoo store on the Promenade, said business is improving every year. Now, he said, more and more people are coming to the Promenade for shopping, not just entertainment.

Said consultant York: "We've tried to make it a place that didn't just work at night or just during the day. It turned into an 18-hour experience."

But success has come with a price. The corporate stores have nudged out many of the unique independent outlets - the small booksellers, record shops and funky boutiques --, threatening the eclectic flavor that has helped make the Promenade a success.

"When leases are coming up they can't hold on," said Margie Ghiz, owner of Midnight Special Bookstore. A progressive independent book seller flanked by Borders and Barnes & Noble, Ghiz says she is fortunate to have a generous landlord who supports her community-oriented cultural approach. But she worries that other independents aren't so lucky. "You're seeing this mass moving in of chain retailers. I don't think there are ten independents any more."

It was the independents that helped give the Promenade its "hip image," said restaurant owner Tony Palermo. Now, he said, "it's just turning out like corporate America." "I think the Promenade is a great place, but I think the greed is setting in," said Palermo, partner in Teasers restaurant, one of the pioneering businesses on the revitalized strip. "I think people are going to be priced out of the market."

That is the fear that has spurred the City Council into action. "There are trends on the Promenade that if not reversed could lead to its demise," said Councilman Michael Feinstein, a state Green Party leader. "We lost so many small stores when it moved to large national chains that it's out of balance."

Feinstein is particularly disturbed by the immanent demise of the International Food Court, one of his favorite culinary haunts, which is losing its lease to make way for a Bebe chain store. Feinstein is quick to note that the September closing, which in great part spurred the proposed moratorium, comes on the heels of the loss of the King George Pub - "an inviting social space" - which has been replaced by The Gap, turning the intersection of Third and Santa Monica Boulevard into "a cold corner where its front door reveals an elevator."

To stem the tide, Feinstein and fellow Councilman Paul Rosenstein, who is considered a moderate, have directed staff to study the possibility of imposing a moratorium on the conversion of restaurants to retail spaces.

"The restaurant owners made it clear to me they thought their days were numbered," Rosenstein said. "They had their doubts they could afford the exorbitant rates being charged." Ironically, the proposal flies in the face of a previous measure that restricted the number of restaurants and liquor outlets per block.

And there also is talk of imposing a limitation on the square footage retailers can occupy, a proposal former mayor Zane endorsed at a July 26 meeting of the Santa Monica Leaders Club.

"My concern is the loss of smaller indigenous retailers who have been there from the beginning that find themselves the victim of their own successes," Zane, who often lectures on the success of the Promenade, told the gathering of civic leaders. "How many Banana Republics and Starbucks can there be?"

The battle between policy makers and merchants went public the following week, when a group of concerned landlords met on August 4 at one of the Promenade's three movie theaters to discuss the proposed moratorium on restaurant conversions. The landlords sent a clear message heeded by the Bayside District board, which voted unanimously to oppose the declaration of an emergency: Mess with market forces, they warned, and you will send a chilling effect that could help starve the goose.

"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."

Feinstein, who was at the meeting, disagreed. "As a city, we don't want to simply sit back and let market forces entirely shape an area that is such an important social center," Feinstein said. "Our role is not to just hope that market forces that go up and down are going to give us everything for everybody."

"A lot of Santa Monica money has gone into creating the Promenade," said Councilman Kevin McKeown, who also is a member of the Green Party. "If we allow the success to crowd out our people, we do our community a disservice. If we're just chain stores, why not just go to the Galleria?"

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The resurgence of the Promenade never relied solely on market forces. In fact, it was the result of a groundbreaking partnership between the public and private sectors, a partnership that capped a 25-year effort by the city to pump life into its dying downtown center.

An earlier attempt had come in 1965, when the city - following the recommendations of a consultant's report from the 1950s -- closed the street to automobile traffic, encouraging pedestrians to walk the three block stretch, which was renamed the Santa Monica Mall. They also improved parking, eventually building six parking structures on Second and Fourth Streets over the next few years. The opening drew nationwide attention, but the initial interest soon waned. "After the groundbreaking, people came to see it for the first six months," said City Manager John Jalili, "and they never came back."

After the Frank Gehry-designed Santa Monica Place opened just south of the Promenade in 1980, the outdoor mall went into further decline. The city even considered a proposal to build a people mover, a horizontal elevator that would carry visitors along the three block stretch. The idea quickly died. City officials, Jalili said, "feared people would bypass the promenade and go to Santa Monica Place."

By the 1980s, the street was suffering from a rash of vacancies, and city officials once again began to explore ways to salvage Santa Monica's dying core. In 1989, shortly after he was charged with helping to pump life back into the newly designated Third Street Promenade, city official Jeff Mathieu visited the outdoor mall to catch an evening movie. Mathieu entered the large theater, sat down, and looked around "My wife and I were the only people there," Mathieu recalled. "I knew this would be a challenge."

The challenge was met by landlords and tenants who worked closely with the city. "We had a group of committed stakeholders who wanted to invest and make a major change," Mathieu said. "These 55 people were as driven a group as I've ever seen. They were people who had a dream and wanted to put their blood, sweat and tears behind it."

A $13.3 million bond issue was approved to make much needed public improvements, an assessment district was formed to help pay off the bond and a non-profit corporation was created to oversee the downtown center. In case the experiment - which had been tried with little or no success in some three dozen centers across the country -- didn't work, the city made the traffic barriers removable.

The council provided the final boost when it banned new movie theaters from locating anywhere but on the Promenade. Three multiplexes soon opened their doors and the restaurants and retailers followed. Boosted by the sudden collapse of Westwood Village after a rash of gang violence emptied its streets in the early 1990s, the Promenade soon became one of the Los Angeles area's biggest attractions.

Still, Rawson is concerned about the "pittance of $40,000" in the Bayside District Corp.'s budget for marketing, saying it isn't nearly enough to help ensure continued success in the face of competition from other areas.

She is pleased, however, that the council allocated $1 million of its record $345 million budget to the Bayside District to improve the lobbies and bathrooms at two downtown parking structures. Originally it had earmarked $500,000 for one of the six structures.

It is part of the city's continued committed to keeping the Promenade a clean and safe destination, pumping more than $1 million into security and maintenance. The city's plan for a downtown transit mall also is expected to spread the Promenade's success to Second and Fourth Streets, giving the smaller independent businesses an opportunity to remain downtown, Rawson said.

Still, city officials acknowledge that the wild success of the Promenade will depend in large part on instilling a sense of safety.

"Westwood knee-jerked us into thinking, 'One wrong move, we're dead,'" said Katz. "We were scared to death. Now that we're on top, we've got everything to lose."