The Granada Theater, an embattled icon of downtown Morgan Hill that has been threatened for years with demolition and redevelopment, will survive as an entertainment venue—albeit after a 14-month renovation process that could start as soon as October.
The five-member Morgan Hill City Council, acting as the Morgan Hill Redevelopment Successor Agency, agreed to sell the theater to developer Frank Leal for $294,476. Leal—a veteran of the regional hospitality industry and owner of Leal Vineyards in Hollister and Willow Heights Mansion in Morgan Hill—agreed to renovate the theater building and reopen it as a full-time “entertainment, special event and assembly venue with food and beverage service,” according to a city staff report.
The council approved the sale unanimously at the Sept. 2 meeting. City staff also recommend granting Leal $704,000 in leftover RDA bond proceeds to assist with the renovation and reopening.
The sale of the property on the 17400 block of Monterey Road also includes the space currently occupied by the Morgan Hill Cigar Company, which will have to relocate before Leal and his crew begin construction.
The Morgan Hill Redevelopment Agency purchased the property in 2008 at a cost of about $2.4 million.
The sale price approved Sept. 2 is supported by an Aug. 3 appraisal of the property by Valbridge Property Advisors.
The RDA was shut down by the state in 2011, and since then the city has struggled to find a developer with whom to partner in an effort to turn the Granada into a money-making enterprise that can generate tax revenues to fund local services. The city is in somewhat of a hurry to improve the site—as well as other former RDA properties downtown—because post-RDA regulators including the state Department of Finance are eager to put the assets back on the tax rolls at their highest possible income generating value.
Assistant City Manager Leslie Little explained the discrepancy between the 2008 purchase price and the cost to Leal is largely due to a more strict criteria that agencies like the RDA had for purchasing property. When an RDA purchased property, by law it was required to pay for any personal property on the site, fixtures and equipment, improvements, and “loss of goodwill” or disruption of existing business on the property.
“In today’s normal real estate market, we had an appraisal that suggested the highest and best use is the land value,” Little explained. “The buildings are not contributors (to the property value). They are functionally obsolete. They actually detract from the land value.”
Little was referring to the Downtown Mall as well as the decrepit Granada Theater building, both of which were included in the recent appraisal.
Furthermore, Little added, the Granada/Downtown Mall site, known as “site 1,” was comprised of a number of smaller parcels. Purchasing properties in such a manner is often more expensive than what a developer could recover from their sale.
The Granada has been closed as a full-time movie theater since 2003. It was built in the 1950s. Over the last couple years, the nonprofit Morgan Hill Granada Preservation Society has been showing weekend movies at the theater, and even converted one of its two auditoriums into a live entertainment venue. The nonprofit gained a short-term lease to enact these part-time activities from the public trust that currently owns the property.
Leal’s proposal will generate ongoing economic development activity for Morgan Hill by attracting visitors, providing jobs and contributing to the “vitality” of existing businesses, according to city staff.
Leal, working with Weston Miles Architects, expects to spend more than $2 million of his own funds on the Granada project, city staff added. Proposed improvements include structural reinforcement, fire suppression sprinklers, an exterior facelift, heating and air systems and flood mitigation measures.
When construction is complete in about 14 months, the newly reopened theater will employ up to 30 full-time and 60 part-time staff, according to city staff. The project will also retain the historic marquee and signage adorning the front of the theater.
Leal also agreed to the following conditions:
• A 20-year land use restriction that requires the building remain in use as an “entertainment and public assembly” venue;
• Submit demolition and development permits before closing the purchase;
• Begin construction within 30 days after closing;
• Participate in collective downtown marketing and improvement efforts such as the Morgan Hill Downtown Association;
• Open the theater at least six times per year for community or charity events.
