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Palo Alto council not sold on proposed College Terrace Centre grocer

Officials reject latest bid by developer's son to operate market at JJ&F site

The developers behind the College Terrace Centre believe they have found a grocer to replace the beloved JJ&F Market, but the City Council made it clear Monday night that it's not buying the latest proposal.

For the second time in less than four months, the Palo Alto council rejected a proposal that would have placed James Smailey, a member of the development team, in charge of the supermarket in the new development at 2180 El Camino Real. After a long discussion, council members agreed that Smailey, whose father Patrick Smailey headed the development team, is unlikely to offer products service comparable to JJ&F. They also agreed to extend the permitting period until March to give the applicants time to find a new grocer.

The council expressed similar concerns in August, when the applicants submitted a proposal that listed James Smailey as the market's new owner and operator and redacted the names of the grocery store's top executives. Given that Smailey has no prior experience in the grocery businesses and wasn't willing to divulge his purportedly experienced management team, council members turned him down and demanded more information.

Since then, the applicants have submitted more than 200 pages of information, including lease agreements between the parties involved in the grocery store and a proposal from the property owner to pay a monthly penalty of $11,250 if the grocery store goes out of business and is not replaced within six months. The developers also provided the resume of the man who would be doing most of the work in running the store: Uriel Chavez, whose family had run small markets throughout Northern California, including La Hacienda, Arteagas and Mi Pueblo. In the revised proposal, Chavez would be the grocery operations officer of what would be known as the College Terrace Market.

According to the proposal, Chavez, "along with industry experts of his choosing, will be responsible for designing the Market, its refrigeration and display racks and other specialty features for the market." He would also be in charge of the store's financial operations, according to the proposal.

For the council, this didn't go far enough. Much like in August, members expressed deep reservations about the fact that the grocer who would actually be under lease for the market is the developer's son. As in the prior meeting, the council heard from a procession of skeptical College Terrace residents before voting to send the developer back to the drawing board.

Councilman Greg Scharff was among the leading skeptics.

"This notion of Mr. Chavez being long time in personal services doesn't really make sense to me," Scharff said. "I'd really like to see a direct grocery tenant in there who has experience in the business, where it doesn't seem like it's just nepotism.

"That's just how it feels right now. The 'experienced grocer' appears to be a consultant earning a fee."

The Monday debate had as much to do with Palo Alto's development policies as it did with the viability of a particular grocery business.

When the City Council approved the block-long College Terrace Centre in January 2010, its main objective was to keep JJ&F from leaving. The project, which includes nearly 40,000 square feet of office space, eight below-market-rate units and an 8,000-square-foot grocery store, was approved after a "Save JJ&F" campaign from project supporters, including many residents. The new grocery store, which would give JJ&F more visibility, was seen as the prime "public benefit" for the zone-busting development.

Despite the council's approval of College Terrace Centre, the Garcia family ultimately agreed to close the store. Smailey's team has been looking for a replacement ever since, so far with little luck. The approved "planned-community" zone empowers the council to approve the new grocer and specify that approval "shall not be withheld unless the City reasonably finds that such proposed grocery tenant is not likely to be comparable in quality or products and service as JJ&F as it existed and operated on Dec. 7, 2009."

On Monday, the council agreed that the odds of an inexperienced owner running a store comparable to the popular JJ&F Market is slim. Councilman Larry Klein acknowledged that he can claim no expertise in groceries. But he is familiar with "good management" and in this case, he said he doesn't see it.

Klein made a motion to reject the proposal and extend the deadline on the planned-community ordinance until March (the official vote on extending the ordinance will be on the council's consent calendar on Dec. 8).

"What we have is a lessee, a person who may be a great business man, I don't know, but he has zero experience in running a grocery business," Klein said. "I compare this to years and years and years of experience that the Garcias had, which was our standard in 2009."

The council also voted 7-2, with Klein and Councilman Greg Schmid dissenting, to accept an amendment proposed by Scharff and Councilman Pat Burt that lists specific things that should be included in the next proposal.

The list includes a daily penalty of $2,000 in the event a market goes out of business and is not replaced with another experienced grocery operator within six months (the applicants earlier indicated that such a condition would be acceptable). It also specifies that the store should be leased directly to the grocery store operator, without a middle man.

Smailey's lack of grocery store experience wasn't the only source of frustration for residents and council members. The project has been plagued by complaints about late submittals of application materials, concerns about transparency and general cynicism about planned-community projects (the fact that JJ&F left shortly after the project's approval didn't help matters).

Councilwoman Karen Holman, who as a member of the Planning and Transportation Commission voted against the project, also noted the project's rocky history.

"I think one of the things that has happened with this project going way back when is there's been overstatements and over-promises made," Holman said. "That just raises concerns, raises suspicions, and look what happened."

There are also conflicting accounts about the level of interest from other grocers. In August, the applicants' attorney, Michael Polentz, told the council that the team hasn't received proposals from any grocers for the El Camino Real development other than Smailey. The team had had "real estate brokers pounding the pavement, trying to find an established grocer" who would lease the space, he said.

"To this day, we're still looking for established grocers to come forward. No one has," Polentz said in August. "No grocer has proposed any business terms to lease that space with the exception of J&A Family Market."

But on Monday night, Klein and Scharff both said that they had spoken in recent weeks with grocers who said they were close to making a deal for the College Terrace market but were ultimately turned down by Smailey.

Scharff said he had spoken with Miki Werness, whose grocery store at Alma Village closed last year. He said Werness had indicated that he was "completely willing to do it" and had several meetings and was putting together a team. He was "ready to go forward" but the deal did not happen because the applicants "were not allowing him to be the operator," Scharff said.

Klein said he had spoken to Mark Khoury, whose family briefly ran the market at the JJ&F site after the Garcia family left. Klein said Khoury had negotiated with Patrick Smailey and thought he had an agreement before the agreement was "yanked out from him."

Klein said he was told that "at the last moment, Mr. Smailey pulled out from that and instead had negotiated the lease that we have before us tonight."

Polentz maintained on Monday night that neither Werness' nor Khoury's accounts were entirely true. The deal with Werness was going to be a "joint venture" in which he would be an owner and not an operator. It was "his decision alone to pull out," Polentz said. The Khoury family was also offered the opportunity to be operator but would not "meet the minimum requirement that would make the project economically viable," he said.

But the conflicting accounts gave some council members pause. Klein said he found it "disappointing, if not misleading" that those two parties were not mentioned before.

"In contrast, what we heard from the developer was that there was nobody who was interested in this project, to run the grocery store," Klein said. That's really not the case."

Members of the public gave the grocery proposal a mixed reception. Several vouched for Smailey and urged the council to approve the proposal. Others argued that it will not succeed and urged the council to reject it.

Doria Summa, who lives in College Terrace, said many of her neighbors are convinced that the Smailey-run grocery store has "no chance of success" and that the neighborhood will have "one more massive PC project with insufficient public benefits."

Summa also noted that the "Vision and Values" statement provided by College Terrace Market includes passages cribbed directly from chef Alice Waters' book, "In the Green Kitchen." In the book, for instance, Waters writes, "Cooking creates a sense of well-being for yourself and the people you love and brings beauty and meaning to everyday life." Later, she describes regular shopping routines as "pleasing, efficient and economical" and says there is "enormous pleasure in cooking good food simply and in sharing the cooking and the eating with friends and family." Each of these sentences or phrases appears on the College Terrace Market values sheet.

"What you're hearing from our residents is concern and distrust based on previous PCs that have not provided the public benefits promised to the community," Councilman Marc Berman said near the conclusion of the long discussion. "I don't think the applicant did himself any favors in some of the elements of the proposal that were scrutinized by some of the members of the public tonight."

Related content:

College Terrace Centre market operator named

Palo Alto commission defends 'planned community' zoning

Palo Alto to vet new grocer for old JJ&F site

College Terrace Centre clears final obstacle

New grocer revealed for College Terrace Centre

Demolition for College Terrace Centre begins

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8 people like this
Posted by curmudgeon
a resident of Downtown North
on Dec 2, 2014 at 10:50 am

"a daily penalty of $2,000 in the event a market goes out of business and is not replaced with another experienced grocery operator within six months"

Underline the word "operator." If Patrick's boy James is the grocery operator of record, then the letter (underline "letter") of the agreement is fulfilled whether or not groceries are ever for sale at the site. Slick move there, Pat and Jim.

Strange things are happening in our town. Larry Klein appeared to see through that sophistry last night. Councilmembers used to be blithely blind to such shenanigans in PC proposals.

9 people like this
Posted by Naive city council
a resident of Old Palo Alto
on Dec 2, 2014 at 11:06 am

We the residents of Palo Alto are going to be screwed again. This project and it's players smell to high heaven.

6 people like this
Posted by How Many Years?
a resident of Embarcadero Oaks/Leland
on Dec 2, 2014 at 11:26 am

So maybe they can recruit the poor owners of Miki's Market who might do well in a decent location.

But hey, no problem. What's 4 more years in a city where it takes 10 years to shovel some boilerplate into an RFP to change a traffic light?

3 people like this
Posted by 37 year resident
a resident of Old Palo Alto
on Dec 2, 2014 at 11:39 am

With so many grocery shopping options nearby why bother with another market in the first place? The Garcia family ran JJ&F for years and years. They barely squeaked by the last few years because people preferred to shop at Safeway, Mollie Stones and Trader Joe's where larger stores with more variety prevailed. They were experienced grocers. This proposed market will be too small for a serious grocer to succeed. Nothing more than an upscale 7 Eleven with a meat department.

5 people like this
Posted by resident
a resident of Another Palo Alto neighborhood
on Dec 2, 2014 at 12:20 pm

Why not recruit Milk Pail Market?

5 people like this
Posted by Neal
a resident of Community Center
on Dec 2, 2014 at 12:35 pm

An 8,000 sq. ft. market is NOT a public benefit. Get real.
I agree with Naive City Council. We are getting screwed again.

2 people like this
Posted by Annette
a resident of College Terrace
on Dec 2, 2014 at 12:48 pm

Last night's meeting was interesting and it was reassuring to hear the questions from Council(particularly Klein and Scharff) b/c it evidenced that they are paying some attention to a serious issue that matters to the community. I think the Applicant assumed approval would be won even though he has yet to do what CC required of him. He's already accomplished the demolition and other permits are in the works, ready to be signed pending approval. This sort of positioning is pretty cheeky considering the main public benefit has not been satisfied. The Applicant has had nearly 5 years to find a real grocer and get this show on the road. If he had instead built as large as possible under the existing zoning this whole sorry saga could have been avoided and he would have been collecting healthy rents for the last several years. CC could by rights have ended this last night but they are giving him another chance; this should be the end of it.

4 people like this
Posted by Business as usual
a resident of Another Palo Alto neighborhood
on Dec 2, 2014 at 12:48 pm

Have to agree with 37 year resident, I am not sure such a small market will make it at that location, no matter who runs it.

1 person likes this
Posted by joan
a resident of College Terrace
on Dec 2, 2014 at 1:04 pm

[Post removed.]

3 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Dec 2, 2014 at 1:10 pm

The Council has absolutely no experience running grocery businesses, or any other kind of business for that matter. It's a real tragedy that somehow they are involved in forcing their views about what kind of supermarkets Palo Alto has had, and will have, on the public.

Sadly, this topic didn't come up in the most recent election. Karen Holman should have been asked many questions about her participation in this project, as well as the Alma Plaze fiasco.

Presumably there is too much money riding on this project for the developer to drop it, and find greener pastures elsewhere. Given then small, full-service, grocery stores are all in the 50,000+ footprint these days--an 8,000 foot store (how much of this will be for storage/administration?) doesn't seem to have much of a chance.

And Palo Alto mess ...

4 people like this
Posted by Don
a resident of Evergreen Park
on Dec 2, 2014 at 1:32 pm

"Why not recruit Milk Pail Market?"

Excellent idea.

I'm also in favor of Miki Werness being given a shot at it. His market on Alma was terrific; it was just in a very poor location.

2 people like this
Posted by Stop the Trolls
a resident of Mountain View
on Dec 2, 2014 at 1:51 pm

Move the Milk Pail to Palo Alto? Excuse me, what? And reward Merlone Geier, the sleaziest developer in the area?

No. Way.

4 people like this
Posted by Danielle
a resident of Stanford
on Dec 2, 2014 at 2:26 pm

Yes, give Micky a chance to run a produce market with quality meat and fish and a friendly service.
That is the farmer's market feeling his store had...
It was a shame what happened in Alma Plaza. I think the College Terrace neighborhood would be a great match.
Not too big. Not too small, Juust Right!

1 person likes this
Posted by Don
a resident of Evergreen Park
on Dec 2, 2014 at 2:41 pm

"Move the Milk Pail to Palo Alto? Excuse me, what? And reward Merlone Geier, the sleaziest developer in the area?"

Say more about Merlone Geier and its relationship to the Milk Pail?


3 people like this
Posted by Nora Charles
a resident of Stanford
on Dec 2, 2014 at 3:45 pm

I need a Palo Process Guide for Dummies to explain why it's so complicated to put a grocery store in that space. Some (many?) of us don't need a fancy store, just a place to buy the essentials when we don't have the energy to drive elsewhere.

1 person likes this
Posted by 37 year resident
a resident of Old Palo Alto
on Dec 2, 2014 at 4:05 pm

@Nora Charles....your reasoning is exactly why a store would not survive in this location. People go into business to earn a profit. They can't make money on selling convenience goods and essentials.

2 people like this
Posted by ChrisC
a resident of College Terrace
on Dec 2, 2014 at 4:06 pm

I was one that stood up at City Council and spoke favorably for the new development, but I regret it now. (Not that I"m that influential.) Just can the grocery idea. CT residents will not shop there except as a convenience store as proven by their fickleness after Trader Joe's came in, decreasing the business to the Garcia family, and ensuring the closure. Personally, I would do a LOT of shopping there if it Were a nice market like Miki's or Piazzas or Milk Pail. BTW .. what's with the name "CentRE." Why isn't the American word "Center" good enough? I might boycott it just for the name. OH, and don't let the Khourey's back .. they were super nice, but the floors were usually dirty while one of the sons sat at the register looking at his IPhone.

2 people like this
Posted by Stop the Trolls
a resident of Mountain View
on Dec 2, 2014 at 4:13 pm

@Don: The Mountain View Voice has a number of articles on that subject.

1 person likes this
Posted by 37 year resident
a resident of Old Palo Alto
on Dec 2, 2014 at 4:25 pm

@ChrisC....Centre may be a part of the Grand Boulevard vision that some people want to see happen on El Camino. Paris, it's so chic. It's laughable. Thanks for being an American. I would probably boycott as well.

1 person likes this
Posted by Annette
a resident of College Terrace
on Dec 2, 2014 at 8:56 pm

Agree with the comments critical of the French spelling of center. Absurd. As for the comment about the Khourys and the floor - it did look bad but it's not really fair to blame that on the Khourys. The building was deteriorating even while the Garcias were there; I suspect that was part of the overall plan. One can hardly blame the Garcias for not wanting to sink tenant improvement dollars into a building they were at risk of losing. The "credit" for all this goes to Mr. Smailey.

Like this comment
Posted by Nora Charles
a resident of Stanford
on Dec 2, 2014 at 11:04 pm

@Nora Charles....your reasoning is exactly why a store would not survive in this location. People go into business to earn a profit. They can't make money on selling convenience goods and essentials.

37 year resident,
If that's the case, they should consider stocking a very wide array of goods. I shopped often at JJ&F, but they didn't offer everything we needed so it was a secondary store for us, and I assume that will be the case with any smaller market; they just can't carry everything. I'm sure a store in that location will be a success due to the Stanford student, faculty, and College Terrace, and other shoppers.

Like this comment
Posted by mark weiss
a resident of Barron Park
on Dec 3, 2014 at 10:39 am

Dented cans.

(That was my terse comment about Alma Plaza and I will reprise it here. "Can" used metaphorically here for "melon")

1 person likes this
Posted by Sea Reddy
a resident of College Terrace
on Dec 3, 2014 at 11:23 am

Please widen your choices

Consider the following

1. Bristol Farms
2. piazza like one near cubberly
3. draegers market like in Menlo
4. Dean and Deluca (a Napa type)
5. Safeway
6. Other high retail

We do not deserve a junkie.
We are college terrace!

For those that want to decide for us, go away!


5 people like this
Posted by curmurdgeon
a resident of Downtown North
on Dec 3, 2014 at 1:05 pm

Easy fix: Scrap the PC and let Smailey build what he wants within the regular zoning. Done.

2 people like this
Posted by know the market
a resident of College Terrace
on Dec 3, 2014 at 7:11 pm

Absolutely an 8000 foot grocer/deli can make it in this location if they know their market like the Garcias did. It wasn't just a neighborhood market. Their bread and butter was the great sandwiches and deli options for many of the Research Park and El Camino employees nearby as well as neighbors. Plus offering good grab&go options for all the grad students and postdocs who biked over from Escondido Village or nearby rentals when they got hungry.

No other location in Palo Alto has anything like the density of non-neighborhood folks who are potential customers within walking or biking distance. Not to mention the new folks moving into two Stanford housing projects going in along El Camino and on upper California Ave in the next couple years.

Add to the mix the rest of the Garcia's secret sauce that kept the longer term residents coming back, like quality meats and cheeses, fresh baked goods and breads, good wine and beer selection in restricted shelf space, handy location for last minute items or ran out of milk, plus decent range of fresh produce and people who know you, and it really could pencil out. However, the developer has to back the grocery with financing through the initial year or so -- can't expect the first 6 months to be profitable like the Alma Plaza crook who strangled Miki's.

2 people like this
Posted by jc
a resident of Barron Park
on Dec 4, 2014 at 1:42 am

Paying $22,500 per month in rent may be a problem for a market with less than 8,000 square feet of interior floor space. But the developer offered a full service grocery store in exchange for being allowed to build a much higher (much more profitable) square footage of office space.

Why would the developer want his son to sign the grocery store lease? A builder who admits to no grocery experience.

Control? Hoping a future council will be sympathetic to the argument the grocery store is too small to be viable and permit a more profitable use? A future prospective buyer doesn't want to be stuck with a grocer who won't give up the lease early?

Other ideas?

The owners, who are in their 80's now, say they don't intend to sell. But new developments usually end up sold within a few years to pay off the mortgage and realize the profit. Or in this case, when one or more of those who inherit want to get the money out. Pay off a house, start a new business, etc. etc.

4 people like this
Posted by Robert Smith
a resident of Duveneck/St. Francis
on Dec 4, 2014 at 11:12 pm

My cynical view is that the developer plans to return after a "decent interval" of time and claim that they tried and the store is not feasible. The new council will give them a new deal in order to increase the tax revenues on the huge building. Thus, the developer wins, the city wins, and the residents lose.

We all understand why developers generate these bogus "benefits": they want to override the zoning to build huge buildings. The question has always been: why it is the City Council so incredibly gullible as to buy into these absurd benefit arguments.

The answer is simple: the city wants the tax revenues from the big buildings and is willing to throw the residents and neighborhoods under the bus to get the taxes.

This building has 40,000 sqft of prime office space as well as the 8,000 sqft of the grocery store. When the store fails, the developer will propose that the 8,000 sqft also become office space. Faced with the obvious demonstration of the failure of the grocery store, the City Council will "reluctantly" agree and pick up the extra taxes.

Sure, the residents lose their "benefit", the neighbors are stuck with the big building, but the developers and the city are all happy.

4 people like this
Posted by Former JJ&F Customer
a resident of Woodside
on Dec 6, 2014 at 8:42 am

College Terrace deserves a very high quality grocery store comparable to Roberts in Woodside. In recent years, Roberts expanded to Portola Valley, creating a second successful high quality market. If Roberts was persuaded to create a third market in this Palo Alto space (certainly of comparable quality as JJ&F), it would be an excellent addition to the community.

1 person likes this
Posted by Crescent Park
a resident of Crescent Park
on Dec 6, 2014 at 9:56 am

Robert's took over the old Bianchini's space in PV.

The difference between the two Robert's locations and CT can be summarized by the phrase: potential profitability.

Both Robert's locations have much larger square footage, more parking, lack of any near-by competition and (no offense) a higher affluent demographic. The CT site is much smaller, limited parking and the clientele is much more price sensitive. Robert's pricing is along the line of Draeger's, not Safeway.

1 person likes this
Posted by Fred Balin
a resident of College Terrace
on Dec 7, 2014 at 9:56 pm

Fred Balin is a registered user.

Letter to the city council with regard to tomorrow's (Monday 12/7) consent calendar follow-up to last Monday's item on the proposed College Terrace Centre market tenant.

Subject: #10, College Terrace Market - Pull it! Fix it!

Council Members,

Despite all the valid comments from the dais with regard to the inadequacy of what was presented by the applicant team to the council last Monday with regard to the proposed tenant, proposed grocery operator, and other related matters, the motion that was cobbled together at the end of the session and which you approved, enables, and most probably has already set in motion, a process, which will return to the council possibly as early as next week, and that is conceptually no different from what you stated as having rejected but with the added complication that the applicant will say that what he now presents is what you asked for.

Council Member Klein was right in his admonition with regard to over-prescription at late hours, and you need to correct the inadvertent or mistaken messages that have been set forth in the motion.

What went wrong:

1. Matters related to the newly-introduced question of a “Team,” “Partnership,” "Limited Liability Company,” and/or "Equity Interest"

- Such an arrangement was not anticipated in the PC condition of approval with regard to the lease.
- Such an arrangement brings yet new and unneeded levels of complexity and opacity to the process. There are few on the council who have the legal qualifications to clearly parse such an agreement (it were to be made available) and fewer still, the time. Nor should staff need to.
- If such an arrangement is required by a grocery tenant in order to obtain additional capital, that grocer should bring it forth to the landlord/development team and not the other way around. The lease arrangement from landlord to a qualified grocer or established grocery entity must be kept at arms length.
- If such an arrangement is to be utilized, the proposed qualified grocer must have the controlling interest. Instead, Mr. Polentz, (after violating council protocol on breaching the the staff area uninvited) proposes a 51/49, Smailey/Chavez, relationship that he can draw up “by the morning” and, unfortunately received feedback that it is a substantive idea. Setting aside for the moment the points raised and expressed about Mr. Chavez’s suitability as an operator, you cannot accept a grocer who has a minority relationship in such a partnership; and you most certainly cannot accept one in which the minority relationship is to the current ownership/development group. If Chavez is “the man,” if Miki is “the man”, whoever is "the man or woman” s/he needs to bring his or her own funding (via “team’ if necessary) to the table.

You have unfortunately set up a situation in which the applicant is poised to return to the council for the third time with an offer that in concept has not changed. An operator whose control of the grocery entity is subordinate to the applicant/developer team, and therefore places the long-time viability of the grocer as operator in serious question. The grocery/operator business is one entity, any owner or developer-related business entity is another. Insist that the two are kept separate in any prospective grocery tenant you consider.

2. Some Suggestion on What to Do?
Within the motion, state that
- The grocery store owner operator team cannot include members of the development team
- In any “team” arrangement, the experienced grocer must have the controlling interest.

-Fred Balin

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