When Fry's Electronics officially closed its Palo Alto location in December 2019, it left behind both a giant vacancy and a thorny zoning dilemma that continues to befuddle city leaders.

For decades, the electronics store occupied a site at 340 Portage Ave. that the city's zoning code designates for housing. Because of the RM-30 zoning designation and the unusually large size of the parcel, the city's Housing Element lists the site as one with a realistic capacity of 221 dwellings.

Yet despite the underlying zoning, the city has for decades been loath to actually build housing at the Fry's site. Worried about losing the tax revenues that Fry's generated, the City Council voted in 2006 to eliminate a zoning provision that would have ultimately required requiring housing at site and agreed to allow Fry's to operate as a "nonconforming" use. The council also agreed in 2006 that the property must maintain the "ratio of nonconforming uses in the building" that existed at that time. And, somewhat confusingly, it limited the retail use at the site to 60,000 square feet, notwithstanding the fact that Fry's occupied about 84,000 square feet of the broader campus that includes 3200 Park Blvd., 340 Portage Road and a portion of Olive Avenue.

The city's zoning laws also specify that a "noncomforming" designation gets discontinued if the use is abandoned and not re-established within a year — as is the case with Fry's. Since no retail reoccupied the former Fry's space, a new report from the Department of Planning and Development Services notes, "that portion of the building can now only be occupied by a conforming RM-30 land use.

The 2006 decision paved the way for the quandary: With Fry's now out of the picture, what should the city do about the rest of the tenants in the former cannery building? That question will resurface on Monday, as the council considers whether to require the property owner, The Sobrato Organization, to reshuffle its leases to ensure that the mix — and proportion — of uses at the broader site remains the same as it did in 2006, even without the vacancy in place.

Under the interpretation that the council favored at its last discussion of the topic, on June 14, at least 41% of the site (minus the former Fry's space) would need to be occupied by retail, while 54% would be designated research-and-development and 5% by warehouse uses.

Sobrato, for its part, has pushed back against the city's determination that the retail space formerly occupied by Fry's has been "discontinued" or "abandoned." It cited its efforts to find a new retail tenant, including its protracted and ultimately unsuccessful negotiations with Target, which concluded in September 2020.

Tim Steele, Sobrato's senior vice president for real estate, wrote in the letter that Sobrato has "remained diligent, active and continuous in our efforts to re-tenant the vacant space during the COVID-19 pandemic, which has created enormous challenges and affected retail even more than most other types of land uses."

"We believe the facts and circumstances, particularly during the COVID-19 pandemic, confirm there has been no abandonment or discontinuance," Sobrato wrote.

While the council did not take any formal actions on June 14, council members and planning staff rejected Sobrato's arguments that the retail use has not been discontinued. Mayor Tom DuBois suggested at the meeting that it may be time to amortize the nonconforming uses at the site and require compliance with the underlying RM-30 zoning. He pointed to the city's regional housing allocation, which under the latest Regional Housing Needs Assessment requires Palo Alto to plan for more than 6,000 new housing units between 2023 and 2031.

"It was paused for Fry's, which is no longer there," DuBois said of the amortization plan. "And we have this large RHNA allocation."

Vice Mayor Pat Burt also said he supports reinstating amortization, which would require Fry's to phase out existing uses over a period of time so that the site can revert to the underlying zoning. He pointed to the city's broader planning effort for a 60-acre portion of the Ventura neighborhood, which includes the Portage Avenue property. Known as the North Ventura Coordinated Area Plan (NVCAP), the effort seeks to bring new community amenities, including parks, retail and affordable housing to an area long seen as underserved.

"I think it was a mistake that the council made in 2006, to go from extending (amortization) on a deliberate basis to dropping it," Burt said. "We wouldn't be in a position we've been in over the last couple of years if that had been the case, and the ability to have all parties come up with a consensus plan on NVCAP would have been facilitated by then."