News

City faces legal challenge from Sobrato over former Fry's site

Property owner claims Palo Alto's zoning interpretation constitutes illegal 'taking'

The commercial building at 200-400 Portage Ave. is at the heart of a legal dispute between the city and The Sobrato Organization. Embarcadero Media file photo by Veronica Weber.

As Palo Alto's plans for the north Ventura area remain murky, the City Council will meet behind closed doors on Monday to discuss an ongoing dispute between the city and the area's largest landowner, The Sobrato Organization.

The focus will be the former cannery building at 340 Portage Ave. that previously housed Fry's Electronics. With the electronics store shutting down in 2019 and Sobrato failing to get a new commercial tenant, Palo Alto planning staff has argued that the city can now move ahead with a process of converting the site for residential use.

The property, which is often referred to as the "Fry's site," is a key component of the North Ventura Coordinated Area Plan, a vision document that the city has been working on since 2019, and is zoned for multifamily residential use (RM-30). The city's housing documents have for decades envisioned the area as a future housing site, and the existing Housing Element states that it has a "realistic capacity" for 221 dwellings.

Despite the long-term vision for housing, the council voted in 2006 to allow the electronics store to operate as a "non-conforming use," a move that was intended to keep the revenue-generating business in town. Under city law, a "non-conforming" designation gets discontinued if the use is abandoned and not reestablished within a year. Given that the vacancy at 340 Portage has now met the threshold, staff has suggested that it's time to reevaluate the uses at the site and potentially switch to residential.

While the city's vision of housing on Portage Avenue remains distant, council members are wrestling with a more immediate concern: What sort of commercial uses should be allowed at the site now that Fry's is gone? Along with startups, the sprawling site includes a mix of small tech companies and research-and-development uses. The council required in 2006 that the property owner maintain the "ratio of non-conforming uses in the building" that existed at the time, a tricky proposition for Sobrato now that Fry's is no longer in the mix and one that would require it to convert some of its existing research-and-development spaces to retail.

Help sustain the local news you depend on.

Your contribution matters. Become a member today.

Join

Sobrato argued in a letter last September that the primary value of the property, which it purchased in 2011, is in the 142,774 square feet of research-and-development space and reducing this space by "any material amount" would create uncertainty and "significantly impact the value of the property." The company also argued that requiring it to "re-balance" its uses would constitute a "taking" under the Fifth Amendment. Such a condition, the letter argues, cannot be made without an amortization study that analyzes the economic shift of the zoning interpretation.

Attorney Tamsen Plume of Holland & Knight LLP, who is representing Sobrato, argued in the letter that pursuing the staff interpretation of the zoning law without commissioning such a study "is unreasonable and arbitrary and creates substantial legal risk."

"In the event that the City Council approves the recommended interpretation without amendment, please be advised that Sobrato will exercise its rights under the Takings Clause of the Fifth Amendment of the United States Constitution made applicable to the states through the Fourteenth Amendment and Article 1, section 19 of the California Constitution."

Council members have generally supported an amortizing study for the Fry's site, with the idea that this would establish a reasonable timeframe for Sobrato to convert it to residential use while recouping its investments. During its last discussion of the topic in June, council member Tom DuBois spoke for most of his colleagues when he said that the goal is to have retail and housing at the site.

DuBois also argued that the goal of increasing residential use has only grown more urgent given recent state mandates that require cities to plan for additional housing. Under the Regional Housing Needs Assessment process, Palo Alto is required to identify locations for 6,086 new dwellings between 2023 and 2031. By revising the zoning codes, past councils were trying to both help the property owner and retain their vision for ultimately building housing.

Stay informed

Get the latest local news and information sent straight to your inbox.

Stay informed

Get the latest local news and information sent straight to your inbox.

"The council's intent has been to have retail and also an interest in underlying residential zoning," DuBois said at the June 14 meeting.

The council agreed at the time that the zoning code requires Sobrato to retain the same mix of retail, warehouse uses and research-and-development that was in existence in 2006, a finding that the property owner is now challenging. The council also opted not to impose this requirement immediately but to give planning staff more time to negotiate with Sobrato about a potential solution. Members also generally supported pursuing an amortization study that would pave the way for establishing residential use at the site.

"If we were going to go on the basis of historical intent, then the amortization needs to come back," council member Eric Filseth said.

Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

Stay informed on important city government news. Sign up for our FREE daily Express newsletter.

City faces legal challenge from Sobrato over former Fry's site

Property owner claims Palo Alto's zoning interpretation constitutes illegal 'taking'

by / Palo Alto Weekly

Uploaded: Fri, Apr 29, 2022, 12:01 pm

As Palo Alto's plans for the north Ventura area remain murky, the City Council will meet behind closed doors on Monday to discuss an ongoing dispute between the city and the area's largest landowner, The Sobrato Organization.

The focus will be the former cannery building at 340 Portage Ave. that previously housed Fry's Electronics. With the electronics store shutting down in 2019 and Sobrato failing to get a new commercial tenant, Palo Alto planning staff has argued that the city can now move ahead with a process of converting the site for residential use.

The property, which is often referred to as the "Fry's site," is a key component of the North Ventura Coordinated Area Plan, a vision document that the city has been working on since 2019, and is zoned for multifamily residential use (RM-30). The city's housing documents have for decades envisioned the area as a future housing site, and the existing Housing Element states that it has a "realistic capacity" for 221 dwellings.

Despite the long-term vision for housing, the council voted in 2006 to allow the electronics store to operate as a "non-conforming use," a move that was intended to keep the revenue-generating business in town. Under city law, a "non-conforming" designation gets discontinued if the use is abandoned and not reestablished within a year. Given that the vacancy at 340 Portage has now met the threshold, staff has suggested that it's time to reevaluate the uses at the site and potentially switch to residential.

While the city's vision of housing on Portage Avenue remains distant, council members are wrestling with a more immediate concern: What sort of commercial uses should be allowed at the site now that Fry's is gone? Along with startups, the sprawling site includes a mix of small tech companies and research-and-development uses. The council required in 2006 that the property owner maintain the "ratio of non-conforming uses in the building" that existed at the time, a tricky proposition for Sobrato now that Fry's is no longer in the mix and one that would require it to convert some of its existing research-and-development spaces to retail.

Sobrato argued in a letter last September that the primary value of the property, which it purchased in 2011, is in the 142,774 square feet of research-and-development space and reducing this space by "any material amount" would create uncertainty and "significantly impact the value of the property." The company also argued that requiring it to "re-balance" its uses would constitute a "taking" under the Fifth Amendment. Such a condition, the letter argues, cannot be made without an amortization study that analyzes the economic shift of the zoning interpretation.

Attorney Tamsen Plume of Holland & Knight LLP, who is representing Sobrato, argued in the letter that pursuing the staff interpretation of the zoning law without commissioning such a study "is unreasonable and arbitrary and creates substantial legal risk."

"In the event that the City Council approves the recommended interpretation without amendment, please be advised that Sobrato will exercise its rights under the Takings Clause of the Fifth Amendment of the United States Constitution made applicable to the states through the Fourteenth Amendment and Article 1, section 19 of the California Constitution."

Council members have generally supported an amortizing study for the Fry's site, with the idea that this would establish a reasonable timeframe for Sobrato to convert it to residential use while recouping its investments. During its last discussion of the topic in June, council member Tom DuBois spoke for most of his colleagues when he said that the goal is to have retail and housing at the site.

DuBois also argued that the goal of increasing residential use has only grown more urgent given recent state mandates that require cities to plan for additional housing. Under the Regional Housing Needs Assessment process, Palo Alto is required to identify locations for 6,086 new dwellings between 2023 and 2031. By revising the zoning codes, past councils were trying to both help the property owner and retain their vision for ultimately building housing.

"The council's intent has been to have retail and also an interest in underlying residential zoning," DuBois said at the June 14 meeting.

The council agreed at the time that the zoning code requires Sobrato to retain the same mix of retail, warehouse uses and research-and-development that was in existence in 2006, a finding that the property owner is now challenging. The council also opted not to impose this requirement immediately but to give planning staff more time to negotiate with Sobrato about a potential solution. Members also generally supported pursuing an amortization study that would pave the way for establishing residential use at the site.

"If we were going to go on the basis of historical intent, then the amortization needs to come back," council member Eric Filseth said.

Comments

Curmudgeon
Registered user
Downtown North
on Apr 30, 2022 at 5:09 pm
Curmudgeon, Downtown North
Registered user
on Apr 30, 2022 at 5:09 pm

"Palo Alto is required to identify locations for 6,086 new dwellings between 2023 and 2031."

That's no problem. How many acres of streets does the city own? If it built a 50-ft tall residential structure above each intersection, it could have three to six dwelling units above each, allowing a 15-ft clearance below for traffic. Build one or two thousand of these and we're there.

Or we could de-annex the Stanford Research Park and let Stanford deal with the associated jobs-housing burden. It has lots of land. Why should we continue to socialize the costs of Stanford's profit?


JS1
Registered user
Another Palo Alto neighborhood
on May 1, 2022 at 7:44 am
JS1, Another Palo Alto neighborhood
Registered user
on May 1, 2022 at 7:44 am

There is no “taking” going on at the Fry’s site. Sobrato knew full well when they purchased the site that the site was destined for housing and the R&D use would disappear.


Online Name
Registered user
Embarcadero Oaks/Leland
on May 1, 2022 at 9:06 am
Online Name, Embarcadero Oaks/Leland
Registered user
on May 1, 2022 at 9:06 am

I like the way Curmudgeon thinks, especially since I believe jobs at Stanford are factored into PA's housing numbers between Stanford University, Stanford Hospital and Stanford Children's Hospital (Lucie Packard), the number of employees for them is roughly (based on 2019!!) numbers) 25,000, 8,000 and 6,500 -- almost 40,000 when PA's population is 66,000 -- and that's not counting ( 7,645 undergraduate students and 9,272 (graduate students (16,917).

And Stanford keeps telling us its expansion hasn't added a single car trip -- another Silicon Valley miracle.


Andy
Registered user
Stanford
on May 1, 2022 at 2:16 pm
Andy, Stanford
Registered user
on May 1, 2022 at 2:16 pm

each of these developments can have far more housing AND any other use by building taller combined with underground or garage parking.

Palo Alto and every community should be required to meet the housing demand until there is no housing crisis.


community member
Registered user
University South
on May 1, 2022 at 4:56 pm
community member, University South
Registered user
on May 1, 2022 at 4:56 pm

There is no end to the demand. Asian billionaires are buying up almost ALL of the homes for sale, and Stanford is doing the same. Just read the papers.

And Stanford's hiring contributes to the shortage.

End of the housing demand? Not going to happen.
But its a good argument for developers.
And the uninformed.


EmmaP
Registered user
Old Palo Alto
on May 1, 2022 at 8:03 pm
EmmaP, Old Palo Alto
Registered user
on May 1, 2022 at 8:03 pm

For calculations, I'm fairly certain that Stanford is divided between unincorporated Santa Clara county (for most of the undeveloped land and the university proper) and Palo Alto (for the hospitals, research park, shopping center that are within Palo Alto proper and which provide sales tax and some property tax revenue to the town).


Consider Your Options.
Registered user
Another Palo Alto neighborhood
on May 2, 2022 at 12:13 pm
Consider Your Options. , Another Palo Alto neighborhood
Registered user
on May 2, 2022 at 12:13 pm

I hope the Merc is paying attention. I am tired of Palo Alto being villainized for not building housing when, even when we upzone for housing (as has been done in the Ventura area) developers bring forward projects for more offices and research space for greater profit. (Housing is not a zero-profit endeavor, simply less profitable than the proposed uses--and Sobrato Corp. considers this a "taking" after they have been accruing Prop 13 tax savings benefits for countless decades. How long has ramshackle Frye's been at that location, unimproved in any noticeable way?)

While I understand profit incentives, their proposed projects would add to the jobs:housing imbalance, exacerbating traffic, housing, services and utilities deficits, and other problems. They care little about our community, except for the profits they can extract from it. They are using the press to pressure us to give them what they want. The Merc also gives our community no credit for housing projects that presently are underway--Wilton Court, 525 East Charleston, to name two. If only non-profit developers build housing, who is going to build housing for the workers that for-profit developers are bringing to Palo Alto? The developers attitude of entitlement and backroom dealing in Sacramento is a PROBLEM that is not being deeply investigated and covered.


Julian Gómez
Registered user
Midtown
on May 2, 2022 at 5:48 pm
Julian Gómez, Midtown
Registered user
on May 2, 2022 at 5:48 pm

"City Council will meet behind closed doors"
Isn't this a violation of the Brown Act?


Chris C.
Registered user
Community Center
on May 7, 2022 at 12:00 pm
Chris C., Community Center
Registered user
on May 7, 2022 at 12:00 pm

I'm not a lawyer, but I believe the Brown Act allows city council to meet in private to discuss personnel or legal issues.


Resident 1-Adobe Meadows
Registered user
Adobe-Meadow
on May 7, 2022 at 7:39 pm
Resident 1-Adobe Meadows, Adobe-Meadow
Registered user
on May 7, 2022 at 7:39 pm

I love the comment from Andy - who shows his residents as Stanford. SU has the highest amount of open land. SU should be building the Housing for the people who work at their facilities. Common sense has flown out the door. This city keeps getting tasked by SU residents to fulfill the requirements of the county with a limited contribution by their wealthy management.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Jun 20, 2022 at 7:42 pm
Rebecca Eisenberg, Old Palo Alto
Registered user
on Jun 20, 2022 at 7:42 pm

It truly is infuriating to read yet another nasty-gram written by a billionaire-financed lawyer in order to misstate our law and public policy.

1. The Supreme Courts of the US and California established decades ago that zoning does not constitute a Taking. That threat is literally like waiving a toy gun. If a billionaire waives a toy gun, do we fear being shot?

2. Even if zoning did constitute a taking - -which it does not -- Sobrato purchased this property knowing that Fry's was a conditional use and that the land was designated to revert to residential once Fry's no longer operated at the site. (If you read the nastygram carefully, you will see that Sobrato is actually taking issue with the conclusion that Fry's (or otherwise 'conforming') is not in happening in the site. I went by the site this morning and no retail is visible, at all.)

3. Because City Council caved both to Castilleja (last week) and AJ Capital (2 years ago) based on "litigation threats," it now has become clear that all it takes to get Palo Alto to change its laws and ignore the community is for a billionaire to threaten a lawsuit. This is terrible public policy. There is no reason to believe that the law firm would file a takings lawsuit, knowing that doing so could result in negative repercussions that lawyers face when they file suits they know are specious. And if the billionaires' law firms did sue, chances are that they would lose.

This is because it relatively easy to win arguments to enforce law and public policy than arguments demanding exceptions to those rules. With President Hotel, Castilleja, and now Fry's, billionaires were able to bully our city leaders into giving the billionaires *exceptions to the law* rather than default to the same zoning rules that govern the rest of us.

Editor: before deleting, please ask a lawyer who does not represent developers -and therefore is paid to push the law in the developers's favor -if I am right on the law.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Jun 20, 2022 at 7:50 pm
Rebecca Eisenberg, Old Palo Alto
Registered user
on Jun 20, 2022 at 7:50 pm

And to clarify, the reason that City Council is meeting in secret to discuss this is due to the "litigation privilege." The litigation privilege is intended to apply only where city leaders are receiving legal advice from the city's lawyers. There is no requirement that the city invoke this privilege and there is no excuse, in my opinion, for the city to use the very narrow litigation exception in order to exclude the public from an opportunity to participate in the public process. In my opinion, City Council is abusing the privilege in order to exclude public participation in this matter. City Council does this often and it is unacceptable.


Resident 1-Adobe Meadows
Registered user
Adobe-Meadow
on Jun 20, 2022 at 9:30 pm
Resident 1-Adobe Meadows, Adobe-Meadow
Registered user
on Jun 20, 2022 at 9:30 pm

We know that Sobrato is already having to deal with problems in other areas - EPA sewer connecivity on a project they have going on over there. They have to pay for upgrade and connectivty to a system that is over 70 years old.

I cannot imagince that the Fry's site is any better regaarding the age of the sewer system - and connection to the other utility system functions.
When you look at a site that is very old there are many costs that are required to bring the whole effort up to date. How much is being passed on to he residents and the city vs the contractor. We need more information as to the status of the site and what is required to bring it up to current standards.


Don't miss out on the discussion!
Sign up to be notified of new comments on this topic.

Post a comment

Sorry, but further commenting on this topic has been closed.