The Economics Dooming the Opera Plaza Cinemas and Its IlkAugust 3, 2017
As we first reported last week, plans to shutter the Opera Plaza Cinema are in the works. And as proposed, the 6,381-square-foot space will be converted into “Retail Sales and Service” use.
While a specific tenant has yet to be identified, as a plugged-in reader correctly surmised, a “Health Services, Financial Services, or Retail Professional Services” operator is the likely target versus a traditional retailer.
In terms of the economics which have doomed the theater, Landmark Theaters, which has operated the four-screen cinema since 1984, is currently operating on a month-to-month operating agreement and does not pay a fixed rent but rather an “Occupancy Cost” which is equal to their monthly revenue (i.e., movie tickets and food sales) less their operating expense (i.e., payroll, film rentals, management fees).
And according to the project sponsors of the proposed conversion, the profitability of Opera Plaza Cinemas “has deteriorated, such that it is no longer economically viable,” having contributed a total of $119,000 in occupancy cost payments over the past 6.5 years, or roughly $18,307 and $2.86 per square foot per year for the theater space as compared to a more recent Opera Plaza tenant in a comparable sized space that’s contributing $225,000 per year.
Comments from Plugged-In Readers
I wonder (roughly) when it ceased to be viable…indeed if it were ever so: $<3/gsf doesn't even cover the taxes, I would think.
With 700 seats in the 4 theatres, to make the market rate, it would have needed to pay a rent of $320+/seat …or about $1 day. I don't know, of course, what kind of margin they operate with, but it sounds like they only cleared about a dime a day per seat…that's a Depression Era song, not a viable business.
According to the sponsors of the proposed conversion, the month-to-month operating agreement, versus a set rent, was put into place eight years ago.
And “over the last five years, the profitability of Opera Plaza Cinemas has deteriorated, such that it is no longer economically viable” (for the landlord).
With an agreement like that, it seems like there would be no incentive for the operators to make it profitable again. I don’t really get it.
My guess is the landlord wanted a cinema in the tenant mix. So it cut a deal with Landmark to make it viable for them. But as time went by, this deal no longer make economic sense. At least it had prolonged the life span in the long and slow death of cinemas.
For old times’ sake, I need to catch a last picture show before it closes.
Me too. I’ve only been a couple times, but I found it to be a charming place for art house flicks. I’ll miss it.
Not sure where you got the “700 seats” figure. SFGate’s story the other day said the 4 screening rooms had 35 to 140 seats in each one. So there’s at least 175 total in 2 and the other 2 must be somewhere in the middle of 35 and 140. That isn’t going to add up to 700.
The figure (2@100, 2@250) came from here.
I can’t vouch for the accuracy of the site, so I guess it’s “who do you believe more, them or SF GATE?” (I will say, tho, that I find the “35 seats” figure in the latter a little hard to believe).
Well if they want to make claims like that they should at least tell us what the “tenant in a comparable sized space that’s contributing [225k yearly]” is doing. Are they operating a medical marijuana shop? A bar? A Tobacco Shop?
Wouldn’t it just make more sense to ask if that’s a reasonable rent for mid Van Ness? It only comes to $35/gsf/year, hardly an unreasonable figure, I would think.
Forget Opera Plaza, I don’t get the economics of ground floor retail in SF. SF has one of the lowest rates of retail vacancy in the country, yet walk down Taraval, Mission, SOMA, mid-Market. Many, many empty storefronts. The change in retail/online purchasing mitigates against the existing retail spaces, let alone the new blank wall empty spaces in the SOMA towers. The condos aren’t selling which puts a further damper on the ground floor retail.
Just to add, there are exceptions. I was at my dentist on West Portal this week and nary an empty retail space as I walked down the street.
Or like why did the GAP have 319 stores in SF but only 2 in OBAPAE …aka Metro Oakland? (OK, I exaggerate…but not as much as you’re thinking) The “Market Forces” crowd will try to assure us ’twas simple economics that dictated this, but they would be hard pressed to explain why half the SF stores were eventually closed in a short space of time.
As for SF, it’s widely known as a “marque retail” spot (at least in the Union Square area): stores want visibility to tourists, and actual profitability isn’t required. Whether this carries over to those lifeless gray areas in the rest of the city, I don’t know.
SF is not the venue its boosters, including those here on SS, think. That does no explain the growing number of empty storefronts in the SOMA below all those uber expensive condos – that falls to erroneous marker studies and pie in the sky expectation of the ability to “create” a neighborhood. Just got back from Portland, again – it’s a bi-monthly visit, and their downtown retail is much more vibrant. No where near the empty storefronts. Has the bloom worn off the SF rose?
Not just just downtown Portland but all the little neighborhoods have booming retail too.
I didn’t want to rub it in, but that is correct. I was in Oswego, Maple Hill, Hollywood, Beaverton and Hillsboro and retail is thriving in those “equivalents” of Taraval and outer Mission. I have a place, rental, in Washougal across the river and that little downtown is like West Portal – nary a vacancy.
I’m quite certain it’s not just one condition, but many (e.g. massive square footage that most small biz couldn’t fill even if they could afford the rent, property manager aspirations for specific kinds of retailers, flimsy business models and, albeit obvious, obnoxious rent).
Yea, you’re also looking at a tiny urban footprint (Portland) comparatively, where the city and neighborhood associations have made it their way to fill the retail vacancies and activate targeted areas of the city. SF has so much in-fighting, NIMBYism, lack of [unified] vision. Saying SF isn’t the venue is “boosters” is not only presumptuous, and also not the principle.
No, I’m looking at a larger urban footprint – Beaverton, Oswego, Hillsboro, Tigard – even Forest Grove. It is what it is.
‘cept maybe that 5 story vacancy @ 5th/Morrison (I think it is) where macy*s just closed.
Macy’s is closing many stores throughout the US. Stonestown has about 2 years to go before it closes. The Macy closings are a macro phenomena not related to any one urban area. Given the vibrancy of Portland retail, I’d expect that space will be filled fairly quickly.
That’s of course true – Portland went w/i days of Minneapolis, and follows Pittsburgh, St. Paul, Houston, St. Louis….and brace yourself Dave, but Seattle seems destined to join them – but the reality is that on a strictly apple sellers-to-apple sellers basis DP has a big ‘ole hole in it, while SF still has a doughnut.
I was just in DP and there is hardly a hole – save for the impending Macy’s closure. Pearl has a waiting list of potential tenants as does the Park Blocks area. The old Macy’s building will fill up quite quickly. I recently visited all my fave Portland ‘hoods and, believe me, there is no where near the vacancy you see in SF – sans US. My investment money, that is what counts, is betting on Portland and Seattle and not the BA.
When you’re a consumer paying the highest residential rents in the nation, even though you’re making more, maybe there is there not much left over for discretionary? And when you’re a small business owner up against some of the most anti-business regulations in the nation, and being taxed into oblivion, maybe it’s just not worth the trouble?
A big part of the story is presumably the rents — being asked for, and being paid. If they’re high (and I think they are), it seems like there no shortage of demand for retail space, just landlords who are either holding out for even higher rents or just not willing to rent out their spaces at all, for whatever reason, and willing to forgo money to do so. Would love to see an investigative story about this.
Really, we could have better regulation on property owners who allow their space to sit vacant without any repercussions—esp in a market like this, esp if it’s a price fixing thing.
Agreed, a blight tax on spaces that sit empty for more than 12 months seems reasonable…along with a second home tax for foreign buyers as well.
But there are repercussions. Specifically, not collecting rent. If a landlord owns one building, refusing to rent comes at a huge cost, which no amount of price fixing would make up for (maaaybe if you’re selling the building, a theoretical higher rent might be better than an actual lower rent). Even if the landlord owns multiple buildings — can you really make more money by restricting supply, and leaving a bunch of vacant storefronts, than you can by renting all of them (if at slightly lower rates)? It seems unlikely. Heck, you’d think more stores would drive more foot traffic and raise the value of all the properties.
ITA. Leaving a space empty for years is not a financial winner. The Walgreens site near Molly Stone on Portola has been vacant for 5 years now. The smaller store next to it for 10 years. For lease signs are up. Unless a major corporation owns these two sites, which I doubt, someone is losing money. SF retail is more sketchy than the boosters here want to admit. Leaving a space empty for years to get a certain rent makes no sense. In Lakeside Village, btw, the old Lakeside Café has been vacant for 7 years now.
What I’ve heard — and not from any tax attorneys — is that in your hypothetical scenario where the landlord owns multiple buildings, the vacant storefront is worth more for the tax loss of the “wishing rent” (they aren’t collecting) over just lowering the rent to the market-clearing price. Put another way: the landlord can reduce their other taxable income for the full amount of the lost rent at the “wishing rent” level for the unleased property, and many times that is worth more than the rent they’d actually collect if they lowered the rent to a point where a local small business could afford to pay it.
YMMV. If it were true, however, I don’t understand why Notcom’s hypothetical in the first comment above where the property taxes established a hard floor on the asking rent would still hold.
Except that many of these neighborhood commercial spaces have been owned by moms and pops, or family trusts, for *decades*, and hence have very little carrying costs thanks to Prop 13. So yeah, the landlord is foregoing a rent stream – but they’re willing to do so because if, eventually, they actually do grab the golden ring, then it makes up for the missing revenue while the space sat empty … and meanwhile they’re not hurting to carry it.
This reminds of one of my favorite retail, Busvan for Bargains. Most of the retails space have been vacant for over a decade. The sign of the long gone Busvan is still up. It is both nostalgic and ironic.
Wai Yip Tung: well, at least they’re willing to make the minimum effort to put art in the windows. I appreciate that.
It does seem like the only explanation that makes sense: laziness. The owners don’t need the money, and don’t want to put in the effort to get it. “Someone willing to pay a huge rent will show up if I hold out” is an idea that allows them to justify their lack of effort to themselves, and pretend that they’re just being shrewd businessmen.
The large number of empty storefronts in many neighborhoods, though, proves that despite your argument, which I agree makes logical sense, that just the opportunity cost of getting no rent seems to *not* be repercussions enough to get them to price their spaces at the equilibrium price which would bring vacancies down and the length of vacancy to a shorter time than the many years we see in some places.
I generally hate more regulations in SF due to how stupid and incompetent the city government continually proves itself but I would definitely be interested in a blight tax. If you’re sitting on a property that’s been empty for a year, at least make it available as a cheap art studio or gallery space or pop-up food stands or something else that stimulates some economic activity and provides something to the residents.
“A big part of the story is presumably the rents — being asked for, and being paid. If they’re high (and I think they are), it seems like there no shortage of demand for retail space, just landlords who are either holding out for even higher rents or just not willing to rent out their spaces at all, for whatever reason, and willing to forgo money to do so.”
Reason 23C why relying on the “law” (sic) of simple supply and demand to explain RE pricing obfuscates the workings of a complex market. C-A-R-T-E-L
…not really? If anything, I think it’s the city’s policy of restricting supply that encourages this sort of behavior.
Anyway, like I wrote above, it seems unlikely that there’s money to be made in acting like a cartel — there are simply too many small players.
Many (if not most) of the wounds are self-inflicted though. The triumph of greed over common sense. This happens a lot in the city:
A landlord catches gold rush fever. They decide to force out a reliable – if marginally profitable – legacy business that has been there for decades. They seek out a new tenant. There will be a lot of interest initially because, well, the words “San Francisco” has a certain magical allure. Lots of lofty promises about renovation, expansion, attracting a more upscale crowd, and so forth. Then the deal either collapses, gets bogged down in bureaucracy, or the new business outright fails within a couple months of opening. The storefront is shuttered. And it stays shuttered for years while everyone lawyers up and play the blame game. Rinse and repeat.
It’s called sticky prices. Landlords want to hold out for a tenant that will sign a high price 10 or 20 year contract. It’s often worth more to them to wait a year and look for the right tenant that sign any business, some which might not make it after a year.
We should look at this from a positive light. Maybe a different retailer will be more successful and do better business. Hypothetically, they could draw in more customers which would have positive spillover on the immediate neighborhood as well as help the city by increasing tax revenue to the city.
I thought from the headline this was going to be more about the economics of theaters generally. I maintain (purely anecdotally, of course) that the shift to tiny-roomed multiplexes is part of the problem with theater economics. IMHO, part of the experience of going to a movie theater is the audience – being part of a large group of people, sharing the experience. Whether the 800-seat performance space at my college, to the Castro Theater, there’s some intangible boost when there are hundreds of people all focused on the same thing, reacting together …
When instead I go to a multiplex and find myself in a small room like the one pictured, I feel cheated – the screen’s nothing more than a glorified projection TV, and the “theater” a venue for no more than 30 or 40 people. (And with an aisle smack down the middle, taking away the best potential seats.)
It’s hard to argue with that sentiment – and even if I didn’t agree with it’s certainly yours to have – but I don’t see what the alternative is when 30 people show up for something (other than restricting the showings to one a day to try to consolidate audiences…which has its own shortcomings).
You probably didn’t go to LOP to see the latest $XXXM movie, you went to see some Iranian Art flick or some indie offering (FWIW, the current bill is 3 movies I’ve never heard of) And even in SF, these kinds of movies apparently just don’t generate crowds…though perhaps they do in places like – GASP!! – Berkeley.
True… but then I guess one could add that iTunes and Netflix streaming and HBO streaming, etc., killed the art house … if my choice is paying $10 or $12 to sit in a small (smelly, sticky) multiplex theater with a piddly screen … or to see it in the comfort of my home on a hi-def 52 or 55 inch monitor … then many would choose the latter.
I think thats a personal preference. The idea of going to an 800 person movie sounds horrible to me. a 30 person theatre sounds fantastic, but realize that its hard to make money that way. The more people, the more whispering, the more phones, the more smell.
Netflix killed the radio star… DVD killed the radio star…
Ok but LOOK at that sad, tiny screen. Gross.
Exactly. They diluted the product so much that it really wasn’t worth the bother of going. Who wants to go to a theater that’s a dump and that gives you a picture that’s hardly better than watching at home? The same thing happened at the Lumiere. It just stopped being a fun time.
Move to the excelsior . We would welcome a well done small theater that shows avant garde films and not just the big-ticket films…
This place was never a very good place to see movies. But I will still miss it.
Is the 2nd photo stretched vertically? That looks more like the Shattuck’s ceiling height.
I’m going to miss their popcorn.
I guess its a matter of taste, For me, I HATE the large multiplex theaters, the anonymity, the sound BLASTING my eardrums, the moronic commercials BLASTING my eyeballs, the movies geared to teenagers and/or the least common denominator, the ridiculous POPCORN prices, and so on. Many off us want to “go out” to a movie, or can’t or prefer not to see one at home. That’s where a small cinema such as OP has its place.
FOR THOSE WHO ARE INTERESTED IN KEEPING THE OP CINEMA: It’s not a done deal yet. Discussions are still underway, and nothing happens until the SF Board of Supervisors passes the change. Direct your comments to: Thomas W. Callanin, CEO, of both Opera Plaza Investors, Inc. and Opera Plaza Commercial Management Inc.
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