Developer makes a stand on Edgewood fines | News | Palo Alto Online |


Developer makes a stand on Edgewood fines

The Fresh Market left renovated center in March 2015, but continues to pay $33,000 a month for unoccupied space

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Lawyers for Edgewood Shopping Center developer Sand Hill Property Company and the City of Palo Alto went head to head on Monday before an independent judicial magistrate over whether the city has any right to fine the company for failing to maintain an operating grocery store at the historic retail center located at 2125 St. Francis Drive.

The city has been ratcheting up the fines since September 2015 after the company did not replace the departing grocer The Fresh Market after the grocery chain pulled out of the shopping center in March 2015. Sand Hill received a Planned Community zoning approval from the city, which included building 10 homes on the commercial property in exchange for certain "public benefits," the centerpiece of which is maintaining a local grocery store as the anchor enterprise.

Developer John Tze said the company grossed about $30 million from the sale of the homes, which sold for about $3 million each. The company was not able to build and sell the homes until a grocer was signed to lease the property and the store was operational.

The Fresh Market opened to great fanfare in the renovated center in June 2013. But one year and nine months later it abruptly closed on March 31, 2015, after the company, which is based on the East Coast, decided to pull out of the California market and retreated back to its southern and Midwestern turf.

Since then, Tze said his company, along with commercial realtor Cushman & Wakefield, have reached out to between 65 and 70 prospective grocers to fill the space. Although they have come close to finding a sub-lessee, a couple of times (Andronico's and Lucky Supermarkets) all of the prospects have failed.

Sand Hill says its hands are tied; Fresh Market holds a 10-year lease and calls the shots regarding who can sublease the property and at what price. The company has not been willing to relinquish the lease, Tze said.

Meanwhile, Sand Hill continues to receive about $33,000 a month from Fresh Market for the lease. Frustrated community groups said they felt the developer has not done enough to put a new grocer in the spot. Sand Hill is in violation of its PC zoning ordinance, they said. Residents pushed the city to fine Sand Hill for violating the terms of its zoning ordinance, which, the city said, requires that Sand Hill have an operating grocer on the site as a public benefit.

On Sept. 30, 2015, the City Council began fining the developer $500 a day under municipal code for violating a zoning law; that sum rose to $1,000 a day starting in October 2015. The council voted to raise the fine again in November to $2,500 per day with the possibility of doubling the fine to $5,000 daily if a grocery store is not operational soon.

So far, the company has paid $630,500 in fines; additional fines have been stayed by the city until after Administrative Officer Lance Bayer determines what, if any, fines are appropriate for Sand Hill to pay.

Sand Hill attorneys David Lanferman and Alyssa Bussey said the company should not have to pay any fines, and if it does, the current fines are excessive. Lawyers said the fines are unconstitutional because they require the developer to go beyond land use and require the developer to maintain an operation.

Bayer said ruling on constitutional grounds goes beyond the scope of the hearing. He found there was enough evidence for the hearing to move forward. His rulings would be confined to the violation and the amount of the penalty.

The Sand Hill attorneys argued that the zoning ordinance requires the developer to only provide the building for grocery use, but it does not provide any provision stating that the developer has an ongoing obligation in perpetuity to provide an operator at the grocery store.

"The land uses in the ordinance call for and anticipate a public benefit providing a grocery store use. There can be no dispute of facts that Sand Hill has done that," Lanferman said. "The city implies a guarantee for the operation."

The city is trying to enforce "an illusory condition," he added.

But Terence Howzell, an attorney for the city, noted that the revised zoning ordinance, which was put in place in November 2013 after Sand Hill erroneously demolished one of the historic Eichler buildings it was supposed to restore, says, "The commercial property owner shall ensure the continued use of the 20,600-square-foot building as a grocery store for the life of the project."

Bayer seemed to agree with that interpretation, noting the clause's "shall ensure" language.

Pressed by Bayer about whether he was aware of that clause, Tze said he had not read the draft revised zoning ordinance prior to the City Council's hearing and approval.

"I didn't recall if it was made available to me as a draft -- I just don't recall," he said.

He said that although he has paid the fines for a year, he did not dispute them initially because he was trying to cultivate a good relationship with the city for potential new projects and he did not want an adversarial relationship to develop.

He said he never viewed the payments as a concession to the violations.

The city's attorney, Howzell, attempted to chip away at Sand Hill's claims of its "good faith" efforts to find a grocer. He maintained that Sand Hill didn't care about the fines as long as they were covered by the monthly rent the developer receives from Fresh Market, but now that the daily fine exceeds that amount, the developer is paying attention.

He pointed out that Tze knew as early as 2005 or 2006 that there would be challenges to get a grocery tenant to stick, based on the site's past history. Tze admitted he knew the site's location and configuration put it at a disadvantage.

Bayer said he was concerned about a 10-year-lease that allowed the developer to continue to receive payments. In deciding if the penalties are reasonable, he has to balance the continued flow of money to the developer with the proportionality of the fines.

"I do believe it can be imposed on a daily basis and it can probably be increased," he said. "Is there a reason why the city should not receive a substantial portion of what Mr. Tze receives?"

He asked both sides to come back with compelling cases for how an appropriate penalty will get to bringing about a grocery store or how to utilize the funds in a way to expedite getting a store.

Tze said the retail grocery store industry is in a tough spot.

"We've even recently seen stores like Whole Foods closing down locations. Contributing to this issue are the fact that retail grocery stores operate on low margins, and the fact that grocery delivery is becoming more and more popular." Edgewood's grocery space is difficult to lease largely because its 20,600-square-foot size is too small for big chains, and too big for most smaller operators.

The Fresh Market is currently drafting a sublease for a new operator for the space; Sand Hill is doing everything it can, including providing more than $300,000 in financing for the new potential operator and the developer is talking with a farmers market to operate in the parking lot one day each week until a grocery store is operational in that space, he said.

The hearing was continued for final arguments on March 6 at 9:30 a.m. in the City Council Chambers, 250 Hamilton Ave.


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24 people like this
Posted by Want a LocalMarket
a resident of Crescent Park
on Feb 14, 2017 at 10:40 am

"....the developer is talking with a farmer's market to operate in the parking lot one day each week until a grocery store is operational in that space..."

No, no, nooooo!
The parking situation at Edgewood is horrific. Even without an operational grocery store, parking spots are well occupied. When the lot hosts the farmers' market stalls, where will customers park?? On the neighboring driveways??

27 people like this
Posted by Annette
a resident of College Terrace
on Feb 14, 2017 at 12:50 pm

Annette is a registered user.

Bad situation all the way around and a perfect example of why CC should never grant upzoning in exchange for a specific tenant such as a grocery. They did the same thing at 2180 El Camino when they let a developer leverage JJ&F's history and long-earned support with impossible promises about JJ&F's future. A deal is a deal; the City should continue to stand its ground.

13 people like this
Posted by Anonymous
a resident of Another Palo Alto neighborhood
on Feb 14, 2017 at 1:26 pm

PC Zoning is a joke. If the City loses, all those PC deals go up in smoke.

14 people like this
Posted by Grocery shopper
a resident of Crescent Park
on Feb 14, 2017 at 1:36 pm

Parking at this site should be two hour max, and the city should start patrolling the lot. Count the number of people in the retail, and you'll find that the lot is being used by people not shopping there. Employees should not be allowed to park there either. There is absolutely no good reason why residents should not be able to find parking here to use the retail.

24 people like this
Posted by the_punnisher
a resident of Mountain View
on Feb 14, 2017 at 1:36 pm

the_punnisher is a registered user.

Isn't it the same developer that was caught running a slumlord situation in East Palo Alto? That they promised substandard housing would be fixed? And it never was? I'd say that they are a victim of their karma. Stand firm, Palo Alto, they made a promise and now want to break it. Either a store or fines, that is their problem, NOT Palo Altos'.

35 people like this
Posted by Never Again
a resident of Duveneck/St. Francis
on Feb 14, 2017 at 2:36 pm

Sand Hill Properties has proven itself to be a disreputable organization.

Too bad the City didn't check them out ahead of time, and get references.... though I doubt that anyone would actually give Sand Hill a good reference.

Very expensive lesson!

28 people like this
Posted by anonymous
a resident of Duveneck/St. Francis
on Feb 14, 2017 at 3:12 pm

I am very discouraged by Sand Hill's apparent lack of good faith all along in this regrettable episode. I hope the City of Palo Alto will refuse to make any future agreements of any kind with Sand Hill Property Company. What an outrage for us neighbors in the community.
A nearby neighbor of Edgewood Shopping Center

Beware of Sand Hill Property Company!

16 people like this
Posted by john_alderman
a resident of Crescent Park
on Feb 14, 2017 at 4:38 pm

john_alderman is a registered user.

Was Sand Hill asked if there was an abandonment clause in their lease with Fresh Market? It is totally standard for a commercial lease, and would allow Sand Hill to take over the lease, and find a new tenant. I suspect they don't want to however, and would rather sit back and collect money on the empty building.

21 people like this
Posted by Hold up other projects
a resident of Leland Manor/Garland Drive
on Feb 14, 2017 at 4:52 pm

Hold up other projects is a registered user.

Can the City refuse to approve any other Sand Hill projects until there is an operating store?

24 people like this
Posted by Ed
a resident of Downtown North
on Feb 14, 2017 at 8:06 pm

No sympathy for Developer John Tze. He agreed to the poison pill in the terms of an excellent example of another 'planned community' fiasco. The only difference, is he's on the hook for fines. Yes, the city should enforce the terms of the deal, and collect the fines. These planned communities have proven to be one of the most idiotic options our city council has used over the years to feign some sort of development savvy when negotiating with developers with their eyes on the pay out prize. Letting Developer John Tze off the hook now would basically send the message, again, that our city govt is driven by, and more concerned with developers pocket books, than residents.

12 people like this
Posted by Curmudgeon
a resident of Downtown North
on Feb 14, 2017 at 9:31 pm

Sand Hill reasonably wants what other PC spot-zoning developers get from city hall--no enforcement of the obligations they agreed to for enhanced development concessions.

3 people like this
Posted by Get a Chinese grocer in there!
a resident of Midtown
on Feb 14, 2017 at 9:44 pm

Does anyone know if Sand Hill has talked to Marina or 99 Ranch? It would be a perfect fit for our changing demographics!

10 people like this
Posted by anonymous
a resident of Duveneck/St. Francis
on Feb 15, 2017 at 9:18 am

@Get a...
Such ideas as yours have been floated before in this forum on other previous threads.
We as members of the public have no accurate way to know what Sand Hill may or may not have attempted other than casual anecdotes such as: that they claim they talked to X chain who declined. For example, perhaps the terms/rent offered was unaffordable, even if an initial discussion with a chain did occur. The whole situation gives every indication of not having been done in good faith as I posted above. Meanwhile, Sand Hill has the huge profit (from the housing they were allowed to install and immediately profit from at the Center - where there was no housing previously, as you may or may not know).

2 people like this
Posted by Anonymous
a resident of Downtown North
on Feb 15, 2017 at 9:24 am

In something that probably went under the radar, Sand Hill leased the Hotel California to turn it into low-incoming housing. Perhaps to get back into the good graces of the city for any future development plans.

Like this comment
Posted by xPA
a resident of another community
on Feb 15, 2017 at 9:55 am

I have no idea how a supermarket can survive at that location.
The demand for a market at that location is both futile and infantile.

If on the outside chance it was successful, the parking situation would make Town&Country parking seem pleasant by comparison.

Palo Alto is reaping the legacy of it's ill-concieved 20K-square-foot market limit.
Perhaps the city should complete its meddling with economic reality and open its own store store.

3 people like this
Posted by Steve Dabrowski
a resident of Duveneck/St. Francis
on Feb 15, 2017 at 12:02 pm

Perhaps the CC will suggest a three story parking garage for the site with an additional two stories of condo's on top. May be under 50 ft.

5 people like this
Posted by anonymous
a resident of Duveneck/St. Francis
on Feb 15, 2017 at 12:44 pm

Perhaps you are unfamiliar with the fact that there was historically a grocer there. Lucky (before the center was renovated).
Also, for some time The Fresh Market occupied the grocer space, but they removed all their stores in the western part of the U.S. The store there was doing all right.
There was sufficient parking near the grocer.
Plus many of us found it fine to walk over to the grocer.
Meanwhile, SINCE the grocer space has been vacated, there have been a ton of cars in the parking lot - I believe these are carpooling commuters using a free lot to park their vehicles because this is convenient to the freeway entrance. IT is NOT intended to be a "park and ride lot" but may have become one since in general this region is short of parking.
What would NOT be OK would be to install a nail salon, liquor store or 7-11 or temporary space for a Halloween store.
It is arguable about the size of the grocer space -- in any case, the developer made a good faith agreement with eyes wide open with the City of Palo Alto and received special concessions so the developer could quickly reap major profits from the semi-high density luxury housing they installed there.

Like this comment
Posted by xPA
a resident of another community
on Feb 15, 2017 at 1:01 pm

I remember when a man was found in the Edgewood Lucky's after closing hours.
When approached he shot out the glass doors and left without saying a word.
You mean that Lucky's? Yes, the good old days.

In all fairness, a market could survive in that space if the prices were sufficiently higher than prices in the surrounding towns. I suspect, without evidence, that the proponents of an Edgewood market might be a bit more price sensitive that the average Palo Alto resident.

Who would not be for a great market with low prices? I'm also fond of low taxes coupled with a high level of services.

1 person likes this
Posted by Me 2
a resident of Old Palo Alto
on Feb 15, 2017 at 1:21 pm

"What would NOT be OK would be to install a nail salon, liquor store or 7-11 or temporary space for a Halloween store."

Why not? Don't you miss Whiskey Gulch?

7 people like this
Posted by Good Reasons
a resident of University South
on Feb 15, 2017 at 2:30 pm

[Post removed.]

11 people like this
Posted by jimh H
a resident of Community Center
on Feb 16, 2017 at 10:16 am

It's very frustrating that Sand Hill does not transparently divulge why every single grocery did not come in. They will not divulge details of the lease or arrangement with Fresh Market. Yet they want the City to eliminate the daily fine. Now we know that when PA was fining them $500/day,they were receiving $1000/day from FM. No wonder not much happened!

Luckys did fine at that location for decades. It's a great location for a smart grocer. A key freeway entrance into Palo Alto and close to East Palo Alto.

So why don't grocers come?

It appears from the little info we have that FM controls the show and has sub lease privileges allowing it to charge higher than market rates for this spot.

Insufficient parking due to giving up so much space to Sand Hill for housing.

These are all Sand Hill faults. Let them pay or take it to court where they will have to provide the transparency needed to evaluate the situation.

2 people like this
Posted by MikeCrescentPark
a resident of Crescent Park
on Feb 16, 2017 at 4:34 pm

When the store was operating I was there many times grocery shopping. It was a very pleasant place to shop and carried most of the things I was looking to buy. But it never appeared to me busy enough to be a success. My family continued to shop at several other stores as well so we also were not spending the bulk of our food dollars at Fresh Market. The conversations that were related with the store manager stating it was making money seem dubious. So I cannot blame the store for closing this location.

Almost since the closing we have followed in detail via our Crescent Park and DSF neighborhood message boards the pursuit of other grocers to take the space. One after another they have declined to commit to opening a store. And there were many. At this point the facts seem clear- no grocer wants to operate in this location. The very people who do this professionally for a business have deemed the site and building not up to their requirements. So it does seem like it's time to move on to a plan B and accept there will be no store no matter how much we like the concept. Unless the city itself wants to get into the grocery business.. I sincerely hope not.

3 people like this
Posted by jim h
a resident of Community Center
on Feb 16, 2017 at 9:08 pm

@MikeCrescentPark- your observations are correct but I think your conclusion is not.

While true that many grocers have not accepted this space, please consider that Sand Hill has allowed FM to sublet the space.There is no transparency regarding what amount FM is asking. It could very well be that the price is too much for a store to move in. But this does not mean the space is unsuitable for a new grocer. Only that Sand Hill wrote a lease without a kick out clause. They could have written the lease to not allow subletting or certainly not allow subletting beyond the price of the original lease which we think is $30,000 per month.

Lucky supermarket operated for many many years at that location. If anything, the location is even better today as the population has grown.

7 people like this
Posted by Let's Talk about Rent
a resident of Duveneck School
on Feb 17, 2017 at 6:49 am

If the rent were low, they could find a store. The developer just has to take back the lease (assuming they have a take back clause), figure out other way to get out of the lease (pay?) or offer another grocery a rebate. If they don't have a take back clause, shame on them. If they have a take back clause, shame on them, too, for not using it!

Like this comment
Posted by MikeCrescentPark
a resident of Crescent Park
on Feb 17, 2017 at 6:58 am

I was also previously a customer of the former Lucky store and to a lesser degree than the Fresh Market. The Lucky store was worn out and it looked like it. They seemed to have ceased investment. It was one of a number of Lucky stores and could perhaps have been carried by the other stores revenues.

I suppose it is possible Fresh Market is asking unreasonable lease terms of prospective new grocers but why would they? If I were an eastern chain Mexico with an orphan lease site thousands of miles away I would reduce my losses. Or if the lease is the issue why wouldn't one of the many that looked at the site mention that specifically?

Obviously I am now into speculation just like what seems to be 80% of our neighborhood but I'm betting our site does not fit requirements for a new grocer.

Good luck to those still looking for a solution.

3 people like this
Posted by MikeCrescentPark
a resident of Crescent Park
on Feb 17, 2017 at 7:01 am

"Exec" not "Mexico"

Probably the most creative error the spell checker has made yet!

6 people like this
Posted by JS
a resident of another community
on Feb 17, 2017 at 10:54 am

Sand Hill Property just received Architectural Review Board approval for their project at 2600 El Camino.

The recent ARB approval of this project was flawed and should be appealed.

The existing 62,000 sf building is legal non-compliant. There are two main areas of non-compliance; 1) the existing 83' high building exceeds the height ordinance by 33 feet, and 2) the existing building has greater than 5,000 sf of office space.

When City revised zoning to CS zone back in 1989, the new CS zoning ordinance allowed the non-conforming features to remain and allowed the non-conforming uses to remodel, improve or replace improvements in accordance with current site development regulations. Current site development regulations only permit a maximum of 5,000 sf of office use on this lot. Any building replacement MUST comply with the 5,000 maximum office space cap.

The whole purpose of the City rezoning the property was to impose a new set of zoning rules (which included the 5,000 sf office space cap). When the CS zoning ordinance was introduced in 1989, the City allowed the old building to stay (so as not to cause a hardship on the owner), but the new zoning would eventually require consistency of all properties in the CS zone. Allowing the 62,000 sf of non-conforming office use to continue in a brand new building is NOT what the ordinance allows and it is inconsistent with the current bias of the City towards allowing more office space.

An appeal needs to be filed within 15 days from 2-16-2017. I am not eligible. Anyone else interested?

4 people like this
Posted by jim h
a resident of Community Center
on Feb 17, 2017 at 11:11 am

Mike, the Fresh Market holds a 10 year lease. I read some time back that they were holding the lease as an asset as they were selling their chain. In Mar of 2016 they sold to Apollo Global. I would suggest that you ask Apollo Global or Sand Hill properties but unfortunately they will not give you any answers. The best thing Palo Alto can do is let Sand Hill sue them and they'll be forced to divulge all of the info as to why the many stores didn't take this space.

I think our job is to absolutely hold Sand Hill to this deal. For a year, Sand Hill was paying a Palo Alto fine of $500/day while taking $1000/day from FM. Don't fold and just say I guess a grocer wouldn't work here. It did in the past and it can in the future. Just stand up to Sand Hill lies and obfuscations.

2 people like this
Posted by john_alderman
a resident of Crescent Park
on Feb 17, 2017 at 11:14 am

john_alderman is a registered user.

@MikeCrescentPark - It wasn't reported in the article, but was said at the meeting that Fresh Market had been asking for more money in their sublease than they were paying. We also know that the lease is $33k a month. So there is still a ton of room to come down to a price point that would work for a grocer.

4 people like this
Posted by KB
a resident of Barron Park
on Feb 17, 2017 at 12:35 pm

I'd say no negotiations with Sand Hill at all. They are stuck with the contract.

If they really wanted a grocer in there, they'd make it happen. Even if they had to rent the space out for peanuts.

They're just being greedy and hoping to get a full-market tenant in there. Barring that, they will keep it empty unless the fines add up to more than the $33,000 per month rent they're still receiving from Fresh Market. The city just has to make it painful enough for them to actually do something.

4 people like this
Posted by Don't approve other projects until there is a grocery store at Edgewood
a resident of Leland Manor/Garland Drive
on Feb 17, 2017 at 3:34 pm

Don't approve other projects until there is a grocery store at Edgewood is a registered user.

The City should simply refuse to approve any other Sand Hill projects until there is a grocery store at this site.

5 people like this
Posted by Laughing
a resident of Duveneck/St. Francis
on Feb 17, 2017 at 6:22 pm

I can't help but see why the residents of Cupertino were so angry with Sand Hill Properties that they VOTED them out of their city!

3 people like this
Posted by CrescentParkAnon.
a resident of Crescent Park
on Feb 20, 2017 at 10:25 pm

-- Meanwhile, Sand Hill continues to receive about $33,000 a month from Fresh Market for the lease.

Fine them take it away from them so they will have to put this building to real use.
Our lives are finite and waiting for Sand Hill Properties to do the right thing is not
something we should waste time on. They know the score well enough to be all
over the Bay Area exploiting cities and making a mint. People and our cities are
more important than the games of this corporate bad citizen.

As others have said ... do not do any more business with Sand Hill until they start
to show that they can think about the bigger picture of what we build cities and
buildings for ... they exist for us, we pay them for adding to our city, not behaving
like the Mafia only thinking about money.

1 person likes this
Posted by Steve Dabrowski
a resident of Duveneck/St. Francis
on Feb 21, 2017 at 5:18 pm

We really liked the Fresh Choice Market when it was here, it was handy, had good quality items and was easy to get to. But that was then, now the lot is almost always full for parking and it spills onto adjacent streets. Sometimes it is necessary to recognize reality, no grocery company is going to invest in a location that is not easily accessed for shopping by sufficient numbers of shoppers. Without adequate parking the revenue just will not be there. Sad to say.

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