No, this is not why Noir City is not at the Castro this year.

The gay film festival (Frameline) and The San Francisco International Film Festival have both confirmed that they will still have their festivals at the Castro Theatre this year.

The Fox Theater stopped showing movies a generation ago. Concerts are not going to fill the Castro seven days a week - there will be a time and place for movies.
The question, as noted, is what the new rental rate will be after the improvements.

But without a new HVAC system, the Castro is unlikely to be able to operate during COVID times. And it has not been good for the neighborhood to have it sitting empty for nearly two years.