Palo Alto's recently adopted retail-preservation ordinance will be put to the test on Aug. 14, when the City Council considers whether to give an exception to a developer who's been struggling to find a new tenant for his vacant Portage Avenue building.
The property at 425 Portage Ave., in the Ventura neighborhood, was most recently occupied by Pet Food Depot. The shop closed down earlier this year and, under the city's new law, the owner is required to replace it with another retail use.
But on June 29, the city received requests from Boyd and Lund Smith of D&B Properties, urging a waiver to this requirement and arguing that finding a retailer for this building is an impossible task.
Located on a road connecting El Camino Real and the Fry's Electronics parking lot, the property is adjacent to offices and industrial businesses. Across the street is the Equinox gym and parking garage.
According to the materials provided by the developers, the property attracted inquiries from at least 11 prospective tenants or brokers over the past year.
Three of them -- AltSchool, The Learning Experience and C&W Services -- were disqualified because they did not comply with the retail ordinance. The remaining eight -- a list that includes include a cafe, a rock climbing gym, an art gallery and a restaurant -- all dropped out either because of inadequate parking or because they felt the location wasn't retail-friendly (in some cases, both reasons applied).
The waiver request from Lund and Boyd Smith is the first that the city has received since it approved the retail-preservation law on a permanent basis in March, though it likely won't be the last. A report from the Department of Planning and Community Environment notes that it is "unclear if this proposed waiver request will encourage others to similarly seek relief from the retail preservation ordinance."
In making his case for the exemption, Lund Smith argued that the 9,129-square-foot building is not viable for retail because of site constraints and existing parking that "make our building suited for warehouse, not retail." The site's location, he wrote, has surrounding uses that "lack retail vibrancy, accessibility and visibility" and the building's design "is unsuitable to support a retail use."
"We have marketed our space since March of 2016, and retail businesses have again and again shown no interest in our warehouse building," Lund Smith wrote. "For this building, Palo Alto's retail preservation ordinance has created a vacancy that does not serve public safety or appeal for the area. Instead, the vacancy allows for potential homeless trespassing, vandalism and criminal activity."
For the council, the request presents a conundrum. Last August, council members unanimously rejected a similar plea for an exemption from Michael Morris, whose family owned the building at 100 Addison Ave., which once housed Addison Antiques (the longtime retailer moved out in 2015).
Despite arguments from Morris that the area is ill-suited for retail (particularly since its neighbor, Anthropologie, moved to Stanford Shopping Center last year), the council refused him the waiver.
"The retail protection of ground-floor space won't have any effect if we just grant exceptions when someone complains," Councilman Tom DuBois said at the time.
In this case, however, planning staff are encouraging the waiver. In a July 5 letter to Lund Smith, Planning Director Hillary Gitelman concurred with the developer's finding that the area is ill-suited for retail. She tentatively approved the request for a waiver, a decision that will now go to the City Council on "consent calendar." That means the decision will become final unless three council members choose to remove it from the calendar and the entire council then votes to deny the developers' request.
Heghnar Balian, whose father, Hrair Tashjian, owned Pet Food Depot, concurred in a February letter to the City Council that the Portage building is a poor retail site. The family moved the business from a nearby location on El Camino Real to 425 Portage Ave. after Equinox moved into the former site. Since moving there, the business has struggled to survive in the warehouse building, with sales dropping by about 45 percent. Ultimately, this led Hrair Tashjian to close down the shop.
"Despite our landlord's help in reduced rents and despite our making every effort to make the business profitable, retail just doesn't work here," the letter from Tashjian and Balian states.
Ironically, the one factor that may help the developer is the fact that the retail operation at 425 Portage Ave. was illegal in the first place. The site is zoned service commercial, which is intended for services that "may be inappropriate in pedestrian-oriented shopping areas, and which generally require automotive access for customer convenience," according to the report from planning staff.
The report notes that retail services "were never authorized by the City at this location and could not have been approved based on the lack of on-site parking to support the land use." The site includes nine parking spaces, while the zoning code requires at least 24 spaces for retail at this site.
"Adoption of the retail preservation ordinance required the subject location (to) remain as retail even though it was never developed, intended or approved to be a retail use," Gitelman wrote in the July 5 letter, explaining her decision to approve the waiver.
Prior uses for the property were warehouse- and storage-related, according to the city. These are precisely the types of use that Lund and Boyd Smith hope to see in the future, if the waiver is granted. It's also what city planners expect to see at the site, particularly since office use is not allowed on the property because of a lack of on-site parking, according to the staff report.
"Redevelopment is also a possibility, and any new project would be subject to applicable codes with provisions to ensure adequate parking, compatible design and appropriate pedestrian access," the report from the Planning Department states.