Following a recommendation from city staff, the council rejected proposals from two different developers, Legacy Partners and Silverstone Communities. Each had submitted proposals for a "boutique size" grocery store, with housing above, on a 1.45-acre city parking lot along Bryant between Mercy and California streets.
Each proposal contained "unfavorable terms" for the city, which wants to lease the property, said the city's real property manager Dennis Drennan. He blamed the unfavorable terms on a down real estate market. Details of the rejected proposals could not be disclosed, he said.
"If the site were bigger and in a more favorable market it would make for a very interesting mixed-use project," said Dean Martin, development director of Legacy Partners. "I think it would be a win-win for everybody.
"In the state and the country, development is at a standstill. That essentially is why this development is at a standstill. The returns just aren't feasible however it would be financed. The bottom line is it's a very intriguing site for a new development —it's just not feasible today."
The City Council did not make any comments about the decision, which was approved on the council's consent calendar Tuesday. Previously, the council laid out the city's requirement for development of the site: a 10,000- to 15,000-square-foot "boutique size" grocery store built beneath housing, 10 to 30 percent of which would be sold or rented at below market rate cost. The council also wanted a long-term ground lease with a "reasonable" financial return for the city.
In one of the rejected proposals — Drennan would not say which — the developer proposed to buy the property, which did not fit the city's requirements. "The other did not propose to pay any rent for a number of years and rent was not anywhere what we consider market rent or favorable rent," Drennan said.
A new grocery store has long been a wish of downtown residents. In 2005, residents held a candlelight vigil when the city decided to lease a similarly sized space under the Bryant Street parking garage to Longs Drugs instead of Zanotto's, a San Jose-based grocery store which wanted a subsidy to occupy the space.
When asked if there was still interest from grocery stores to occupy such a space downtown, Martin said, "Sure, I think there is a genuine interest, but I think because of the timing everyone is uncertain to commit."
In a letter to the council, downtown resident Julie Lovins expressed concern that the city had not gotten enough input about what the community wanted in a downtown grocery store, and questioned why a larger store couldn't be built on 1.45 acres.
Perhaps alluding to the environmental benefit of having a popular grocery store within walking distance of downtown residents, she wrote, "We cannot afford not to have a reasonably full-service grocery store downtown."
Moving forward with a downtown grocery store may require a serious look at when the "optimum time" might be in light of the real estate market, Drennan said.
"What we're going to do is go back to the council in the next three months of this calendar year for further analysis, further discussion and further direction," he said.