As deal over Fry’s site nears finish line, critics lament a lost opportunity | News

When Ventura residents were asked in 2019 what changes they’d like to see in their centrally located and chronically underserved neighborhood, affordable housing, additional park space, and more retail space topped the wish list.

Over the course of the following two years, as neighborhood activists, planning commissioners and other community stakeholders went through a planning process for a 60-acre portion of Ventura, participants made a pitch for adding bike amenities and naturalizing Matadero Creek, turning it from a concrete channel into a real creek. Most supported preserving, in part or in whole, the cannery building that went up in 1918 and that is best known for housing Fry’s Electronics until 2019. And they generally agreed that the last thing the area needs is more office development.

At first glance, the largest development in Ventura’s recent history falls well short on all these priorities. Pitched by The Sobrato Organization, which owns the 14.65-acre campus that includes the cannery building, the project calls for demolishing about 40% of the cannery building and constructing 74 townhomes. The development agreement between Sobrato and the city would also allow the developer to retain commercial and research-and-development uses in the Portage Avenue building, which is zoned for multi-family housing and which housing advocates had long hoped to see converted into residential use.

But even if the immediate rewards of the development agreement tilt toward Sobrato, City Council members are banking on major benefits down the road. As part of the development agreement, Sobrato is dedicating to the city 3.25 acres of space near Matadero Creek, with the idea that the city will later construct a small park and an affordable housing project.

Sobrato will also be required to open a small retail operation such as a café near the cannery, with space for visitors to check out the building’s key architectural element: its monitor roofs, raised structures that jut out from the main roof. Given these various amenities – as well as the $5 million payment that Sobrato will make to the city – council members believe the development agreement represents a fair deal for area residents.

The costs and benefits of the proposed development agreement will take center stage on Sept. 5, when the City Council holds a public hearing on the proposed deal to give residents a chance to weigh in. The council then plans to vote on the development agreement on Sept. 12.

A newly released independent economic analysis suggests that the development agreement would be a solid deal for the city. The city had hired the consulting firm Keyser Marsten Associates to evaluate construction costs, sales prices, Sobrato’s future operating income and the difference between the project in the development agreement and what the developer would be allowed to build under standard zoning. The study found that the development agreement would result in an economic benefit of about $25 million over a hypothetical code-compliant project, according to a new report from the Department of Planning and Community Services.

The city, meanwhile, would receive at least $27 million in public benefits, a sum based on the value of donated land and Sobrato’s cash contributions. The number does not include development fees that Sobrato would have to pay for its townhome project and an existing lease that Sobrato has with Comcast for a switch building on the dedicated parcel. Assuming the city inherits the lease, it would generate about $90,000 annually. These benefits, according to the analysis, increase the public benefit to at least $37 million, according to the analysis.

“These financial analyses do not account for any intrinsic value to the City of additional housing in the form of the townhomes or the opportunity for affordable housing on the dedicated land,” the report from Planning and Development Services states. “Moreover, these figures represent the City’s independent analysis, and rely on assumptions for cost of construction, commercial rent, and residential sales prices that may not hold in the current economic environment or that may differ from the assumptions of the Sobrato organization.”

For those who support the deal, the development agreement represents a reasonable compromise between two codependent parties. With the departure of Fry’s Electronics, Sobrato needs zoning clarity of the sort that only the City Council can provide. The city, meanwhile, needs Sobrato’s cooperation as it plans to redevelop a major section of Ventura, where Sobrato happens to be the largest property owner.

When the council held its first public discussion of the development agreement in August 2022, former council member Tom DuBois acknowledged that no compromise will be perfect but described the plan as “positive for the neighborhood.”

“It delivers on key aspects of what people said they wanted, which is housing and open space, and means to manage key impacts, such as traffic,” said DuBois, who served on an ad hoc committee that negotiated the development agreement with Sobrato.

Since then, each of the city’s land-use boards has reviewed and slightly modified the project before voting — with varying degrees of reluctance — to approve it. The Historic Resources Board recommended that the city collect detailed documentation about the existing cannery, establish a repository for the information and conduct a post-construction analysis to see if the remaining portion of the cannery may be eligible for a listing on the national register.

The Architectural Review Board recommended that the developer widen the plaza space in front of the cannery building and change the roof design at one of the townhouse buildings to make it more compatible with surrounding structures.

And the Planning and Transportation Commission, which reviewed the project last month, successfully lobbied the city to change the proposed land-use designation in the Comprehensive Plan for the Fry’s site. While it was initially set to be designated as “service commercial,” which connotes car-focused, regional shopping destinations, planning staff have since changed it to “mixed-use” to channel a more vibrant and pedestrian-friendly vibe.

Commissioner Bart Hechtman spoke for the majority when he called the proposal a solid outcome for both parties. He noted that if the city does not approve the development agreement, Sobrato could simply proceed with a different project that is also in the development pipeline, one that includes 91 townhomes and does not include the various public benefits in the pending agreement. Sobrato had agreed to freeze work on that project while the development agreement was being reviewed.

“I think the combination of our citizenry and the PTC (Planning and Transportation Commission) and HRB (Historic Resources Board) and the ARB (Architectural Review Board) have done a good job of exploring just how far we can push,” Hechtman said, “Frankly I want to commend Sobrato for being flexible in that process.”

The value of history

Not everyone shares this assessment. With decision time approaching, some residents and neighborhood leaders have criticized both the Sobrato project and the city’s process. Former Mayor Karen Holman is among those who have urged the city to preserve the cannery building, which was constructed by Chinese entrepreneur Thomas Foon Chew and which for a time served as one of the world’s largest cannery operations. At a June public hearing, she called the 1918 building a “rare surviving example of Palo Alto’s and Santa Clara County’s agricultural past.”

“I ask that you all consider what we want and ought to do with any of our (historic) resources,” Holman said at the June meeting. “Is it really to demolish, obliterate, remove, disregard?”

Others have similarly criticized what they see as Sobrato’s disregard for an important historical building. Both the Historical Resources Board and the Architectural Review Board lamented the proposed demolition during public hearings in May and June. Members of both bodies implored the applicants to go further in both preserving the cannery’s most significant features and providing public access to these features. Resident Terry Holzemer, a vocal proponent of preserving the cannery, last week applied to have the building at 340 Portage Ave. designated as a Category 1 or Category 2 historical resource.

“For a city such as Palo Alto, which prides itself on equality for all, to lend its hand to the destruction of one of last surviving and most impressive monuments to Chew’s achievements is wrong, especially because it is completely unnecessary,” Holzemer wrote in a letter requesting the historical designation.

Becky Sanders, moderator of the Ventura Neighborhood Association, expressed similar concerns. Sanders, who serves as co-chair of the umbrella group Palo Alto neighborhoods, submitted a letter with fellow co-chair Sheri Furman that sharply criticized the city for reaching an agreement that “destroys a major historic resource, important to our cultural, business and industrial legacies.”

To preserve more of the cannery, Jeff Levinsky proposed retaining the part of the building that is slated for demolition and converting it into a parking area. This would obviate the need for Sobrato to construct a garage just north of the cannery. The cannery building, he said, is “an incredible part of history right in our backyard that could inspire the current generation and those to come.” Demolishing a large portion of it would destroy the building’s historical integrity, he suggested.

“The entire building — its magnitude, its grand scale – is part of what makes it important,” Levinsky said during a July 12 public hearing.

Planning staff, however, point to the various changes that Sobrato made to the design of the project to preserve the cannery’s historic character, including the grade separation of loading docks on the north side of the building. The development will also include public art that relates to Chew and the cannery and an “interpretive display” in the public seating area outside the small retail space.

Project architect Evan Sockalosky told the planning commission in July that his team worked with Architectural Resource Group, a firm that specializes in historical preservation, to ensure that the new development meets all the applicable historic guidelines. Feedback from the city’s Historical Resources Board and Architectural Review Board further reinforced the need to preserve the building’s historical elements, he said.

“We feel that the project’s final design has benefited greatly from the input we received along the way,” Sockalosky told the planning commission during a July 12 hearing.

Too much, or not enough?

While some neighborhood leaders think the development agreement fails to adequately consider the history, Gail Price believes its chief flaw is a failure to contemplate the future.

Price, a former City Council member who served on the North Ventura Area Coordinated Area Plan Working Group, sees the deal as, above all, a wasted opportunity. In 2021, Price was the sole group member who supported the most intense development alternative for the 60-acre Ventura area – one that included raising building heights, building nearly 1,500 dwellings and 82,800 square feet of commercial space and demolishing the cannery to make way for housing (the council ultimately favored a more conservative alternative with about 500 new dwellings and no new commercial growth). The development agreement is expected to generate close to 150 new dwellings in the Fry’s site – 74 townhomes and between 75 and 80 affordable housing units on the city’s parcel.

The development agreement will effectively take the largest property in the Ventura planning area out of the equation for the long-term planning effort, which includes rethinking zoning throughout the broader 60-acre area. In Price’s view, it thus precludes the city from thinking holistically about the neighborhood and coming up with cutting edge building designs, transportation options and recreation opportunities. It is also risky, she said, with Sobrato getting to build its townhomes now but the city deferring affordable housing to an unknown future.

Price said she was hoping the city’s political leaders and community members would embrace a more vibrant vision for the neighborhood.

“We need people on the street. We need people with destinations and recreational opportunities, passive and active. We need colorful and innovative design,” Price said in an interview. “It (Ventura) has such potential, I believe.”

Some of the alternatives that were contemplated during the planning process leaned in the direction, though they were ultimately rejected by both the majority of the working group and the council. The development agreement, in her view, isn’t nearly bold enough.

“I think the ship is leaving the harbor because so many of these things are still being deferred,” Price said.

The big question for the City Council in the Sobrato negotiations – as with other directly negotiated developments – is the familiar one: Will the deal achieve the desired community benefits? While council members believe it will, there are plenty of reasons to be skeptical. Even after the city secures land for a park and an affordable housing complex, it will take years and new funding sources before these amenities go from conceptual plans to reality. The new report from the planning department notes that there will be “significant additional costs to the City for the capital improvements required to design and construct a new park on the city dedication parcel.”

“There is no estimate for this work as it would depend on the City’s ultimate design interest, including whether it includes naturalization of a portion of the Matadero Creek,” the report states.

The city’s plans to naturalize Matadero Creek is also tentative at best. According to the new report from the planning department, the city is now working with the consulting firm WRA, to prepare an additional conceptual design and to estimate the cost. While staff believe there may be some regional or governmental funding opportunities, planning staff note that the project is currently not listed on the city’s long-term capital improvement plan.

Ventura residents who wanted to see more retail on the site are also out of luck. Despite the long-time presence of Fry’s Electronics at the former cannery and the site’s proximity to the California Avenue business district, Sobrato concluded that the site is no longer suitable for retail. It doesn’t help that the city continues to ban chain stores – a provision that doomed a prior effort by Sobrato to negotiate with Target, which had hoped to occupy a portion of the building several years ago. While the new development will include a small café near the cannery, Tim Steele, vice president for real estate development at Sobrato, suggested during the planning commission’s July review that the area is no longer deemed suitable for retail.

“We could not find support for retail services in this area at any scale,” Steele said.

What they do in shadows

While some project critics take issue with the agreement for failing to live up to the community’s goals, others take issue with the process. While the North Ventura Coordinated Area Plan proved at times frustrating for participants and ineffective at forging consensus (the group ultimately splintered over preferred alternatives, with no options securing a clear majority), it was transparent and inclusive. The development agreement negotiations were neither.

Rather, the new deal was the product of six months of closed-door negotiations between Sobrato and a council committee consisting of DuBois and then-Vice Mayor Lydia Kou. The council announced it after a closed session in June 2022 and by the time the document began circulating through the usual circuit of commission hearings, all the main elements were already in place and effectively endorsed by the final decision makers.

Planning and Transportation Commission Chair Doria Summa took issue with the process at the July 26 hearing, when the commission signed off on the plan. She was, however, the sole dissenter.

“This is an unusual project because it comes to us with a development agreement already in place … which didn’t have very much public scrutiny because it was developed behind closed doors in closed session,” Summa said.

Furman and Sanders similarly criticized the backdoor nature of the negotiations. The process, they wrote in the letter, was plagued by an irregular review process and a lack of publicly available information.

“The public has no access to any studies that may or may not have been provided to the Council in conducting the negotiations,” Furman and Sanders wrote.

For the City Council, the process is a departure from the norm. It’s been more than a decade since the council negotiated a development agreement with Stanford University Medical Center over Stanford’s proposed expansion. It has largely abandoned, however, its “planned community zoning” process, which involved direct negotiations between the city and developers over zoning exemptions and public benefits. The current version of that process, known as “planned home zoning,” pertains strictly to residential projects.

Furthermore, the city’s recent record in negotiating deals for mixed-use and commercial projects is less than sterling. The city’s attempt to negotiate with John Arillaga in 2012 for an office-and-theater development at 27 University Ave., near the downtown Caltrain station, fizzled after a public outcry over the backdoor negotiations.

In other instances, Palo Alto found itself in litigation with developers who were supposed to provide grocery stores in their mixed-use projects (in both cases, College Terrace Centre and Edgewood Plaza, grocery stores ultimately opened). The city also found itself in a legal dispute with Sand Hill Property Company, the Edgewood Plaza developer, after the developer’s contractors destroyed a historic building that was slated for preservation as part of the “planned community” agreement.

History notwithstanding, planning staff believe that development agreements are an adequate tool for projects that involve large developments occurring over several phases. The new report notes that the agreement provides developers with “additional certainty that approval would not lapse or become subject to new regulations before a project could be built.” The report notes that in negotiating with Sobrato, the city focused on the key goals and expressed interests of the Ventura working group and the broader public. And if the people get really upset, the agreement is subject to referendum.

Shortly after the council introduced the development agreement last summer, members argued that the process, while irregular, could be effective. Council member Pat Burt called the deal “one of the few opportunities we’ve actually had for a development agreement where we can negotiate terms that are even greater than what we’d be able to have through our standard zoning.

“I believe that’s exactly what’s happening here.”

Kou, who helped negotiate the deal, suggested at the August 2022 meeting that the project does indeed achieve the important goal of creating residences for various types of households, particularly once the city constructs the affordable housing complex on its new land near Matadero Creek.

“When there’s an opportunity to gain more land for Palo Alto, this is an opportunity that we do want to come to fruition,” she said.