Demolition Hearings Start Anew for Beach Theatre

CAPE MAY — The city’s Zoning Board adjourned after three and a half hours of testimony Thur. July 22 as it began the first of many hearings to determine if it will issue a demolition certificate for the Beach Theatre.
Its owner, Frank Investments, portrayed the Beach Theatre as a consistent money loser that was not worth modernizing.
The application for demolition has a long history with the city’s Historic Preservation Commission (HPC), which denied a demolition certificate earlier this year causing Frank Investments to appeal the decision in Superior Court. The court sent the demolition application to the zoning board for a new hearing.
Frank Investments is starting from scratch since testimony given at the HPC hearings cannot be used.
In September, Zoning Board members will walk through the closed theater with an escort from the fire department. The auditorium portion was gutted in preparation for demolition.
All utilities were disconnected, asbestos removed from walls along with lights, sound systems, projectors, screens and concession stand equipment. The building is described now as an empty shell.
Zoning Board Solicitor George Neidig said the hearing was not to determine if HPC was arbitrary, capricious or unreasonable in not issuing a demolition certificate.
Board Engineer Craig Hurless said the Zoning Board’s decision whether or not to grant a demolition certificate would be based on nine criteria from the city’s zoning code which includes determining if the building has historical, architectural, cultural and aesthetic significance and the extent that its demolition would be detrimental to the integrity to the historic district.
Other criteria include: building’s architecture or craftsmanship that could not be reproduced, extent to which keeping the theatre would increase property values, promote business, create new jobs, attract tourists and new residents, the structural soundness and integrity of the building and economic feasibility of restoring the structure to comply with building codes.
Frank Investment’s Attorney Steven Nehmad gave an overview of the history of the theater’s demolition applications before HPC, which he said had a “highly unusual procedural history.” HPC approved a demolition certificate for the Beach Theatre in the summer of 2007, he said.
A project to build condominiums on the site above the current retail shops received preliminary site plan approval from the city’s Planning Board in December 2008, said Nehmad.
In September 2008, the state legislature adopted the Permit Extension Act, which extends certain land use permits and approvals, due to the nation’s poor economic conditions. Nehmad said he wrote a letter to City Solicitor Tony Monzo stating he believed HPC’s demolition approval was subject to the Permit Extension Act extending the approval to the end of 2010.
He said Monzo agreed.
Nehmad said he received an email from Monzo on Oct. 27, 2009 stating the extension act did not apply to Cape May’s HPC and demolition approval for the theater.
“I continue to disagree with that position,” said Nehmad.
Frank Investment filed a new demolition application, which was heard in January 2010. He said the HPC denied a demolition certificate even though it was identical to the earlier application.
Nehmad said one HPC board member who disqualified herself from the vote in 2007, voted on the application in 2010. He said Frank Investments was requested by a prior mayor to adjourn the demolition application of four, separate occasions to allow the Beach Theatre Foundation to see if it could preserve the theater.
Frank Investment’s position is the Beach Theatre is not culturally significant or an historic site, said Nehmad.
Attorney Michele R. Donato, representing the Beach Theatre Foundation, said the permit extension act did not apply to Cape May because the state has deemed it an environmentally sensitive area under the state Planning Act. She said the HPC was presented with very substantial information showing the Beach Theatre has historical significance.
Deborah Frank, a member of the family that owns Frank Investments and Frank Theatres and a film buyer for the theater chain, testified revenues for the Beach Theatre declined each year from 2003 to 2007. She said the cost of renting films has increased from 44 percent of total revenue collected to 55 percent.
In 2003, the Beach Theatre took in about $216,000, which dropped to $162,000 in 2009, the final year Frank Investments operated the theater. Frank said the main audience for movies was in the 14 to 25 age group and they expect amenities such as stadium seating, digital projection and sound, 3D film capability and a variety of foods available at concession stands, none of which were available at the Beach Theatre.
She said the Beach Theatre operated at a loss and they could not reinvest $750,000 to $1 million for an upgrade of the facility.
Lenders were also unwilling to finance capital improvements to the Beach Theatre because of its record of losing money, said Frank.
She said the Beach Theatre was “functionally obsolete.”
“It doesn’t have enough screens, it doesn’t have enough seats, it doesn’t have enough square footage to even convert it into something that would make financial sense,” said Frank.
Donato cross-examined Frank asking if her company was experiencing difficulties with other movie theaters in beach towns. Frank said business had declined at all of their theaters located in beach towns and they would seek new uses for those buildings.
Charles Naselsky, counsel for Frank Investments and Frank Theatres and a member of their board of directors, said the Beach Theatre brought in $162,000 in gross ticket sales in 2009 and spent $92,000 on renting films from studios or distributors. The remaining money went to operating expenses, labor, taxes, utilities, buying popcorn and candy.
The theater operated with a loss of $57,000 in 2009, said Naselsky.
He said Frank Theatres converted the Moorlyn Theater in Ocean City to stadium seating, digital projection and added new concessions and it continues to see declining revenue and “loses money every day.”
Fineberg cross-examined Naselsky, asking him if Frank Investments receives rental income from the 13 stores in the theater complex at the Beach Theatre. Naselsky said it did receive income from the store rentals.
Fineberg asked if any of the rental income was used to defer the expenses of operating the theater. Naselsky said they were “completely separate,” and it would be a violation of the tax code to use inter-company transfers between the investment company and theater company.
According to a report of the Beach Theatre Foundation, rental income from the 13 adjacent stores is about $495,000 per year.
Donato asked Naselsky at what price would Frank Investments sell the Beach Theatre. Naselsky replied the Zoning Board hearing was not a proper forum to discuss financial terms. She said if the board denies a demolition certificate, Frank Investments would be under an obligation to attempt to sell the property at approximate fair market value.