News

Edgewood Plaza developer faces growing fine for grocery vacancy

Sand Hill Property Company required to pay $1,000 per day until new market is found

The developer of Edgewood Plaza is now facing a fine of $1,000 per day for not replacing the vacant grocery store formerly occupied by Fresh Market, which departed on March 31.

In August, the City Council added pressure on Sand Hill Property Company to replace Fresh Market by the end of September by imposing a fine of $500 per day. That fine increased to $750 on Oct. 1 and $1,000 each day after Oct. 1 until the property is brought into compliance with an ordinance that requires the continued operation of a grocery store at the once-dilapidated Edgewood Plaza, located at 2080 Channing Ave.

The grocery store is a key component of a "planned-community" zone change that the city granted to Sand Hill in 2012. The zone change allowed the developer to construct a development that, in addition to the grocery store, includes two commercial buildings and 10 homes.

Residents have been calling for the city to take action against Sand Hill for the zoning violations.

At an August council meeting, a group of residents and land-use watchdogs from the nearby neighborhoods of Crescent Park and Duveneck/St. Francis submitted a letter calling for the city to impose a financial penalty against Sand Hill, and to prevent the developer from selling the new homes at Edgewood until a new grocer is found.

Three weeks after the City Council's decision that Sand Hill would have to pay $500 per day if the vacant grocery space isn't filled by Sept. 30, Sand Hill's John Tze announced the news about Bay Area-based Andronico's Community Markets' interest in moving into Edgewood.

"I'm pleased to let you and the neighborhood know that yesterday Andronico's issued a term sheet that seems workable to me. I've spoken with them and The Fresh Market, and all parties are trying to bring Andronico's to Edgewood as quickly as we can," Tze wrote.

If Andronico's does enter into an agreement for the site, it would occupy a space only slightly smaller than the 25,000-square-foot store it operated at Stanford Shopping Center until 2011.

The $1,000-per-day fine is the largest allowed under the city's ordinance for zoning non-compliance. It is not the first time that a grocery store vacancy is stirring community anxiety. Last year, the city reached a deal with the developer of College Terrace Centre, a planned-community project at 2180 El Camino Real that includes the former JJ&F Market, that includes increased enforcement if the replacement market were to close. The new store is set to be operated by Michael "Miki" Werness, formerly of Miki's Farm Fresh Market.

In that case, the fine would be $2,000 per day if the grocery tenant were to leave and not replaced with another grocery store within six months.

City staff noted that this situation is different from Edgewood because in the case of College Terrace Centre, the property owner agreed to a restrictive covenant that increases the penalty.

Comments

14 people like this
Posted by YSK
a resident of Community Center
on Oct 7, 2015 at 10:57 am

PLEASE, PLEASE PLEASE Andronico's!


7 people like this
Posted by Simple
a resident of Adobe-Meadow
on Oct 7, 2015 at 11:25 am

I'm sure the big names have looked at the numbers and decided currently it is not worth it for them to be there. In order for the developer to make it attractive, he must reduce his rent to a level where the numbers become more beneficial to the store.
If San Hill lowered the rent to a level that spelled profit for the store, you would have open in there pronto. Sand Hill is motivated by greed though, so it's a hard pill for them to swallow...reduce the rent long term.
It's not rocket science, just another greedy developer.


15 people like this
Posted by where's andronico's?
a resident of Duveneck/St. Francis
on Oct 7, 2015 at 11:28 am

No one in our neighborhood wants fines; we want a Grocery Store. However, $1000/day is still an inadequate penalty to incentivize the Developer to subsidize a Grocer in that space. $1,000/day is $365,000/year....or barely more than 10% of the cost of ONE of the homes that were sold in the development. Obviously, no Grocer is interested with the given terms being offered by Sand Hill. The timing of Sand Hill's sudden announcement, followed by radio silence, of Andronico's arrival was suspicious at best. The city, and the NEIGHBORHOOD need to up the pressure. Sand Hill is sitting pretty collecting rent from Fresh Market for an empty space. Pretty sweet deal for John Tze and a raw deal for the neighborhood.


8 people like this
Posted by Frank hardy
a resident of Professorville
on Oct 7, 2015 at 11:38 am

Perhaps simple and others should become familiar with who actually holds the lease on the store. It is not the developer-- the lease is held by Fresh Market. Very easy to claim that the developer is greedy-- in fact it has become a common and overused insult on this forum, when you do not know the facts.
Where's andronicos should read the article. They will note that the city is,limited to $1000 per day.
How do you suggest the city and the neighborhood "Up the pressure"??
I suggest that when the new store opens the store track the location of all customers to make sure thatbthe majority of the neighborhood do the majority oftheir shopping at the store.


13 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Oct 7, 2015 at 11:50 am

Where does the money go?


10 people like this
Posted by Retired Teacher
a resident of Duveneck/St. Francis
on Oct 7, 2015 at 12:25 pm

Well, Frank hardy, I'm always interested in the facts.

It's true that Fresh Market holds the lease. So it is paying Sand Hill every month as if its grocery store was active there. John Tze has very little incentive under those conditions to fulfill his responsibilities under the PC zoning, unless he is motivated by some ethical sense that he should fulfill the bargain he made which gave him incredible profits. Not mention the notion that at it would be a good thing if he showed he cared somewhat about the good of the community.

Is it fair to call him a greedy developer? Well, I'm sure we can each decide that for ourselves. Whatever your opinion might be.

Query #1: Is it possible for Sand Hill to release Fresh Market from the lease? I've heard that can be done under the law. Of course, if the lease holder and Sand Hill are trying to squeeze as much as they can from whatever deal they make, a new market may not come in as fast as we neighbors would like.

Query #2: The article states that Sand Hill is "FACING" a $1000 fine. That's NOT the same as actually being assessed the fine. Is the city collecting this fine from Sand Hill, after a long period of NOT taking action on the zoning violation?

Query #3: Did the city actually "IMPOSE" a $500 fine at the end of September? Or was it another case of an extended, overly-lengthy "warning" period followed by additional warnings with no actual action?

Oh, yes, one more question, Frank hardy: How should Andronico's or any other market "track the locations" of customers? And how can they make sure that customers "do the majority of their shopping" at the store? Shades of 1984! Is this a completely illogical way to try to blame the neighbors for the sudden exit of a store that was making a profit by all accounts?


6 people like this
Posted by Frank hardy
a resident of Professorville
on Oct 7, 2015 at 12:32 pm

Well ,retired teacher, you can track by asking the zip code of the shopper. Sounds like the neighborhood wants a grocery store. I think they should support it, otherwise it will close. We have seen that happen-- everyone was excited about Mikis opening in alma village. Then no one shopped there and it closed.
Otherwise you will get locked into an endless cycle:
- grocery store opens
- neighbors do not shop there
- grocery store closes
- neighbors demand new store
- new store opens
- neighbors do not shop there
- store close
Repeat as necessary.

As for your 3 questions-- not sure whatbthe law is regarding a signed lease. It would depend on the terms. You should direct the other two to the city council/staff


6 people like this
Posted by OPar
a resident of Duveneck/St. Francis
on Oct 7, 2015 at 1:02 pm

First, the Palo Alto Fresh Market was making a profit. It closed because Fresh Market decided to pull out of California--the PA Fresh Market actually lasted longer than most of the other location. So let's drop the idea that the location can't support a market.

Second, Fresh Market has been shopping around the location at a rate substantially higher than the one it's been paying--so that's part of the problem, though I don't know why Sand Hill agreed to a lease that allowed for an inactive tenant.

Fresh Market's greed has actually been the sticking point here. Groceries are low-margin businesses--you need a lease deal that makes it possible to keep your prices low enough that you remain competitive.

Meanwhile, does anybody know if Chef Zhao's Kitchen is related to Chef Zhao's Bistro in Mountain View? Are we possibly getting a Szechuan restaurant at Edgewood?


4 people like this
Posted by Marc
a resident of Midtown
on Oct 7, 2015 at 1:09 pm

@Retired Teacher.

Yes a landlord can release a tenant from a lease but that is only of the tenant wants to get out of the lease. You can't force out a tenant that doesn't want out of the lease. If the lease that FM signed has an "abandonment" clause, then the landlord can terminate the lease if the tenant leaves. Otherwise as long as FM wants to stay in the lease and pays it's rent, Sand Hill can't force them out. And Sand Hill is caught between FM and the City.

On the other hand I think all the talk about the neighbors actually using a local market is all talk. If you read many of the comments from some of the other threads on the same topic you will see all the excuses the local neighbors gave why they didn't shop at FM. I think it will be the same with Andronico's. The locals will complain about store size, selection, price, traffic, etc and it will close. The physical store size is too small.

If the local neighbors really want to walk the talk then I think they should put their money where their mouth is. Force the local neighbors to be accessed a monthly fee ($300) that can be redeemed at the local store. If they want a local store, then they have to commit to shopping at the local store, no excuses.

/marc




2 people like this
Posted by Slow Down
a resident of Community Center
on Oct 7, 2015 at 1:16 pm

Slow Down is a registered user.

@OPar - given that the Fresh Market seemed largely devoid of customers, I find it hard to believe it was profitable. I've talked to the manage at FM, and he said that they were meeting targets, that they were happy, but I have never heard that they were even close to profitable. Do you have any source?


7 people like this
Posted by Crescent Park Dad
a resident of Crescent Park
on Oct 7, 2015 at 1:24 pm

@ Marc: Your prediction does not explain why FM was making a profit despite your prediction of a gloom and doom cycle, despite your claims of low patronage. And FM was making a profit while offering a majority of products that were not "name brand" items.

Andronico's is a local grocery chain that already has a developed supply chain and also operates several similar sized stores in the area. (Belmont and Los Altos for example). The Stanford store failure comes from the fact that it was not located near any sort of neighborhood - only Oak Creek apartments at the time.

For us, Andronico's will be a much better option than the Midtown Safeway - a store that cannot keep items in stock on a daily basis. I'll gladly pay a few pennies more to go to Andronico's than haul my behind over to Midtown or MP Safeway (which is a great store BTW - just not as convenient). I can ride my bike to Edgewood/Andronico's - parking will not be an issue. You see people walking/biking to Edgewood for Starbucks and Bagels already - I would say that the trend would continue.


3 people like this
Posted by Crescent Park Dad
a resident of Crescent Park
on Oct 7, 2015 at 1:26 pm

@ slow down: re: FM profits: It was stated/quoted by FM in PA Online.


3 people like this
Posted by sharon
a resident of Adobe-Meadow
on Oct 7, 2015 at 1:32 pm

Just put in another TRADER JOES please!

It will flourish


9 people like this
Posted by anonymous
a resident of Duveneck/St. Francis
on Oct 7, 2015 at 1:33 pm

I was originally supportive of the Edgewood Plaza re-developer, but that has changed. He made a deal with the City of Palo Alto to supply a grocery store, where there had previously been one, as I understand it as a public benefit in exchange for a special zoning deal. Even if there is a lease in effect on the un-occupied storefront, he still is not fulfilling the deal with the city. He is pocketing a decent sum from the lease. The developer got a special privilege to build and sell incredibly costly high density homes at the site, where there was previously NO homes and where the developer made a huge profit already. I assume most if not all were cash sales. It is just outrageous for us nearby neighbors. I don't want a restaurant emitting smelly grease/fumes or more nail salons. I want a functioning grocery store there. He should provide one - NOW.


5 people like this
Posted by Midtown shopper
a resident of Midtown
on Oct 7, 2015 at 1:35 pm

How about trying for Berkeley Bowl. Not only would people in the neighborhood shop there so would the rest of us who drive to Berkeley to shop at the Bowl.


5 people like this
Posted by Plane Speaker
a resident of Crescent Park
on Oct 7, 2015 at 2:22 pm


Well, whoever "holds" the lease .... whatever that is supposed to mean,
Fresh Market is paying rent on a space they are not using or making money
on.

We don't know the details of subletting or whatever in this case, but In a
way they might feel like they are being fined and would surely be motivated
to get someone into that spot so they can get rid of that liability.

Sand Hill Properties I assume is paying the fine, and has control over who
moves in there. They should not have to lease it to whoever, they have to
make an intelligent business decision, but holding out too long for higher
rent is not living up to the spirit of their agreement. The fine might help
with that, and probably should have gone up steeper and quicker

Presumable this is a big commitment for Andronicos as well. I assume
they would like to do the due diligence and make sure the Fresh Market
was profitable as they say. Fresh Market might have an incentive to
exaggerate how profitable it was for them, but also, I think they might
have cut costs near the end to make things look rosy.

And just because Fresh Market was profitable does not mean
Andronico's would be.

It's hard to coordinate and get 3 parties with 3 different agendas to
agree on anything. Sand Hill wants to maximize rent, Fresh Market
wants to get out of the most rent liability they can as fast as they
can, and Andronicos wants to have a profitable store with long
term prospects and as low rent as possible.

I believe a lot of corporate entities in America can be called greedy,
but I don't see that real greed plays a role here, this is just business
as usual, the same thing anyone here would do if they had a money-
making asset or concern.


6 people like this
Posted by Malia
a resident of JLS Middle School
on Oct 7, 2015 at 2:23 pm

I was just there this morning trying to get a bagel. The parking lot was packed and crazy. I am not sure where a market would go or where the customers would park. Needless to say, I drove away...


9 people like this
Posted by Jane
a resident of College Terrace
on Oct 7, 2015 at 2:52 pm

Another example of why the Planned Community zoning designation requested by developers as a way around zoning restrictions should be eliminated. It's been abused so often it's a joke. This is the first time a developer has been held accountable for not adhering to the terms agreed with the city for being allowed to build a commercial development that far exceeds the profitably the zoning would otherwise permit.

I'm sure all those who profit from building commercial properties in Palo Alto, whether they live in Palo Alto or not, are at this moment planning for and preparing a large war chest for the next election with the goal of returning to the past pro-development council majority.

This will make that outcome much more likely after the successful vote at last fall's elections to reduce the number of council members. Which sounded on the surface so reasonable. But in actuality was a sly, cynical, well funded and successful attempt by an individual with deep pockets to make it more likely there will be a pro-development council in future.

Fewer council members will also mean more work for each member which will discourage those who don't have professional reasons or ambitions to take the time out from their own careers to be on the council, and supporters with influence and/or deep pockets who can fund a big campaign.

Unfortunately, as we saw in the last council election, a well-funded candidate can pay for continual ads in the local papers and produce a continual blitz of glossy campaign flyers delivered in the mail which are an about face of their previous track record on the council. Or a sympathetic and personable candidate may have no prior experience or public track record of service on city commissions or committees or other community volunteer work on which to be judged their competence, affiliations or ambitions that will influence their stance and likely council votes.


9 people like this
Posted by Palo Alto Native
a resident of Duveneck School
on Oct 7, 2015 at 3:13 pm

Agree about parking. Even when Fresh Market was there, parking was limited. Orange Theory has fitness classes (think 20 cars), Starbuck's has computer loiterers and drop-ins, all with separate cars, and if a restaurant is added, think about how many extra cars there will be. There just isn't enough parking for so many businesses.

And yeah, I don't go to Trader Joe's much because of the parking lot/traffic signal fiasco.


9 people like this
Posted by Laughing all the way to the bank
a resident of Old Palo Alto
on Oct 7, 2015 at 4:00 pm

The fine is chicken feed for the developer. He is laughing all the way to the bank. The city council was outsmarted by another shrewd developer.


Like this comment
Posted by Slow Down
a resident of Community Center
on Oct 7, 2015 at 4:09 pm

Slow Down is a registered user.

@Crescent Park Dad - " It was stated/quoted by FM in PA Online." - Do you have a link? Fresh Market has never been quoted PA Online on profitability. It is something claimed over and over in the comments, and in one story, the author wrote that the PA store was "reportedly profitable" with no source, likely just parroting town square comments. I've searched thoroughly, and Fresh Market has never commented on Palo Alto's profitability. The closest thing they've said is that the store was performing better than the three Sacramento stores they first shut down.

If you shopped there, you know that it was generally empty. There is no way it could have been profitable.


6 people like this
Posted by Timothy Rodriguez
a resident of College Terrace
on Oct 7, 2015 at 4:29 pm

I know for a fact first-hand that most groceries (and other businesses) refuse to do business in Palo Alto because of the attitude of the city as well as some of its residents. It's a shame but the aggressive anti-business and anti-development attitude shown here is unjustly and inappropriately oppressive and does not represent the majority, only of an outspoken few.

I'm not sure why the city is a mecca for so many people deluded ideas of what the present and future will be like, but I for one am glad to have moved away. It's become a city where outsiders just roll their eyes to talk about it and insiders just don't live in the real world.

A city thrives by the quality of its businesses and developers and the thought to demonize them is just downright ridiculous and nearly communist. I just hope for its own sake that there is still enough amenity in the community to attract normal people, before its slide down the wrong path is irreversible.


Like this comment
Posted by perspective
a resident of Another Palo Alto neighborhood
on Oct 7, 2015 at 8:43 pm

The performance of a store is measured by sales and growth in sales year over year by quarter. Profitability is determined by margins and other factors which are for the most part company-wide, not by individual stores.In Fresh Market's last quarterly report in August for the company as a whole same store sales came in below expectations at -1%, when expectations which were more in the range of +1%. The company's guidance or projections for same store sales for the upcoming quarters was for a decline of 1 to 2 1/2% compared to investor expectations of about a 1% increase. The stock price took a big hit the next day. Anybody who visited
the Edgewood store knows that it was generally sparsely populated with customers.This is all we know.


4 people like this
Posted by Bob
a resident of Palo Verde
on Oct 8, 2015 at 1:54 pm

Regarding Timothy statement "I know for a fact first-hand that most groceries (and other businesses) refuse to do business in Palo Alto because of the attitude of the city as well as some of its residents."

You mean most groceries other than Safeway, Piazzas, Whole Foods, Mollie Stones, Trader Joe's, etc. There a number of groceries doing business in Palo Alto.


4 people like this
Posted by OPar
a resident of Duveneck/St. Francis
on Oct 8, 2015 at 3:19 pm

Fresh Market had a good rent deal, which is the bottom line of profitability. Given that it held on to the PA store after closing most of its other stores in California, I think it's pretty clear some sort of profit was being made. The product turnover seemed to be fairly good, another indicator of the store doing reasonably well in that location.

People who think only large supermarkets can succeed don't understand the business. Smaller markets, like Roberts, sell less cheap bulk items and more high-end specialty items--particularly prepared foods--can occupy a successful niche. I went there a lot and so did my neighbors.


1 person likes this
Posted by Slow Down
a resident of Community Center
on Oct 8, 2015 at 3:33 pm

Slow Down is a registered user.

@OPar - the produce turnover was not good at fresh market, because there were very few customers buying stuff at the store. You might assume they were doing well because they had low rent, but it is just an assumption, and ignores a lot of other glaring issues (like that it was often empty, and is shut down). I can't say whether it was profitable or not, but I know Fresh Market never said it was profitable. So people shouldn't be talking about profitability like it is a fact.


1 person likes this
Posted by Opar
a resident of Duveneck/St. Francis
on Oct 8, 2015 at 5:02 pm

Slow down, the produce selection wasn't large, but the quality was reasonable. Better than the Midtown Safeway. But produce doesn't have great margins.

Fact is, small groceries can be profitable. The notion that Edgewood can't support one is just wrong.


1 person likes this
Posted by Slow Down
a resident of Community Center
on Oct 8, 2015 at 5:42 pm

Slow Down is a registered user.

@Opar I never said Edgewood can't support a small grocery store, but Fresh Market isn't evidence that it can.


5 people like this
Posted by Working Mom
a resident of Duveneck/St. Francis
on Oct 9, 2015 at 7:13 pm

If Andronico's ends up at Edgewood, I will dance with joy (and do 90% of my grocery shopping there)!


4 people like this
Posted by Community Shopper
a resident of Community Center
on Oct 17, 2015 at 10:13 am

Any update on Andronicos? I will be at the door, cash in hand, when it opens. I was a frequent shopper at Fresh Market, even though I found it rarely met my needs (produce was terrible and not seasonal, as all produce was shipped in from Georgia, bread was too sweet and stale, for the same reason). I am more than ready to commit a large portion of my grocery budget to Andronicos when it arrives. It is a wonderful market which I believe will be well-received in this neighborhood.


3 people like this
Posted by palo alto mom
a resident of Downtown North
on Oct 17, 2015 at 11:49 am

I would love to see Andronicos there - and I would like the fine $$ to go to the other stores in the Plaza who moved in with the expectation that there would be a market there. I'm sure its affecting their business.


Sorry, but further commenting on this topic has been closed.

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