HomeMy WebLinkAboutStaff Report 7138
City of Palo Alto (ID # 7138)
City Council Staff Report
Report Type: Action Items Meeting Date: 8/22/2016
City of Palo Alto Page 1
Summary Title: Interim Retail Preservation Ordinance Discussion
Title: Interim Retail Preservation Ordinance: Request For Waiver at 100
Addison, Discussion Regarding Applicability to Retail and "Retail-Like" Uses
which Do Not Have Required Entitlements, and Discussion Regarding
Potential Ordinance Improvements & Next Steps
From: City Manager
Lead Department: Planning and Community Environment
Recommendation:
Staff recommends that the City Council review interim retail preservation Ordinance No. 5325
adopted on May 11, 2015 and extended by Ordinance No. 5330 on June 15, 2015 and:
a) deny the request for waiver for the property at 100 Addison Avenue (continued from
June 20, 2016);
b) provide direction to staff regarding interpretation and/or adjustments needed to the
interim ordinance, with particular attention to situations represented by properties at
3241 Park Boulevard and 425 Portage Avenue, and the request for waiver for the
property at 999 Alma Street; and
c) provide direction to staff regarding prioritization of additional permanent zoning
ordinance amendments needed prior to expiration of the interim ordinance in April 30,
2017.
Executive Summary:
In mid-2015, the City Council adopted an urgency ordinance prohibiting the conversion of
ground floor spaces used for retail and “retail like” uses to office or other uses. The ordinance,
which is scheduled to sunset on April 30, 2017, was intended to protect retail spaces from
converting to other uses while the City developed permanent zoning amendments to enhance
retail protections.
Since the urgency ordinance was adopted, the City has adopted permanent zoning
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amendments affecting the California Avenue Area (Ordinance No. 5358, adopted October 26,
2015) and closed a loophole affecting the Community Commercial (CC), Neighborhood
Commercial (CN), and Service Commercial (CS) zoning districts (Ordinance No. 5373, adopted
January 11, 2016). Additional, permanent zoning amendments remain to be developed and
planning staff is currently beginning work on an ordinance affecting Downtown.
Several provisions in the urgency ordinance have proven difficult to administer, and/or have
resulted in specific requests for a waiver or for a staff determination that the ordinance does
not apply. This evening’s discussion will provide the City Council with an opportunity to weigh
in on those specific requests, to provide guidance regarding interpretation and/or amendments
to the urgency ordinance, and to prioritize permanent retail protections if desired.
Background & Discussion:
On May 11, 2015, the City Council adopted an urgency ordinance establishing a moratorium on
the conversion of ground floor retail and “retail like” uses to other uses (Attachment A). The
urgency ordinance was extended on June 15, 2015 (Attachment B), and will remain in effect
until replaced or until it expires on April 30, 2017.
Provisions of the Interim Ordinance
The ordinance prohibits the conversion of ground floor retail use “permitted or operating as of
March 2, 2015 or thereafter” to any other non-retail use, and defines “retail use” as including
the following:
retail service
eating and drinking service
hotels
personal services
theaters
travel agencies
commercial recreation
commercial nurseries
auto dealerships
day care centers
service stations and
automotive services.
The ordinance applies to legal non-conforming uses, stating that such uses “shall remain… and
shall not be subject to the change, discontinuance, or termination provisions of Chapter 18.70.”
Importantly, however, the ordinance’s applicability to legal non-conforming uses does not
extend to illegal and non-conforming uses, and there was an early instance where retail uses
that had been illegally established in an industrial zoning district where retail is not a permitted
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use were allowed to convert to office use.1 As discussed further below, in administering the
ordinance, retail and retail-like uses that were established without the benefit of a Use and
Occupancy permit or other city approval, but are permitted or conditionally permitted uses in
the district are treated as non-conforming uses and subject to the limitations on conversion to a
non-retail use.
The ordinance also applies to basements “currently in retail use or in use for retail support
purposes,” which is subject to some interpretation, and contains an exemption for “pipeline
projects.” There are also provisions regarding “waivers and adjustments” (18.85.104). These
provisions allow an applicant to request a waiver based on economic hardship by “showing that
applying requirements [of the ordinance] would effectuate an unconstitutional taking of
property or otherwise have an unconstitutional application to the property.”
The ordinance also states that “the applicant shall bear the burden of presenting substantial
evidence to support a waiver or modification request… and shall set forth in detail the factual
and legal basis for the claim, including all supporting technical documentation.” Requests must
be submitted to the Director of Planning and Community Environment “together with an
economic analysis or other supporting documentation” and must be acted upon by the City
Council.
Request for Waiver (100 Addison Ave.)
On May 11, 2016, Ms. Kristina Lawson, representing the owners of 100 Addison Avenue, the
True Morris Family, LLC, submitted a request for waiver (Attachment C). This request followed
several earlier inquiries and requests that had been rejected as incomplete by the Director of
Planning.
As explained in Ms. Lawson’s request, the building at 100 Addison Avenue was occupied by
Addison Antiques, a retail use, until June 30, 2015. According to the applicant, since that date,
the owners have been unsuccessfully seeking to lease the building to a new retail or “retail-like”
tenant(s).
The 100 Addison request for waiver was placed on the City Council’s consent agenda with a
recommendation for denial on June 20, 2016 and was removed from consent by three
members of the City Council and continued to a date uncertain. Please see CMR #7048 in
Attachment E for the June 20th staff report and materials.
Staff does not believe the requestor has demonstrated that an unconstitutional taking of
property has occurred. While the location is not central to downtown, and will not be able to
command retail rents as high as those in other locations, the Department of Planning and
Community Environment has received inquiries from potential retail tenants and believes that
1 A “legal nonconforming use” complied with zoning regulations at the time the use was established and became
nonconforming due to a change in regulations. On the other hand an “illegal nonconforming use” neither
complied with previous or current zoning regulations.
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the subject property is leasable for a retail or retail-like use at a rent that would enable the
property owner to at least recover their costs. It is notable that the requestor bases their
arguments on “investment-backed expectations” derived from rents offered by an office
tenant, rather than the retail use that has historically existed on the property. The requestor’s
expert states that “if a retail tenant were actually secured, the base rent for such tenant would
be substantially lower than what we have received [from a prospective office tenant]” implying
that the rent would be lower than desired, not lower than the owner’s expenses.
Other Requests for Waiver (999 Alma and 425 Portage)
In mid-July, staff received the attached requests for waiver from representatives of the
properties at 999 Alma Street and 425 Portage Avenue. These requests were not accompanied
by an economic analysis or other supporting documentation as required in the interim
ordinance and are discussed further in the section below.
Consultations & Requests for Determination
Administering the interim ordinance has proven difficult because a number of property owners
have argued that the ordinance should not apply to their specific situation, usually arguing that
the retail or “retail-like” use was not legally established. Two recent examples are the pet store
at 425 Portage Avenue and the auto service space at 3241 Park Boulevard. Correspondence
from the owner of 3241 Park Boulevard is included as Attachment D. Correspondence from
the owners of 425 Portage and 999 Alma Street are included as Attachment F and G.
In all instances, the property has been in retail or “retail-like” use for a number of years and the
owner is now interested in eliminating the use/space and converting it or redeveloping it for an
alternate use. 425 Portage is zoned Service Commercial (CS), where retail is a permitted use,
however the pet store was established without proper approvals and should have required
additional parking or a variance from the parking requirement. 3241 Park Boulevard is zoned
GM, where auto service uses are permitted with a conditional use permit, however a
conditional use permit was not obtained despite several remodels of the auto service use
established c. 1969 (this is according to research by the property owner). 999 Alma Street is
zoned RT-35, and similar to the property at 100 Addison, would be governed by the South of
Forest Area (SOFA) development standards if the retail preservation ordinance was not in place.
Staff was consulted regarding these circumstances, and did not agree that 425 Portage or 3242
Park should be exempt from the interim ordinance’s requirements. In both of these cases, staff
concluded that the owners had well-established retail or retail like uses that were operating as
of the March 2, 2015 date specified in the ordinance. That the owners did not receive proper
city approvals (Use and Occupancy, and for 3242 Park, a CUP) does not exempt them from the
ordinance, which stipulates that retail uses “permitted or operating” shall be subject to the
regulations. The word “or” in this case means either one of the two terms or both may apply.
The owners disagree with this conclusion and are seeking relief via a City Council interpretation,
a clarifying amendment to the interim ordinance, or a waiver. The request for waiver at 999
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Alma Street includes a discussion of the owner’s objectives and a proposal to use a portion of
the space for retail and a portion for office, or to use the entire space as a school. As indicated
earlier, the owner has not submitted an economic analysis to demonstrate infeasibility of
leasing to a retail use. The City Council could nonetheless consider the request or suggest
modifications to the interim ordinance to address this site and others.
Permanent Zoning Changes to Preserve Ground Floor Retail
The City has adopted two permanent zoning amendments to protect ground floor retail since
the urgency ordinance was adopted. The first related to the California Avenue Area (Ordinance
No. 5358, adopted October 26, 2015), and the second was a “clean-up” ordinance that closed a
loophole affecting the Community Commercial (CC), Neighborhood Commercial (CN), and
Service Commercial (CS) zoning districts (Ordinance No. 5373, adopted January 11, 2016). It’s
worth noting that the California Avenue Area ordinance did not extend permanent retail
protections (in the form of the “R” overlay zone) to the 425 Portage or the 3241 Park Boulevard
vicinity.
Additional, permanent zoning amendments still need to be developed before the expiration of
the current interim ordinance in April 2017. Planning staff is currently beginning work on an
ordinance affecting Downtown and expects this work will:
Re-examine the boundaries of the retail protections offered by the “GF” overlay zone;
Add protections for retail uses and retail-support uses in basements;
Update the definition of retail service; and
Consider a provision requiring legal and non-conforming (non-retail) uses on the ground
floor to have display windows rather than obscured windows.
City Council interests and direction on the downtown ordinance would be welcomed, along
with City Council input on the relative priority of additional zoning changes to strengthen retail
preservation measures in other areas of the City, including El Camino Real and the community
centers. As discussed at the “Committee of the Whole” meeting on May 31, 2016, developing
an ordinance addressing these other areas of the City would require deferring other long range
planning projects.
Environmental Review
The requested action consists of direction to staff and/or interpretations of an existing
ordinance and does not constitute a “project” requiring review under the California
Environmental Quality Act (CEQA).
Attachments:
Attachment A: Retail Preservation Ordinance No. 5325 (PDF)
Attachment B: Retail Preservation Ordinance No. 5330 (PDF)
Attachment C: May 11, 2016 Request for Waiver_100 Addison (PDF)
Attachment D-1: 3241 Park Boulevard Request for Determination (PDF)
Attachment D-2: 3241 Park 8-02-2016 Letter to CPA (PDF)
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Attachment E: June 20, 2016 Staff Report (7048) (PDF)
Attachment F: July 14 Request for Waiver 425 Portage Ave. (PDF)
Attachment G: July 14 Request for Waiver 999 Alma Street (PDF)
City of Palo Alto (ID # 7048)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 6/20/2016
City of Palo Alto Page 1
Summary Title: Request for Waiver from Retail Preservation Ordinance
Title: Denial of a Request for Waiver of the City's Moratorium on Conversion
of Ground Floor Retail for the Property at 100 Addison Avenue
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends that the City Council deny the request for waiver from the City’s moratorium
on conversion of ground floor retail uses as it applies to the property at 100 Addison Avenue
based on a finding that the requestor has not demonstrated that the City’s moratorium would
effectuate an unconstitutional taking of property.
Background
On May 11, 2015, the City Council adopted an urgency ordinance establishing a moratorium on
the conversion of ground floor retail and “retail like” uses to other uses (Attachment A). The
urgency ordinance was extended on June 15, 2015 (Attachment B), and will remain in effect
until replaced or until it expires on April 30, 2017.
The ordinance contains provisions regarding “waivers and adjustments” (18.85.104) that allow
an applicant to request a waiver based on economic hardship by “showing that applying
requirements [of the ordinance] would effectuate an unconstitutional taking of property or
otherwise have an unconstitutional application to the property.”
The ordinance also states that “the applicant shall bear the burden of presenting substantial
evidence to support a waiver or modification request… and shall set forth in detail the factual
and legal basis for the claim, including all supporting technical documentation.” Requests must
be submitted to the Director of Planning and Community Environment “together with an
economic analysis or other supporting documentation” and must be acted upon by the City
Council.
On May 11, 2016, Ms. Kristina Lawson, representing the owners of 100 Addison Avenue, the
True Morris Family, LLC, submitted a request for waiver (Attachment C). This request followed
several earlier inquiries and requests that had been rejected as incomplete by the Director of
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Planning.
As explained in Ms. Lawson’s request, the building at 100 Addison Avenue was occupied by
Addison Antiques, a retail use, until June 30, 2015. Since that date, the owners have been
unsuccessfully seeking to lease the building to a new retail or “retail-like” tenant(s).
Discussion
The attached request for waiver from the City’s moratorium on conversion of ground floor
retail uses argues that the City’s ordinance “goes ‘too far’ in imposing upon the owner an
unreasonable economic loss and interfering with the owner’s distinct investment-backed
expectations, thereby amounting to a de facto taking of the Property for public purposes.”
As explained in the request, the property owner was on the verge of leasing the 4,000 square
foot building and parking lot at 100 Addison Avenue to an office use at a rent of $5.20 per
square foot in June 2015, when they became aware of the City’s moratorium. Thus, the
requestor believes the owner has “lost” a significant sum of money. (See the request, p. 5.)
Since then, the property owner has sought to lease the building to a retail or “retail-like” use,
but without success, and the requestor believes that “in the unlikely event” that a retail tenant
can be found, the base rent would be for approximately $1.50 per square foot. (See the
request, p. 6.)
The requestor identifies the owner’s annual carrying costs as $273,622, but this includes “lost
opportunity costs of $194,880” based on the inability to lease for office use and management
costs of $65,142. Without these line items, the owner’s annual carrying costs (taxes, utilities,
and insurance) would be $13,600. (See the request, p. 7.) The requestor also agrees with
staff’s position that “the City has no obligation to maximize the owners return on investment
and that all zoning regulations have some impact on revenue potential.” (See the request, p.
8.)
City staff does not believe the requestor has demonstrated that an unconstitutional taking of
property has occurred. While the location is not central to downtown, and will never be able to
command rents as high as those in other locations, the Department of Planning and Community
Environment has received inquiries from potential retail tenants, and believes that the subject
property is leasable for a retail or retail-like use at a rent that would enable the property owner
to at least recover their costs. It is notable that the requestor offers expert opinions stating
that “if a retail tenant were actually secured, the base rent for such tenant would be
substantially lower than what we have received” implying that the rent would be lower than
desired, not lower than the owner’s expenses. In addition, staff notes that the applicant’s only
evidence of inability to find a retail tenant is an August 2015 from the applicant’s realtor stating
he was unable to secure a retail tenant. Based on the letter (not signed under penalty of
perjury), it appears the property was marketed as a retail property for approximately 6 weeks
in 2015. There is no evidence of more recent marketing and no evidence of marketing to “retail
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like” uses permitted under the ordinance. Further, there is no discussion of whether modifying
the proposed lease term or rent or the offering of a tenant improvement allowance or other
incentives would have yielded a viable retail or retail like tenant. Finally the restriction is only
for a two year period. State law recognizes that comprehensive land use planning may require
temporary moratoria and expressly allows for such moratoria for periods up to two years. The
City’s retail preservation ordinance was enacted under the State moratoria law. Placing a time
out on the conversion of retail use to office use while the City evaluates the long term
feasibility of ground floor retail outside the core downtown is precisely the aim of the
moratorium.
The permanent ordinance developed for consideration before the expiration of the current
interim ordinance in April 2017 can re-evaluate the appropriateness of ground floor retail at
this location. City staff has encouraged the property owners and their representative to
participate in the public process associated with the permanent ordinance when it occurs.
Environmental Review
The requested action would require the subject parcel to be reused for the same use that was
in place in June 2015, and would not constitute a “project” requireing review under the
California Environmental Quality Act (CEQA).
Attachments:
• Attachment A: Retail Preservation Ordinance No. 5325 Adopted May 11, 2015 (PDF)
• Attachment B: Retail Preservation Ordinance No. 5330 Adopted June 15, 2015 (PDF)
• Attachment C: May 11, 2016 Request for Waiver - 100 Addison (PDF)