An ongoing issue

Grossman said "the balancing act" of supporting local businesses while taking residents' concerns into consideration is an issue the city constantly confronts.

Larson pointed to Mosun at 680 S. Coast Hwy. as an example. That sushi restaurant closed last August.

After a number of residents complained about its upstairs "Club M," the building required modifications to muffle the sound. Special sealers were installed around the doors and windows, and insulation was added.

Mozambique at 1740 S. Coast Hwy. has faced challenges because of its location in Woods Cove. Neighbors have similarly complained that they didn't want the restaurant to turn into a nightclub. The main issue was the noise customers created when coming and going — thus, the "Quiet Zone" was created, which allows only residents with a permit to park in the neighborhood surrounding the establishment.

Mozambique also had to modify its building to muffle sound, Larson said.

Cole said that people are going out half as much due to the economic downturn, and when they do go out, they wait until the weekend. He said his business, and others, usually scrape by during the week and then make a profit on weekends.

He said the 11 p.m. wrap-up time for music was the nail in the Royal Hawaiian's coffin.

Cole said although he loves Laguna Beach, he has found it to be an "incredibly negative business atmosphere."

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'I think it lost its soul'

Except for its legendary drink, the lapu lapu, the Royal Hawaiian ditched its original flair with the ownership change and subsequent remodel, which finished in 2008.

The renovation changed the Hawaiian restaurant that had become iconic for its campy decor, from its aquariums full of colorful fish, Polynesian scenes adorning the walls and tiki lamps to its looming red-eyed tiki statue that greeted patrons at the front door.

Plasma TV screens, sleek booths, granite surfaces and contemporary tables took over during the two-year renovation.

"It wasn't nearly the same," said Michael Rodriguez, a Laguna Beach native. "It closed as soon as the Cabangs sold it."

Rodriguez, 48, was a Royal Hawaiian regular from the 1980s until about 2004. He went back last summer.

"I think it lost its soul," he said.

Billy Sherman, 47, said he was disappointed to hear about the closure, but said he wasn't surprised.

"It had changed from the way it used to be," he said. "It lost the whole classic vibe it was and turned into something more generic."

Regardless, Sherman said, the city is losing a piece of history.

"It's losing a landmark. I hate to hear it close," he said. "Everyone wanted a piece of it because it's going to be missed."

joanna.clay@latimes.com

Twitter: @JoannaClay