City looks to change, cement retail-protection law

Palo Alto City Council denies request for exemption from law; agrees to allow more uses in peripheral downtown sections

Retail in Palo Alto is easier to appreciate than to preserve, particularly at a time when soaring rents drive shops out of downtown, and encourage property owners to convert the vacated buildings to the much more lucrative office use.

To stem the tide of such conversions -- which in recent years befell Zibbibo, Rudy's Pub and Jungle Copy -- the City Council last year passed an emergency law prohibiting the practice and mandating that all ground-floor stores remain reserved for retail. Passed as an emergency measure in May 2015, the law was extended in June of that year and is now set to expire on April 30, 2017.

On Monday, in a wide-ranging discussion of the retail-protection ordinance, the council took a step toward preventing this expiration when it directed staff to slightly modify the ordinance and to make it permanent. Yet the council also grappled with one of the thorniest dilemmas surrounding the new law: What to do with those businesses that stand at downtown's peripheral areas, where foot traffic is insufficient to support retail operations?

The question was prompted by the Morris family, which recently saw Addison Antiques depart from its longtime location at 100 Addison Ave., near Alma Street. Michael Morris argued that the building is too small and too far from downtown's commercial core to attract a replacement retailer. His family, he said, has not had income from the property since July 2015 but has had to carry the costs since then.

Morris claimed that he had offered the property at well below the market rate, but still had no takers. The building, he said, has become a financial burden. And the impending relocation of Anthropologie, a longtime tenant at the nearby building, at 999 Alma St., to Stanford Shopping Center in November will make the block even less viable for retail, he argued.

"This is not a retail area. I think we all know it," Morris said. "This location, which is proximate to single-family residences, will not be conducive for all of the retail categories listed in the ordinance."

Morris is one of several property owners who in recent weeks raised concerns about the retail-preservation ordinance and its effect on their businesses. He is the only one, however, who challenged the prohibition by appealing for a waiver, claiming hardship.

The council on Monday night heard his case and ultimately denied by a unanimous vote his request for an exemption. Yet in a nod to Morris' concerns, the council also expanded the uses that would be allowed in that specific area of downtown (known as SOFA II). By a 5-3 vote, with Karen Holman, Tom DuBois and Greg Schmid dissenting and Eric Filseth absent, the council agreed to make educational facilities a permitted use in this downtown section.

The council's decision to modify the retail-protection ordinance followed a long debate in which members weighed their desire to protect existing stores against a recognition that some parts of the city just aren't as suitable for shopping as others. To that effect, the council agreed Monday that when it passes a permanent ordinance next year, the new law should create some additional flexibility for parts outside the downtown core, with more uses allowed in areas where retail is less viable.

The council was equally united in concluding that for the ordinance to have any teeth, exemptions should be avoided.

"The question we face is: How do we distinguish between greed and hardship and tell the difference?" DuBois said. "The retail protection of ground-floor space won't have any effect if we just grant exceptions when someone complains."

DuBois and his colleagues quickly acknowledged that keeping retail will, in most cases, be a far less lucrative option for developers than offices. And while they struggled to specify exactly what would constitute a real hardship for landowners, they agreed that 100 Addison Ave. falls short of that threshold.

Holman, who proposed denying the application, raised concerns about developers "gaming the system" by claiming exemptions. She suggested that the building -- while somewhat ill-suited for traditional retail because of its industrial character -- can support "creative" uses such as a design firm or a nursery.

Holman also suggested that because the developer raised the rent on Addison Antique, he in a sense created his own hardship. (Morris countered that he didn't intend to raise rent and only proceeded to do so after the store tenants requested a switch from a two-year lease to a one-year lease in the aftermath of Anthropologie's relocation announcement).

"If I owned that property I'd be working closely with owners of Anthropologie to create an environment there that would be a destination place and something that the community can support and embrace," Holman said. "I'm not persuaded a real attempt has been made to get retail uses that can attract that kind of space."

Morris isn't the only property owner to raise concerns about Palo Alto's new rule. Boyd Smith, owner of 425 Portage Ave., claimed that his building should be exempted from the retail-preservation ordinance because it is -- at least in a legal sense -- a warehouse. A letter from his son, Lund Smith, stated that the building has "always operated as a warehouse," most recently for Pet Food Depot.

Now Pet Food Depot is preparing to move out and the family is "faced with the tremendous hardship of trying to lease out this building to a retail user even though it is a warehouse building surrounded by office buildings.”

But the argument that Pet Food Depot isn't "retail" quickly fizzled after several residents publicly recalled their frequent shopping trips to the store to buy dog food and other pet essentials.

Jeff Levinsky noted that the business is advertised as a store on its website and is listed as such on Yelp. Just to make sure, he visited Pet Food Depot earlier and bought a squeaky tennis ball, which he proceeded to squeak for the council during his presentation.

"They didn't ask me if I was a wholesaler or if I was going to be reselling it at all," Levinsky said. "It's a store."

The Portage Avenue issue wasn't a formal waiver request and, as such, did not require a vote. Neither did an argument from the company Vance Brown, which recently bought a neighboring building at 3241 Park Ave. with the intent of using it to expand its office space. The problem, however, is that the building had previously housed a auto-service shop, Park Avenue Motors. This means that the building, under the city's new law, would have to remain retail.

Vance Brown challenged this interpretation, noting that an auto shop is not an allowed use in the "general manufacturing" zone (where 3241 Park is located) without a conditional-use permit, which the property owner never obtained.

"This incorrect designation makes no sense given the complete zoning history for this property and its location, its isolation from other retail uses and given that Park Avenue Motors was imminently vacating the building," a letter from the property owner, 3241 Park Boulevard, LLC, stated.

The council didn't make any decision on the Park Avenue property on Monday. But in an unanticipated move at the end of the discussion, members began to lobby for new uses that should be allowed on the fringes of downtown, where traditional retail may be hard to entice.

Mayor Pat Burt's proposal to include medical offices and educational facilities in these areas fell by a 4-4 vote, with Holman, DuBois, Scharff and Schmid dissenting. A separate proposal from Scharff, which included education facilities but not medical offices, fared better, advancing 5-3.

"I think that would be really helpful for those broader uses outside of the downtown core," Scharff said, referring to the broader criteria.

The council also agreed in the waning minutes of Monday night that it will need to have another full discussion of the broader retail-protection ordinance before it finalizes the permanent law, which it plans to adopt next spring.


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38 people like this
Posted by World's tiniest violin
a resident of Midtown
on Aug 23, 2016 at 4:02 am

The Morris family is reaping what they've sown. I personally heard about the rent hike during my last visit to Addison Antique, which like so many other former businesses here was only forced out because of greedy landlords. If the Morris family had their way I wouldn't be suprised if that location was turned into yet another startup office space/unicorn incubator--as if we need more workers who commute in. Which would incur public costs that would, in turn, end up subsidized by locals.

27 people like this
Posted by Palo Alto does not need any more office space
a resident of Embarcadero Oaks/Leland
on Aug 23, 2016 at 8:03 am

I am happy to hear that the City Council is making the retail law permanent and encouraging creative use of some of the safe that is not in a traditional location. I would personally be happy to have zero new office space for a period of time. I would also be fine with exempting the Stanford parc from the ban.

20 people like this
Posted by Ugh
a resident of Old Palo Alto
on Aug 23, 2016 at 8:57 am

Ugh is a registered user.

That City Council meeting last night was a complete embarrassment to everyone involved. Between Council not understanding the meaning of "GF retail" and staff interpretations of the ordinance that they cannot explain or justify, it was a complete train wreck. Then we get to the eleventh hour and Council decides that there needs to be some sort of restitution for the Morris family, who has been trying to get in front of them for over a year, and they putz about trying to pull an ordinance amendment out of thin air to quell the situation. Never mind that this amendment to the interim ordinance will be obsolete in April of 2017. This ordinance should never have included illegal, non-permitted uses. The Pet Food Depot and Park properties would not be classified as retail if planning staff were creating zoning today, so they should not be forced to continue operating under a half-baked ordinance. Staff really messed up when they created the wording of this interim ordinance and City Council clearly didn't do their homework to even understand what the ordinance is saying. Good luck trying to live in a changing world trying to force bad retail at all costs.

13 people like this
Posted by TorreyaMan
a resident of Palo Verde
on Aug 23, 2016 at 10:36 am

TorreyaMan is a registered user.

I too shop at Pet Food Depot, and have, too, for many years, including their former location on El Camino. I do wonder, though, if ground floor in general is to be permanently designated as retail, won't that lead to rent inflation, as owners try to recover the lost potential income from higher rent office use? Then we will end up with an increasing percentage of upscale retail bling which many of us have little interest in, and also a revolving door of businesses which find they cannot afford the rent in the long run.

8 people like this
Posted by Yu-Pei Kwoh
a resident of Crescent Park
on Aug 23, 2016 at 11:34 am

At a time when retail industry as a whole is facing uncertainty at the hand of internet shopping, is it wise to make retail protection permanent? I am all for retail business, especially owner-managed small businesses. But trying to stop the fading away of retail reminds me of the Chinese man who stood firm before the moving tank during the Tiananman Incident.

16 people like this
Posted by commonsense
a resident of Adobe-Meadow
on Aug 23, 2016 at 1:07 pm

Not a bad idea in some circumstances but in the case of Portage and Addison, give me a break. There would be no loss to the citizens of Palo Alto if these locations were not retail. Furthermore, wasn't Jim Keen, our city manager, instrumental in getting the approval of the future society, or whatever it's called at the corner of Hamilton and Emerson, to be considered retail? What a joke! That is exactly what we don't need in the middle of our downtown.

17 people like this
Posted by Trixie
a resident of Crescent Park
on Aug 23, 2016 at 1:07 pm

I had to laugh when I read about Boyd Smith having to face "tremendous hardship" at the prospect of trying to lease the Portage property, currently occupied by Pet Food Depot, to a retail user. The Smith family has become incredibly wealthy from owning, managing and leasing property. Boyd Smith is the "S" of WSJ Properties, a real estate development/management company that started in the 70's and made a fortune during the Silicon Valley boom. If the Portage property is never leased again it won't cause any "hardship" at all. The hardship falls on the retailers trying to keep up with the ever increasing rent from the greedy property owners.

13 people like this
Posted by tangledweb
a resident of Downtown North
on Aug 23, 2016 at 1:22 pm

[Post removed.]

4 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Aug 23, 2016 at 1:50 pm

I am wondering whether there is any city definition of "retail"? Does retail have to sell goods or can it be selling service? Can a dentist, tax office, tutoring service, gym, nail salon, yoga studio, judo studio, hair salon, etc. all be classed as retail?

I am not against any of these businesses, in fact use some of them myself, but I ask because we seem to be getting a huge number of these service providers in what I would have thought of as retail areas.

8 people like this
Posted by NoMoPa
a resident of Another Palo Alto neighborhood
on Aug 23, 2016 at 2:09 pm

@Resident - Probably not a coincidence that those kinds of services don't have the same online competition that retails does.

I'm a strong proponent of preserving retail downtown, but it isn't reasonable to include 100 Addison Ave. in that category. Forest or Homer should be the boundary. There is no compelling reason to have retail at Addison & Alma.

4 people like this
Posted by what is retail
a resident of Community Center
on Aug 23, 2016 at 2:25 pm

There was some discussion about the definition of retail. They will come back with more information.
I noticed that Pat Burt kept pressing for medical offices to be considered retail. [Portion removed.]

4 people like this
Posted by Longtime Resident
a resident of Another Palo Alto neighborhood
on Aug 23, 2016 at 6:14 pm

I believe ground floor retail would include any business that sells actual products from their site OR services.

So medical, dental, insurance and even real estate offices, would be considered okay, under the former "GFR" designation. Please do correct me, if I am wrong.

The idea was to protect from having too many office workers in downtown districts. For that matter, California Avenue also had a GFR ordinance in place. Not for Cambridge Ave, or the other side-streets. Just for California Avenue only, and from El Camino Real to Park Boulevard.

After all these years, anything done for University Avenue ought to be done for California Avenue too, unless it made no sense to do so. Protecting GFR and that would include medical/dental/insurance/real estate services, makes sense.

6 people like this
Posted by KenAgain
a resident of another community
on Aug 24, 2016 at 5:25 am

If mandatory rent increases, adding all building repair (several needed) and mandating 2years for a 10 yr tenant isn't changing the rent then - well- sounds like a rent increase. But Morris said he wasn't increasing the rent. OK

1 person likes this
Posted by KP
a resident of South of Midtown
on Aug 24, 2016 at 3:09 pm

@Trixie - GREAT POINT!
Also, keeping ground floor as retail keeps the price down. No crazy rent increases - they would keep the rent affordable or not have a tenant at all...owners/managers, you decide!

9 people like this
Posted by Jack
a resident of Another Palo Alto neighborhood
on Aug 24, 2016 at 9:27 pm

Palo Alto retail should be zoned in locations that make sense given the current retail realities (yes, this means that zoning must be updated from time to time). Bad retail locations mean bad retail performance. Basing permanent retail locations on the specific locations that just happened to exist on an arbitrary date back in March of 2015 is nonsensical and plainly stupid. Prior to the time when the City imposed that emergency retail preservation ordinance, not one City staff person did an inventory of where existing retail was located and whether those locations made sense. Now, City Council is about to just grab that same group of retail and zone it retail for perpetuity. Council is so worried about not having to consider any complaints about why retail does not work for a location, they have instructed Staff to craft new language that eliminates the possibility for any property owner to make a case that retail is inappropriate for their location and be exempt from a retail zoning designation. All of this is a knee jerk reaction to our City government allowing Tech to take over a significant amount of traditional downtown ground floor retail space like Jungle Copy, Waterworks, Zibibbo, etc.). Govern to return those spaces to retail, but don't go bat xxxx crazy at the same time. That last Council meeting was SO painful to listen too!

10 people like this
Posted by Random
a resident of Downtown North
on Aug 25, 2016 at 8:56 am

I suppose everyone forgets what a ghost town downtown was in 2008 to approximately 2010. Knee jerk is the operative phrase here. Council wants their hands on everything because they are afraid of an irrational citizenry.

Separately, when there is a downturn, rents go down. When there is a boom, rents go up. Nobody hails the property owner for reducing rents (out of necessity so the building is not vacant) in a downturn, so why do people vilify the property owner when rents go up in a boom and point to greed? Last I checked, we are all operating in a capitalist system. If you want communism and look down upon the profit motive, perhaps you are better suited living elsewhere. There is something called supply and demand. To paint owners as greedy is not entirely fair. If you were a property owner, you would do the same thing. Property owners are not charities. They are there to make money, just like their tenants.

Office space is not used as such indefinitely. It happens to be the flavor of the month given the economy. I have lived here long enough to know that Palo Altans have become increasingly grumpy and fickle. Palo Altans do not like a lot of people in downtown because of traffic and too many techies. Yet these people are the ones doing the shopping at the retail Council insists exists in specific areas of the city.

Everyone - get a grip.

6 people like this
Posted by Trixie
a resident of Crescent Park
on Aug 25, 2016 at 11:07 am

Wow, Random. I remember the few vacancies on University Ave. during the recent economic downturn. I think the reason the property sat vacant was because the property owners were used to exorbitant rates and could afford to hold out till things got better, which it did. The property owners are so rich they'd rather have their property sit vacant than settle for lower rent. I really don't feel sorry for them. [Portion removed.]

11 people like this
Posted by Random
a resident of Downtown North
on Aug 25, 2016 at 12:06 pm

Trixie - think about the number of assumptions and leaps you have to make to come to your conclusion. The problem with citizens is they take their "I thinks" and turn them into absolute fact.

1. "Property owners were used to exorbitant rents" - have you canvassed local owners or researched what rents in downtown used to be as compared to now, or simply assuming that the rents charged were exorbitant?

2. "Could afford to hold out until things got better" - if you say these owners are as greedy as they are, then do you really think they would allow their building to remain vacant and hemorrhage cash and lose money for over a year and half to hold out for their rent, or do you think they would accept market rent for a year or two until rents picked back up and then charge market rent? If these owners are truly greedy, they sure as heck would not want to burn monthly mortgage, property tax, and insurance payments and have nothing to show for it. Sure, as you suggest, maybe they are so rich that they could afford to eat the cost, but that is not how business works and that is not how a shrewd investor would think.

This is not an exercise in feeling sorry for anyone. It is about understanding each party's position without taking absolutist positions simply because the big bad greedy owner is a monster who must be sleighed.

Substituting in your own opinions - and they are really just that - about how much one "should" make does not make for an inclusive community. Many property owners are long time owners serving this community for years. My point is, they too are members of this community who ought to be looked after.

What's next...controlling the type of retail tenant that goes in a location simply because the citizens feel uncomfortable with a specific type of business?

Assumptions should not be substituted for facts, and the people of Palo Alto ought to be far more intelligent than to succumb to this type of thinking.

4 people like this
Posted by Trixie
a resident of Crescent Park
on Aug 25, 2016 at 2:05 pm

[Portion removed.]

I do know what apartment dwellers are going through. My friend lives in a dilapidated multi-unit apartment building close to the railroad tracks whose rent increases every year because, according to the letter she received from the owner, "it's what the market will bear." Nothing to do with maintenance or property upkeep (there is none), just that all the other property owners in the are raising rents (they all talk to each other) so we will too. [Portion removed.]

2 people like this
Posted by Me
a resident of Old Palo Alto
on Aug 26, 2016 at 9:04 am

[Post removed.]

2 people like this
Posted by Marc
a resident of Midtown
on Aug 30, 2016 at 11:18 am

To all: Why are landlords aways "greedy property owners"?

To all of those that own property, why do you sell your homes for the current market price instead of selling it for what you bought it for plus a tiny increase in value? Why are single family home owners never "greedy" for jacking up the price to whatever the market can bear?


5 people like this
Posted by ClueLess council
a resident of College Terrace
on Aug 30, 2016 at 3:27 pm

[Post removed.]

4 people like this
Posted by Kenagain
a resident of another community
on Aug 30, 2016 at 7:28 pm

Just zone it for housing - part of the neighborhood, no more jobs, walk to downtown. Makes sense.

1 person likes this
Posted by MP Resident
a resident of Menlo Park
on Aug 31, 2016 at 8:55 am

How about we zone for housing or retail, instead of passing yet another buggy-whip protection ordnance? Much of retail is a shadow of its former self due to competition, not office space.

Also, the post-boomer generations mostly don't see shopping as a form of entertainment.

1 person likes this
Posted by Trixie
a resident of Crescent Park
on Aug 31, 2016 at 9:33 am

MP Resident wrote: "Also, the post boomer generations mostly don't see shopping as a form of entertainment."

Try finding a free parking space at Stanford Shopping Center on the weekend; shopping is indeed a "form of entertainment."

4 people like this
Posted by Free Market Anyone?
a resident of Downtown North
on Aug 31, 2016 at 4:52 pm

I would encourage everyone to read this NYT article:
Web Link

Mayor Patrick Burt, in a continuation of the train of thought that created the moratorium referenced above; "[…] is considering enforcing a ban on coding at ground zero of Silicon Valley." - THOMAS FULLER of the New York Times.

Have the Mayor and City Council gone completely MAD? Look, I grew up in Palo Alto in the 80s, and I live here now; I know firsthand how much this place has changed, some of which is for the better (you’re welcome John and Jane Doe that bought a house for 357k and will sell for 2.5MM), some of which is for the worse (the invisible hand apologizes to those whose children will not be capable of buying a home down the street from Mom and Pop). Here’s the rub: change is inevitable, and while the Mayor and City Council should aim to make Palo Alto a great place to live, they SHOULD NOT impede progress, nor should they infringe on the FREE MARKET.

Mayor and City Council: DO NOT DICTATE to landowners what they are to do with their land - i.e. telling them specifically and exactly what kind of business to put on their already zoned for business property; DO NOT DICTATE to INNOVATORS that they can’t start a business based in RESEARCH AND DEVELOPMENT (anyone reading this article on an HP?). Mayor and City Council, have you forgotten what makes Palo Alto special? There are many cities in California with tall trees and a University nearby. No other city can boast that it is the heart of Silicon Valley. Do we tell LA no more entertainment companies? Do we tell NYC no more financial firms? No, we don't. This is a FREE MARKET. Please, remember that.

Keep Silicon Valley in Palo Alto, keep Palo Alto in Silicon Valley.

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