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Medical offices at Town & Country? City Council not sold on shopping center proposal

Palo Alto delays decision on request from Ellis Partners, sends issue back to planning commission

Patrick James is one of several shops at Palo Alto's Town & Country Village that shut down during the pandemic. Embarcadero Media file photo by Magali Gauthier.

With the retail scene at Town & Country Village reeling from the effects of COVID-19, the shopping center's owners are looking to medical offices for a cure.

Under the proposal that Ellis Partners presented to a somewhat skeptical City Council on Monday, the shopping center at the corner of El Camino Real and Embarcadero Road would be able to fill up to 10% of its retail space — or about 15,000 square feet — with uses such as medical clinics like One Health, acupuncture practices and medical spas.

The shopping center's struggles predate the pandemic, said Dean Rubinson, director of development at Ellis Partners. In 2016 and 2017, retailers that focus on apparel, toy shops, cosmetics stores and bookstores saw their sales fall as e-commerce became more dominant. That trend, he said, prompted a spike in the city's vacancy rate from 1.4% in 2018 to 8.2% in 2019. The vacancy rate then dipped to 4.6% in 2020 before spiking to 18.6% this past January, largely because of the second threat: the COVID-19 pandemic.

Now, with establishments such as Mayfield Bakery, Sweaty Betty and Patrick James recently departing, the vacancy rate stands at 22.9% and Ellis Partners believes conditions will get worse before they get better. Before the pandemic, the shopping center had 68 tenants. Today, it has 50, Rubinson said. The company has worked with the shopping center's tenants to restructure leases or to offer rent abatements, said Jim Ellis, managing partner at Ellis Partners. In most cases, these involved reducing rents by between 30% and 50%, he said.

Rubinson said the company has done "everything we can" to keep retailers from leaving.

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"We have treated our tenants fairly. We care very much about this asset and we believe that really allowing medical office use to some degree is a significant part of the solution to prevent a death spiral of Town & Country," Rubinson said. "Town & Country relies on foot traffic and medical office uses will be a very important complement in the solution creating a future for Town & Country."

The council, however, did not entirely buy the explanation. While several members, most notably Alison Cormack and Greg Tanaka, supported giving Town & Country more flexibility to introduce medical uses, most of their colleagues suggested that medical offices would constitute a permanent solution for a temporary problem.

Council member Greer Stone was among the skeptics. He challenged Ellis' narrative and suggested that the shopping center's relatively low vacancy rate in 2019 belies its assertions that e-commerce poses a significant threat to its retail scene. With COVID-19 vaccinations underway and students preparing to return to Palo Alto High School and Stanford University in the coming months, business will pick up, Stone said.

"It just seems clear the current vacancy rate is at the result of the pandemic and we'll likely see a dramatic change to their vacancy rate in the coming months," Stone said.

Council member Lydia Kou agreed and suggested that many other types of businesses throughout the city are facing problems similar to those at Town & Country. As such, the council should focus on strategies that benefit businesses throughout the city, rather than a single property owner.

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"I truly think we are jumping the gun (by) looking at this first," Kou said. "We should be looking at the entire program comprehensively and then going about making a decision with more information to help us decide."

Vice Mayor Pat Burt offered what he called a "modest compromise": a condition that would only allow Ellis Partners to sign leases with medical services over the next two years.

"I think that we want to strike a balance between retaining a true retail atmosphere and acknowledging some transition in the different forms of retail that are occurring," Burt said. "And even though I think that we will see some significant rebound from where we are right now, we have an uncertain future in retail."

His proposal fell by a 3-4 vote, with only Cormack and Tanaka joining him. With most members showing little appetite for losing any retail space, a split council settled for a more conservative approach: directing its Planning and Transportation Commission to craft a definition for "retail medical services." Once that's done, the council would consider whether to allow businesses that fall under this definition to set up shop at Town & Country.

The swing vote was Stone, who opposed the initial motion but supported the revised one that sent the issue back to the Planning and Transportation Commission. Kou, council member Eric Filseth and Mayor Tom DuBois voted against both motions. DuBois suggested that the proposal for medical offices at Town & Country runs directly against the council's goal of protecting retail.

"It's hard to imagine where we'd protect retail if not in the retail shopping center," DuBois said.

While the council's vote falls well short of what Ellis Partners was looking for, it leaves the door ajar for allowing a wider range of uses in the future, both at Town & Country and at other locations. It also remits the issue back to a planning commission that has already spent considerable time and energy in debating the proposal. At its Feb. 10 meeting, the commission rejected an earlier request to allow 20% of Town & Country ground floor space to be converted to medical use but approved the conversion of 14% of ground-floor spaces for such use. The commission, which was split on the issue, also stipulated that all of these tenants would have to be signed in the first year and that Town & Country would not be allowed to extend the leases.

After the planning commission's review, Ellis Partners revised its proposal to limit medical service to 10% of the shopping center's ground-floor space and to remove any stipulations that would make the switch temporary. The city's planning staff also came out against the term limit, noting in a report that this may "require the termination of a successful business in 10 years, may be disruptive to residents using those medical services and upfront tenant improvement costs may discourage some tenants from signing a lease that cannot be extended."

While the council's vote on Monday allows the conversation to continue, it does not commit the council to approve medical uses at the shopping center. Stone noted that even with the more conservative approach, he may not support the conversions proposed by Ellis Partners.

Tanaka, meanwhile, strongly supported allowing medical uses, which he suggested will create move foot traffic at Town & Country and provide a tangible benefit for local residents, some of whom may take advantage of these services. Converting some retail into medical uses can be "a win-win from multiple angles," he said.

"I hope we can try this experiment because I think we really need it right now, especially given the really, really uncertain economic times," Tanaka said.

Find comprehensive coverage on the Midpeninsula's response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.

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Medical offices at Town & Country? City Council not sold on shopping center proposal

Palo Alto delays decision on request from Ellis Partners, sends issue back to planning commission

by / Palo Alto Weekly

Uploaded: Mon, Mar 22, 2021, 10:20 pm

With the retail scene at Town & Country Village reeling from the effects of COVID-19, the shopping center's owners are looking to medical offices for a cure.

Under the proposal that Ellis Partners presented to a somewhat skeptical City Council on Monday, the shopping center at the corner of El Camino Real and Embarcadero Road would be able to fill up to 10% of its retail space — or about 15,000 square feet — with uses such as medical clinics like One Health, acupuncture practices and medical spas.

The shopping center's struggles predate the pandemic, said Dean Rubinson, director of development at Ellis Partners. In 2016 and 2017, retailers that focus on apparel, toy shops, cosmetics stores and bookstores saw their sales fall as e-commerce became more dominant. That trend, he said, prompted a spike in the city's vacancy rate from 1.4% in 2018 to 8.2% in 2019. The vacancy rate then dipped to 4.6% in 2020 before spiking to 18.6% this past January, largely because of the second threat: the COVID-19 pandemic.

Now, with establishments such as Mayfield Bakery, Sweaty Betty and Patrick James recently departing, the vacancy rate stands at 22.9% and Ellis Partners believes conditions will get worse before they get better. Before the pandemic, the shopping center had 68 tenants. Today, it has 50, Rubinson said. The company has worked with the shopping center's tenants to restructure leases or to offer rent abatements, said Jim Ellis, managing partner at Ellis Partners. In most cases, these involved reducing rents by between 30% and 50%, he said.

Rubinson said the company has done "everything we can" to keep retailers from leaving.

"We have treated our tenants fairly. We care very much about this asset and we believe that really allowing medical office use to some degree is a significant part of the solution to prevent a death spiral of Town & Country," Rubinson said. "Town & Country relies on foot traffic and medical office uses will be a very important complement in the solution creating a future for Town & Country."

The council, however, did not entirely buy the explanation. While several members, most notably Alison Cormack and Greg Tanaka, supported giving Town & Country more flexibility to introduce medical uses, most of their colleagues suggested that medical offices would constitute a permanent solution for a temporary problem.

Council member Greer Stone was among the skeptics. He challenged Ellis' narrative and suggested that the shopping center's relatively low vacancy rate in 2019 belies its assertions that e-commerce poses a significant threat to its retail scene. With COVID-19 vaccinations underway and students preparing to return to Palo Alto High School and Stanford University in the coming months, business will pick up, Stone said.

"It just seems clear the current vacancy rate is at the result of the pandemic and we'll likely see a dramatic change to their vacancy rate in the coming months," Stone said.

Council member Lydia Kou agreed and suggested that many other types of businesses throughout the city are facing problems similar to those at Town & Country. As such, the council should focus on strategies that benefit businesses throughout the city, rather than a single property owner.

"I truly think we are jumping the gun (by) looking at this first," Kou said. "We should be looking at the entire program comprehensively and then going about making a decision with more information to help us decide."

Vice Mayor Pat Burt offered what he called a "modest compromise": a condition that would only allow Ellis Partners to sign leases with medical services over the next two years.

"I think that we want to strike a balance between retaining a true retail atmosphere and acknowledging some transition in the different forms of retail that are occurring," Burt said. "And even though I think that we will see some significant rebound from where we are right now, we have an uncertain future in retail."

His proposal fell by a 3-4 vote, with only Cormack and Tanaka joining him. With most members showing little appetite for losing any retail space, a split council settled for a more conservative approach: directing its Planning and Transportation Commission to craft a definition for "retail medical services." Once that's done, the council would consider whether to allow businesses that fall under this definition to set up shop at Town & Country.

The swing vote was Stone, who opposed the initial motion but supported the revised one that sent the issue back to the Planning and Transportation Commission. Kou, council member Eric Filseth and Mayor Tom DuBois voted against both motions. DuBois suggested that the proposal for medical offices at Town & Country runs directly against the council's goal of protecting retail.

"It's hard to imagine where we'd protect retail if not in the retail shopping center," DuBois said.

While the council's vote falls well short of what Ellis Partners was looking for, it leaves the door ajar for allowing a wider range of uses in the future, both at Town & Country and at other locations. It also remits the issue back to a planning commission that has already spent considerable time and energy in debating the proposal. At its Feb. 10 meeting, the commission rejected an earlier request to allow 20% of Town & Country ground floor space to be converted to medical use but approved the conversion of 14% of ground-floor spaces for such use. The commission, which was split on the issue, also stipulated that all of these tenants would have to be signed in the first year and that Town & Country would not be allowed to extend the leases.

After the planning commission's review, Ellis Partners revised its proposal to limit medical service to 10% of the shopping center's ground-floor space and to remove any stipulations that would make the switch temporary. The city's planning staff also came out against the term limit, noting in a report that this may "require the termination of a successful business in 10 years, may be disruptive to residents using those medical services and upfront tenant improvement costs may discourage some tenants from signing a lease that cannot be extended."

While the council's vote on Monday allows the conversation to continue, it does not commit the council to approve medical uses at the shopping center. Stone noted that even with the more conservative approach, he may not support the conversions proposed by Ellis Partners.

Tanaka, meanwhile, strongly supported allowing medical uses, which he suggested will create move foot traffic at Town & Country and provide a tangible benefit for local residents, some of whom may take advantage of these services. Converting some retail into medical uses can be "a win-win from multiple angles," he said.

"I hope we can try this experiment because I think we really need it right now, especially given the really, really uncertain economic times," Tanaka said.

Find comprehensive coverage on the Midpeninsula's response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.

Comments

chris
Registered user
University South
on Mar 22, 2021 at 11:22 pm
chris, University South
Registered user
on Mar 22, 2021 at 11:22 pm

The city council seems to be inviting more and more lawsuits by making unreasonable demands on property owners.


Resident 1-Adobe Meadows
Registered user
Adobe-Meadow
on Mar 22, 2021 at 11:45 pm
Resident 1-Adobe Meadows, Adobe-Meadow
Registered user
on Mar 22, 2021 at 11:45 pm

There was a shopping center similar to T&C in Sunnyvale. It is gone - now replaced by a huge building. Other changes in that Sunnyvale shopping center - now filled with huge buildings. A property owner will make other decisions if it is losing money on the existing set-up. Trader Joe's will leave if it is losing money at that location. It has a lot of competition for grocery stores in PA and MP. The Trader's in MP has more parking available.


felix
Registered user
Another Palo Alto neighborhood
on Mar 23, 2021 at 7:21 am
felix, Another Palo Alto neighborhood
Registered user
on Mar 23, 2021 at 7:21 am

T&C should remain ground floor retail. Allowing medical offices there makes no sense. It would weaken, not strengthen retail.
There is no need for medical offices there, given T&C is located beside PA Medical Clinic and across from Stanford’s medical center.
I’m disappointed this is going back to PTC given it doesn’t function particularly well, cranking out too many decisions flawed by warped process, an often ill-informed majority, and seemingly biased staff.


Online Name
Registered user
Embarcadero Oaks/Leland
on Mar 23, 2021 at 9:31 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Mar 23, 2021 at 9:31 am

The City "Planning" Dept didn't dig into the issues and the City Manager, unbelievably, suggested it was a waste of time for them to try to get any answers to CC's questions because it might waste their time and delay a decision on what he wants.

How hard would it have been for the city staff to survey T&C's tenants and actually get some answers?

This whole meeting last night was a sham!


Observer
Registered user
Leland Manor/Garland Drive
on Mar 23, 2021 at 11:16 am
Observer, Leland Manor/Garland Drive
Registered user
on Mar 23, 2021 at 11:16 am

In a totally predictable style, Cormack and Tanaka continue to promote the interests of their development community backers, attempting to deliver the goods to their main contributors instead of looking at the interests of the community. Disappointing to see Stone and Burt slipping into that mode in part.


Staying Young Through Kids
Registered user
Old Palo Alto
on Mar 23, 2021 at 1:39 pm
Staying Young Through Kids, Old Palo Alto
Registered user
on Mar 23, 2021 at 1:39 pm

Even during Covid there has been a well funded group with restaurant experience interested in buying and reopening the Village Cheese House. They met with previous owners and approached Ellis Partners about space at Town and Country. With nothing but unreturned phone calls and "we'll get back to you" emails it sounds like their interest in ground floor retail at Town and Country is greater than that of Ellis Partners.


T&C Regular
Registered user
Menlo Park
on Mar 23, 2021 at 2:50 pm
T&C Regular, Menlo Park
Registered user
on Mar 23, 2021 at 2:50 pm

I frequent Town & Country several times a week for errands or specialty items. Pre-pandemic it was a vibrant community offering, and I hope it stays that way. If medical businesses include things like nail salons, spas, skincare (eg botox), then I can see how that might attract a specific type of clientele who would then hit other businesses by grabbing take-out or meeting a friend for lunch, buying a card or book, or shopping for a new outfit. As it’s situated by several schools, what about a business that offers kids a place to go after school? A maker space? A student driven design studio? A social place for kids to play online games instead of doing it in isolation at home? Online retail is here to stay so I think developers need to think outside the box a bit. Attract businesses that offer experiences that compel people to get off their screens and get out.


Cactus
Registered user
Crescent Park
on Mar 23, 2021 at 3:13 pm
Cactus, Crescent Park
Registered user
on Mar 23, 2021 at 3:13 pm

It seems like Ellis Partners rent practices were driving away customers long before the pandemic. See Rojoz, Scott's Seafood, the piano store, Hobees, etc. The closures during the pandemic reflect a lack of help from Ellis to their tenants. Instead of allowing them to have medical offices, the City should be asking them why they are driving tenants away. Do their rents really need to be that high?


Online Name
Registered user
Embarcadero Oaks/Leland
on Mar 23, 2021 at 5:28 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Mar 23, 2021 at 5:28 pm

Common sense and experience undercut Eillis's claim that people will shop after getting their botox injections, their dental work done or when sweaty after their workouts. The city "planners" should have, too, instead of accepting Ellis's unsupported and illogical claim this "new" traffic will make up for the lost sales tax revenue (since medical isn't taxable!)

Staff never even bothered to define "medical"!

As Cactus said, Ellis has been hurting their tenants for a long time, dating back at least 20+ years to the dot.bomb crash when they refused to let Prestige, a 2d generation business, move back into their EMPTY former store after Ellis moved them into a bigger pricier location. Prestige's owner begged. pleaded, sued, rallied supporters to get the city involved for a full year.

Instead, Ellis refused to negotiate, thereby killing a long-time business that could have survived the downturn in its former location. It didn't want a handout, just to return to its former EMPTY location.

The city's indifference then is as shameful as the staff's failure now and the city manager's acceptance of that.


rita vrhel
Registered user
Crescent Park
on Mar 23, 2021 at 7:45 pm
rita vrhel, Crescent Park
Registered user
on Mar 23, 2021 at 7:45 pm

I don't understand how the T&C owners, during the "good" times are free to charge whatever rent they can but then, during a "downturn",run to our City Manager and Staff demanding "special" concessions.

Whatever happened to the sound business practices of planning ahead, saving for downturns and negotiating?

Are residents now, if they have suffered financial loss over the last 12 months, going to be able to run to City Staff and Manager and have their claims presented to the PTC and City Council? I think not!

Other posts detail Ellis' arrogance. Why should this behavior be rewarded?


Online Name
Registered user
Embarcadero Oaks/Leland
on Mar 24, 2021 at 3:33 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Mar 24, 2021 at 3:33 pm

A bunch of us started reminiscing about Town & Country retailers that are now long gone and then we started researching the history since Ellis bought T&C in 2013. I was wrong when I said they were mistreating retailers like Prestige since the dot.bomb crash of 2000 and forcing them out.

Their mistreatment started in 2013 when they started by forcing Hobbe's out, telling to to make very costly and unsustainable "improvements" which are well-documented in the news and on Hobbe's own site.

This unfortunate practice continued with Village Cheese Shop where Ellis forced them out by trying to triple their rent AND refusing to negotiate with buyers for this much-loved multi-generation business as "Staying Young" noted above and as a friend validated when she happened to run into the son of the family that owned Village Cheese Shop.

High time that Ellis STOPS getting breaks given the retail destruction he's wrought and that Ms. Cormack and Mr. Tanaka start doing their homework instead of blindly caving in to Ellis and his false claims about why there are vacancies.

We've also compiled a list of former T&C tenants, some of which are thriving happily in Los Altos, Menlo Park and elsewhere and could be interviewed on their treatment by Ellis.


Ahmad Khalil
Registered user
another community
on Mar 24, 2021 at 4:25 pm
Ahmad Khalil, another community
Registered user
on Mar 24, 2021 at 4:25 pm

Maybe show some humanity by letting the homeless reside in the vacant stores and allow RVs from across the street to park in the back lot behind the stores?

There is enough room there for the city to install rows of portable toilets as well.

Palo Alto residents could also organize community fundraisers to assist the transient residents with food, necessary clothing, and personal items.

Shower facilities maybe provided by Stanford with shuttle service from parking lot?

Palo Alto is a wealthy community and many of it's residents (though not all) can afford to share.

Time for the city and residents to step up.

Do not be greedy as misfortune can befall anyone.


Online Name
Registered user
Embarcadero Oaks/Leland
on Mar 24, 2021 at 4:46 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Mar 24, 2021 at 4:46 pm

Let them reside in the parking lots of the big companies, esp. companies like DoorDash that pay their gig workers less than minimum wage and those organizations that support such practices. Remember those companies spent $230,000,000 lobbying for the right to NOT pay benefits or minimum wage and are now raising the rates to cover their lobbying expenses.

Not all Palo Altans are wealthy.


Whitey McWhiterson
Registered user
Midtown
on Mar 26, 2021 at 5:58 am
Whitey McWhiterson, Midtown
Registered user
on Mar 26, 2021 at 5:58 am

Is the Horatio Alger concept of the 'American Dream' completely gone? Used to be, the statue of liberty was telling immigrants to come over for the right to work hard, maybe take two jobs or three, and you can achieve your dreams. Now...it's look around, deciding who has too much success and too much wealth, so make them share. Or better yet, kick them out of Palo Alto which should become a Steinbeck tent city instead.

I am not them, but I always thought the Hoover Institute was in Palo Alto. Why don't any of them ever post on here, just for a little variety of thought to consider?


The Real Slim K
Registered user
Old Palo Alto
on Mar 26, 2021 at 6:21 am
The Real Slim K, Old Palo Alto
Registered user
on Mar 26, 2021 at 6:21 am

ha. okay.

That Ayn Rand. Not such a bad gal, I tell you what. How'd you like it if a communist utopia told YOU you're a woman, so you can't go to college? That wouldn't be right...


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