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Of the many independent theater operators the city approached in the ensuing months, its top choice was Speakeasy. Both parties agree to this day that the city openly sought to emulate the Parkway's success in Oakland by applying the same blueprint to El Cerrito. The city first contacted Speakeasy in April 2001, shortly after it learned about the theater. The Fischers took a look at the space and thought it could be a great fit, but told city staff they lacked the funds to get it off the ground. Undeterred, El Cerrito reached out to the Fischers again a year later with a better offer: The redevelopment agency would pony up the cash if Speakeasy would oversee the restoration and later operate the theater. Still concerned about the financials but reassured by the city's support, the Fischers decided to give it a try. If the public/private partnership worked, they figured, they could continue to grow their business by bringing the Parkway model to other cities. After the El Cerrito Redevelopment Agency bought the building for $500,000 in June 2002 and issued a call for proposals, the Fischers submitted their vision in writing. They were the only people who did, and won the contract.
From the start, the deal was tinged with controversy. Some El Cerrito residents opposed using public money to buy and develop a movie theater — especially one that would be operated as a profit-generating enterprise by a private business. The unusual deal the city struck with Speakeasy Theaters sits at the heart of the tension between them today: a triple-layer scheme that first loaned Speakeasy Theaters $2.47 million of redevelopment agency money, then funneled $2.88 million of agency funds directly through Speakeasy to outside contractors for additional construction costs, and finally, once development was complete, entered into a complex lease agreement whereby Speakeasy owed $10,000 a month in rent that would be credited toward its 25-year loan.
"It is a complicated transaction," said attorney Karen Tiedemann, who represents El Cerrito's redevelopment agency. "In part it's complicated because there was a lot of work that needed to be done on the building. The agency realized that an operator couldn't afford to do all the work."
While arduous, development of the theater was ultimately a success. Efforts were made to preserve and restore as many of the original elements as possible, including murals of dancing maidens and Greek gods that framed the original screen. An entire second story was built to house another screen, while two cafes were added downstairs. The project later received a Design Award for restoration from the California Preservation Society.
Yet by the time the Cerrito opened in November 2006, the renovation had taken a heavy toll on Speakeasy Theaters. The thousands of hours Kyle and Catherine Fischer dedicated to the project meant time away from the Parkway, which they claim contributed to a decline in profits and annual growth — from as high as 13 percent before beginning work on the Cerrito down to 4 percent in 2003. Even more daunting, after starting the project in the black, the Fischers had accrued considerable debt. This was partially related to delays of nearly two years and cost run-ups from $3 million to more than $5 million. They'd also used their own money to pay for some improvements, such as $100,000 on the kitchen.
Furthermore, the Fischers say they were locked into a lease that was too severe. To get the new theater on its feet, they say they asked to not pay rent until the seventh month of operations, just as they had years before at the Parkway. But Kyle believes the redevelopment agency balked because it did not want to appear to the public that it was subsidizing a private business. Still confident that the city had Speakeasy's best interests in mind and would relax the rent requirement after the first year, the couple signed.
They did not pay rent for the first several months, and only by infusing the Parkway's modest profits into the Cerrito were they able to pay it intermittently throughout the first year. Meanwhile, a variety of other unforeseen factors undermined the Cerrito's launch, such as initially being placed in the same exhibition district as downtown Berkeley and thus not being allowed to show any of the same movies at the same time. The beginning of the recession and the ensuing Writer's Guild of America strike also hurt, the Fischers said. After finally catching up on twelve months of rent, they stopped making payments altogether.
"In the first year of the Cerrito, we told them, 'This is more rent than we can handle,'" Kyle Fischer said. "They had known we were in financial trouble from day one. We were trying to figure out how to resolve this from pretty much the middle of the first year of operation." The city's response, he claims, was to offer promises of aid that never arrived.
El Cerrito redevelopment manager Lori Treviño, who served as a liaison between the Fischers and the city, sees it a bit differently. She says the Fischers were cavalier about Speakeasy's financial position and frequently assured the city that as soon as they got situated, the theater would recover. She and city manager Scott Hanin also say that redevelopment agency staff asked the Fischers on multiple occasions to submit a formal proposal for a potential lease modification, but never received one. "I don't think we understood the full extent of the problem," Treviño said. "We had no idea what their debts were like."
Speakeasy's financial reports for 2007 — its first full year of operation in both theaters — suggest the Parkway was making nearly $12,000 in profits every month. The Cerrito, however, ran an operating loss of $465,000 for Speakeasy Theaters that year. By factoring in the increasing debt the Fischers were carrying — including $340,000 in accounts payable, $42,000 in bank overdraft, and $5,000 in accrued payroll — the picture grew even grimmer.
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