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Penalties likely to stand for Edgewood owner

Administrative judge gave glimpses of his potential decision, but advised both sides to settle differences

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An administrative judge on Monday seemed inclined to affirm penalties against Edgewood Plaza Shopping Center owners, which was levied by Palo Alto for failing to maintain a grocery store at the historic center.

Owner Sand Hill Property Company petitioned the hearing before Administrative Judge Lance Bayer, which began on Feb. 13, arguing the City of Palo Alto could not legally fine the company. Sand Hill is not responsible for maintaining an operation at the 2125 St. Francis Drive location, only to keep the building use for a grocery store, attorneys said.

But Bayer said preliminarily he thinks the city's ordinances were properly adopted. Sand Hill's lawyers claimed the city did not give proper notice that fines would be imposed but Bayer rejected that notion. The daily citations Sand Hill has incurred-- from $500 to up to $5,000 a day -- were properly signed by a code enforcement officer. The city had given notice of the violation and had imposed fines for violating the Planned Community (PC) zoning ordinance after an adequate period of time had elapsed, he said.

Sand Hill received a PC 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. The Palo Alto City Council approved fining Sand Hill in September 2015 after the company did not replace the departing grocer, The Fresh Market. The grocery chain pulled out of the shopping center in March 2015. The city began fining Sand Hill for violations of the zoning ordinance because the company has not had a replacement operating out of the space, a situation that has lagged on for nearly two years.

Sand Hill has testified that it put out feelers to 65 to 77 potential operators. With the exception of a couple of nibbles, all others have declined. The company says its hands are tied by a 10-year lease with The Fresh Market that allows the former grocer to sublease the property at whatever price they choose.

Sand Hill maintains it has engaged in due diligence. Its lawyers also argued that the city's vague ordinance language contrasts sharply with other PC ordinances for neighborhood shopping centers such as the College Terrace Centre. In the latter case the city required the property owner to maintain an operating grocery store in perpetuity. The City Council made no such requirement for Edgewood, although it understood how to write such an ordinance if it intended to make Sand Hill responsible for an operator, attorney David Lanferman said.

An ordinance requiring the maintenance of a grocery store in perpetuity also could not be valid; it puts an onerous burden on the owner that doesn't take into account changing winds of commerce. If a company such as Google created robotic grocery delivery service making a grocery store obsolete, it would be unreasonable to have to maintain a grocery store, he said.

But Bayer seemed disinclined to buy those arguments. The PC ordinance requiring the property owner to physically maintain a grocery store "is not ambiguous" and is "reasonable," nor is it hypothetical, he said.

In considering the reasonableness of the law, if for some reason grocery stores were a thing of the past it would be unreasonable to have to maintain a grocer at the site, but as long as it is reasonable the requirement remains valid, he said.

PC ordinances also carry with them an additional burden outside of land-use requirements; something is given to the developer that would not normally be received in exchange for the public benefit. In this case, the developer was permitted to build 10 homes on commercial property worth about $3 million each in exchange for public benefits: a pocket park, electric-vehicle charging stations and the operating grocery store, he noted.

"The public benefits provisions are separate and distinct from land-use requirements and a valid exercise of (the city's) police powers," Bayer said.

Regarding the amount of penalty the city can legally impose, state law authorizes cities to fine a violator of its zoning ordinance, but it restricts administrative penalties for infractions. That's not the case for violations that could be misdemeanors, Bayer said.

"I do find the violations could be charged as misdemeanors. The question is what is an appropriate penalty," he said.

Bayer said he would look at whether Sand Hill took appropriate steps to secure a grocery store. One of his concerns is that testimony the company gave indicated that steps Sand Hill took to search for a new tenant were "reactive rather than proactive to get a grocery store," he said.

Neither side provided Bayer with a copy of the lease agreement, so he couldn't examine its contents. But it is significant that the lease didn't address the vacancy of the structure nor that Sand Hill would have the right to terminate the lease if The Fresh Market didn't reasonably find a replacement, he said.

"To 'go dark' ... and leave the building empty without recourse, without action to evict, is telling as well," he said.

But Bayer's decision would be based on what is an appropriate penalty and how it furthers the goal of securing a grocery store, he added.

"What is troubling to me is that going forward there does not appear to be a resolution. I encourage both parties to get together. ... Both sides are facing the likelihood (that) this isn't going to end. Ultimately, that's the resolution; not necessarily penalties or an adversarial relationship," he said.

Bayer said he expects to have a written decision within 30 days. His decision is subject to judicial review in Superior Court, he added.

Matt Larson, director of public affairs at Sand Hill Property Company, reiterated a previous statement regarding the company's intentions:

"No potential outcome could diminish the urgency that Sand Hill feels to get an operating grocery store into Edgewood. Our goal is to get a grocery store in that space ASAP."

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Comments

14 people like this
Posted by Sand Hill Not Acting in Good Faith
a resident of Crescent Park
on Mar 6, 2017 at 11:11 pm

One of Sand Hill's arguments was that it has acted in good faith. How in heck is it "good faith" to claim it never agreed to provide a grocery store, even though it clearly did? Or knocking down a historic building it pledged to preserve?

And are we really to believe that "no potential outcome" would diminish the urgency Sand Hill feels to find a new grocer, as its director of public affairs states above? That is, if Bayer decides to set the penalty to $0, as Sand Hill requests, would the company really work just as hard to find a new grocer? Given that it would just pocket the rent it's getting right now from Fresh Market, it's absurd to think it would try hard at all.

Perhaps Sand Hill would be wiser to fire its director of public affairs who makes such foolish statements and its expensive lawyers who failed to convince Bayer on any major point and use the savings to pay a grocery to come to the center.


11 people like this
Posted by Carma Barista
a resident of East Palo Alto
on Mar 7, 2017 at 12:08 am

Sand Hills Properties lawyers build a castle out of sand in the court room today. The judge didn't have any problems sweeping the sand out. Sand Hill and Equity Residential work in conjunction to force the working class out of East Palo Alto. Sand Hill never cared then and they could care less at this point. Money is the root of all evil. You can run but you can't hide! Kudos to the city of Palo Alto for standing up!


17 people like this
Posted by Simon Hu
a resident of another community
on Mar 7, 2017 at 1:06 am

Sand Hill likes to make promises that they change along the way for reasons of maximizing their profits. Look no further then the Main Street project in Cupertino. What was promised is different from the final product. Glad to see elected officials in Palo Alto stand their ground and fight this. Elected officials in Cupertino can learn a thing or two from Palo Alto. The definition of serving the citizens.


22 people like this
Posted by Dont approve any new Sand Hill projects
a resident of Embarcadero Oaks/Leland
on Mar 7, 2017 at 7:43 am

Until there is an operating grocery store, the City should not approve any other projects proposed by Sand Hill.


31 people like this
Posted by No More
a resident of Another Palo Alto neighborhood
on Mar 7, 2017 at 8:56 am

Sand Hill is a notably dishonest company, regardless of what their PR publications say!

Cupertino had very valid reasons for taking their problems with Sand Hill to the voters! The result was that Sand Hill Properties have been legislated out of Cupertino. Palo Alto needs to force Sand Hill to keep their contract promises and get a grocery store in Edgewood.

Sand Hill is already being paid by Fresh Market, and can afford to lease the space for below-market rates!


6 people like this
Posted by new perspective
a resident of Another Palo Alto neighborhood
on Mar 7, 2017 at 10:26 am

Considering the serious traffic, circulation and parking issues around Edgewood, leaving the store vacant is not the worst outcome at this point.






11 people like this
Posted by Sue Allen
a resident of Adobe-Meadow
on Mar 7, 2017 at 10:44 am

Find a low-end grocery store that people will want to use! The Grocery Outlet at Alma and East Meadow is always busy and I use it a lot. Before that there was an expensive, all-organic, specialty store that went out of business for lack of customers. Would Grocery Outlet put another store in at Edgewood? Or talk to WalMart. They are now doing small neighborhood grocery-only stores. My daughter lives in another state and has one near her. It's great! Not everyone in Palo Alto is snobby about their grocery shopping. The ones who are can go to Whole Foods.


8 people like this
Posted by jim h
a resident of Community Center
on Mar 7, 2017 at 11:11 am

Sand Hill made a horrible business decision by writing a lease with FM that allows them to sublet he space for more than they pay. So FM is holding out to lease the it for more than they pay.

Another grocer will not come in and pay more than FM is currently paying. Sand Hill needs to negotiate FM out of the lease so that the space becomes available at fair market - not what FM wants.

The fine is costing Sand Hill $150,000/month and FM is losing $30,000 per month. Both are losing money. And the community is losing a grocery store. I'd like to see a Roberts of Woodside market. They run 2 successful stores in Portola Valley and Woodside.


11 people like this
Posted by LM
a resident of Crescent Park
on Mar 7, 2017 at 11:19 am

Sand Hill Property is clearly at fault and should pay through the nose. Unfortunately, this will not bring a grocery store back to this location. I live in this neighborhood and it is completely obvious that there is zero possibility of running a grocery store at this location NOW.

THERE IS NO PARKING AVAILABLE DURING THE DAY. Can you run a grocery store with no parking? Has anyone from the City taken a look at the area in the past year? The only solution would be to add roof parking to the existing building and that is not going to happen.

This all went very wrong along the way.


14 people like this
Posted by Crescent Park Dad
a resident of Crescent Park
on Mar 7, 2017 at 2:29 pm

There was plenty of parking when FM was open. I will agree that not all of the other stores were open at the time. However, it is obvious that there are people using the parking lot for carpooling and/or all-day parking while they go into downtown or Stanford.

I'm sure if SH place a 2-hour parking limit in the lot and have a person checking the automobiles (like T&C does), you would find the parking lot to be fine.


7 people like this
Posted by Follow the Money
a resident of Duveneck/St. Francis
on Mar 7, 2017 at 2:32 pm

The most telling comment from the Admin judge was that he hadn't seen the lease! So Sand Hill could say anything it wanted to about how helpless it is. How much is Sand Hill getting a month? Did Sand Hill give FM low rent to induce it to come here, maybe with an escalator clause> Are there really no buyout provisions? It's all guesswork until all these details become available, preferably to the public, but certainly to the city and the judge.

LM's comment about the parking sounds daunting. But how much of that parking is from the converted TM building with its new crop of workers? Any market that chose to come to Edgewood could limit parking to shoppers, the way banks do all over our crowded peninsula towns. And this would be a perfect time to put in a parking lot across the fwy for workers to park in, which also might get the city started on solutions for the downtown and California Ave.


7 people like this
Posted by Larry Kavinoky
a resident of College Terrace
on Mar 7, 2017 at 3:04 pm

It would seem to me that Sand Hill could buy out the stupid lease they signed in the first place and then get a grocer to come in and operate with a zero lease for the building if that is what it takes to get an operator in place. I wonder if any grocery operator told Sand Hill how much rent they could afford to pay.

It is Sand Hill's problem and maybe in the future they will hire better lawyers to not leave them in this situation where the lease they signed did not require the operator to remain open.

It certainly is not our problem and kudos to the city for finally sticking it to a shady developer who makes big promises in public and then reneges in the fine print.


5 people like this
Posted by Aisha M
a resident of Nixon School
on Mar 7, 2017 at 3:40 pm

I like the idea of Grocery Outlet! Roberts is over priced the same way Fresh Market was.


9 people like this
Posted by Professorville Resident
a resident of Professorville
on Mar 7, 2017 at 4:35 pm

Sand Hill properties created the lease.
It was *their job* to ensure that the lease would allow for a grocery store into the future.

If they didn't, then they absolutely must pay the penalty. They've already reaped the reward-- at $30 million for the houses, plus the rent they're receiving, they're likely not even cashflow negative at the current penalty per day. The penalty needs to increase.


1 person likes this
Posted by new perspective
a resident of Another Palo Alto neighborhood
on Mar 8, 2017 at 12:02 pm

@CPD "There was plenty of parking when FM was open" because there were no customers in there. There are more problems than just the number of spaces - the circulation pattern and congestion at the Edgewood node with the freeway off-ramp stream of cars, the gas station driveways,and parking lot is a total mess.


8 people like this
Posted by john_alderman
a resident of Crescent Park
on Mar 8, 2017 at 1:04 pm

john_alderman is a registered user.

@new perspective - You are right, but it is Sand Hill's fault. They knew what they were getting into when they replaced half the parking with houses, now they have to deal with the consequences.


2 people like this
Posted by Another Long Time Resident
a resident of Old Palo Alto
on Mar 10, 2017 at 12:29 am

I think Palo Alto must share some of the blame for this problem.
I have been using the Edgewood Plaza shopping Plaza since 1959!
I saw it go downhill over the years as I grew older.
I was hoping that this parcel would be re-developed or "refreshed" even before Lucky's and Albertsons departed.
The parcel had become an eyesore and an embarrassment for our city.
First impressions are important, and this particular parcel is "key" since it is one of the main entrance points into our city and also to Stanford.

I think part of the problem was that the city once had a restriction on the allowed size of any supermarkets built in this city. (If anyone recalls the specifics of this, please post them for us).

I know that John Tze tried to get a market because I put him in touch with Railey's / Nob Hill Foods years ago. Railey's told me that they were not interested in operating a supermarket if it was less than 50,000 sq. feet. John told me that he would have loved it if Railey's decided to operate in this space, since they would also be able to properly maintain the property.

If I were the owner of this property, I would want a reliable retailer occupying the space since it would add security and value to the parcel.

I think our city had a size restriction, and this put limitations on the developer in finding a market which would want to operate such a small store.

I had suggested Grocery Outlet, but they had already made plans with the other developer.

I'm just a long time resident who happened to grow up near Edgewood Plaza. I wish that it would have been redeveloped decades ago, so my parents and their neighbors could have walked there to do their shopping when they became older, but the project stalled for so long, that they have all passed on.




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