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Wednesday, February 25, 2009

Westlake Grocery Deal in Doubt As Owner Allegedly Reneges on Handshake Deal

In an interview with the Vanguard, the Davis Advocates for Neighborhood Groceries (DANG) say they thought they had a deal. Consultants for Farrokh Hosseinyoun, the majority owner of the Westlake Plaza Shopping Center on Lake Boulevard in West Davis had found a suitor for the Westlake Plaza's empty grocery store spot.

Enter the Delano Family, owners of eight Bay Area Grocery stores bearing the same name. They operate Delano's Markets in San Francisco, Mill Valley, Tiburon, Fairfax and Novato, many of them very upscale in appearance. Adding to the intrigue is the versatility of their product and the vast experience of the Delanos in the grocery business and their genuine interest in coming to Davis and Westlake Plaza.

The principle owner of the Delano's Markets, an independent family owned chain, is Harley Delano, 72, who has been in the grocery business for 55 years. He previously was the president of several food store chains such as Cala & Bell Food Stores in San Francisco as well as a divisional president to Kroger's and Lucky's store chains and he has sat on the board of directors of a number of other grocery stores. His son and co-owner, Dennis Delano has been in the grocery business for more than 30 years. Harley is the CEO and Dennis is the President/COO of their family run business with other family members actively involved in the day to day operations.

They possess the rare ability to create custom grocery stores that are neatly tailored to the clientele in the specific neighborhoods and communities in which they operate. In Davis, the Delano's were looking at opening a specialty store with an upscale appearance and emphasis on organic and other natural foods. In other markets, their stores have as many as 198 organic items.

Dang Board Member Carolyn Hinshaw was quoted on the DANG website as being impressed with what she saw during a January 7, 2009 tour of the Delano's Bay Area stores.
"My impressions were immediately favorable. I feel that Delano's would be a very good fit for West Davis and that it is a business that the community and the City should get behind and support."
The Westlake Plaza store site is zoned for a minimum of 15,000 square feet of grocery store space. However, the Delanos wanted less space and DANG believed that they could have a good store at 11,000 square feet. The remaining space would have presumably gone to other retail.

DANG was willing and excited to accept a temporary zoning change to allow a grocer such as Delano's Markets to operate an 11,000 square foot store, hoping that the remainder of the 23,000 square foot footprint would be filled with coffee shops, and other businesses whose core activities centered around food.

It was at this point, that the Delanos and DANG began to run into obstacles, many of these of the owner's own doing.

Previously, when Food Faire left Westlake Plaza, now nearly three years ago, Mr. Hosseinyoun and and his minority partner, Jim Barcewski, had gutted and stripped the entire grocery store building leaving it essentially a shell of its former self. They filled in the cargo bay rendering the receiving door to the rear of the store useless. They tore out the insides of the store such as the interior walls, the rest rooms, the floors, air conditioning ducts, insulation, and other grocery store infrastructure. As a result, there is a huge cost of tenant improvements that the landlord must do to repair and restore the building back to a usable state prior to leasing the property to a new grocery store tenant. DANG estimates that it may take up to well over $1 million or more to return the gutted former store back into an operational grocery store.

There have been serious questions raised by the neighbors about whether the property owners even wanted to rent this space as a food market in keeping with the City's Ordinance which requires a minimum 15,000 square foot grocery store at the shopping center. Apparently, Mr. Hosseinyoun and Mr. Barcewski made the location as unappetizing as possible and then lobbied City Staff and the Planning Commission to reduce the zoning requirements down to 3,000 square feet. This is basically the size of the Circle K store which is little more than two blocks down the street from Westlake Plaza. DANG and other neighbors want a full service and fully operational grocery store and the 3,000 square feet proposal does not cut it. Fortunately for them, the Planning Commission agreed and denied the application.

However, since then Mr. Hosseinyoun has pledged to bring a grocery store to Westlake. He has put money into the property, finally making long overdue repairs and upgrading the site's exterior appearance.

It was back in September 2008 that the Delanos first expressed an interest in bringing their store to Davis. They estimated they needed financing of between $750,000 and $800,000 to make the deal work. This funding would be used to purchase the needed equipment, fixtures, coolers, software and electronics, cash registers which is usually borne by the grocery store operator who becomes the tenant.

Mr. Hosseinyoun even offered to loan them $250,000 to help close the gap. At that point they needed another $500,000 to $600,000 in additional funding and they began their search for a lender.

DANG worked with the Delanos and had them talk to First Northern Bank, but according to the members of DANG, they are not sure what happened. First Northern Bank backed out, DANG suspects because Mr. Hosseinyoun decided he either could not or would not continue with his commitment to provide $250,000 in capital to the Delanos. Once that offer came off the table, First Northern took a different view at the ability to finance the Delanos.

This was extremely frustrating, needless to say, to DANG. In addition to opening up a market, the Delanos were ready to move their cooperate office to Davis leasing additional space at Westlake Plaza to do so. The Delanos would have hired 30 to 40 people to work in the Davis store.

This has driven a wedge between DANG and the owners of Westlake. DANG suspected that perhaps Mr. Hosseinyoun got cold feet because the project was becoming too close to reality. Mr. Hosseinyoun claims, according to DANG, that the downturn of the economy was causing his funds to dry up or that he feared they would dry up. DANG seems skeptical of the claim.

DANG has let Mr. Hosseinyoun know that he needs to step up to the plate or he needs to find another lender. At this point Mr. Hosseinyoun is claiming that it is DANG's responsibility to find financing.

These events have caused DANG to step back from their willingness to partner with Mr. Hosseinyoun. They no longer feel they can trust him.

On February 6, 2009, they fired off a letter to the Mr. Hosseinyoun, copying members of the Davis City Council as well as the Vanguard.
"DANG is aware of the discussions that have taken place at your meeting last Thursday with both First Northern Bank and the Delanos. We were surprised to hear about this new "residential" component scenario, and are currently taking no position on the issue other than to acknowledge the fact that this distracts from our number one priority of securing a good grocer/anchor tenant for Westlake Plaza, in a timely manner.

We were disappointed to hear that you and or FNB did not offer any realistic financing solution for the Delanos. And in fact your having withdrawn your $250K loan offer to the Delanos, had cooled FNB's interest in financing the balance necessary to bring the Delano’s Market to Westlake. We are also aware that financing the entire $750-800K needed by the Delanos, is well within your means.

DANG has been in recent contact with the Delanos to ascertain as to whether or not they are still interested in pursuing their "Westlake Project". At this point they still are . . . and so is DANG! They have their caveats . . . and so does DANG!"
Among the Delanos caveats is that they will not encumber their personal residences or property in order to secure a loan or a line of credit.

DANG's Caveats include the following:
"1)- That the Delanos total financing needs of up to $800K are met by you, either through a direct loan (or line of credit) from your resources for the full sum, or your guarantees in conjunction with a lender of your choice.
2)- That the Delano grocery project is given your first priority, with the goal of having the store open by September 1, 2009 to take advantage of UCD student arrivals and the 4th Quarter Holiday sales.
3)- That the current retailers and restaurants continue to be given rent reductions so they can try to survive while the anchor tenant is being restored to the property.
4)- That any plan to subdivide, residential rezone, and redevelop the property be delayed until after the Delano's grocery is open, as this process will be too lengthy for the Delanos or your current retail tenants.
5)- That the current total square footage of retailers and restaurants is secured in any future redevelopment so as to maintain critical visitor traffic."
They conclude:
"DANG wants to be assured that the above caveats are met, and that a grocery store opens soon. At the opening of a new neighborhood grocery store, DANG will fully support reducing the zoning grocery requirement of 15,000 sq ft down to the 11,000 sq ft requested by Delanos. We will not support reduction of the 15,000 sq ft requirement prior to the store opening, unless we can agree to create a legal mechanism that ensures complete and acceptable performance."
In response, Mr. Hosseinyoun asked the members of DANG and the community to come up with the difference.
"I urge you, the community, to come up with the difference in order to make this deal happen."
DANG responded:
When your $250,000 commitment was hastily withdrawn from the deal it did 'SHOCK' everyone and appears to have undermined the confidence of the DeLano's, DANG Board, First Northern Bank and probably the City of Davis. As a result, DANG's good faith efforts to help you recruit a grocer, approach the city, other financial institutions and the West Davis community on your behalf are now suspended.

Based on your recent action and on your history with us and the community, DANG is not willing to accept your suggestion for us to take on the additional responsibility of finding financing for your project, only to have you torpedo it again! When you find a solution for the financing we really hope the DeLanos are still interested! Until then DANG will keep the community activated, and will keep pressure on the City to maintain the current zoning restrictions and to enforce City code compliance on the property.
DANG board members also expressed frustration at the city of Davis. The impact of this vacancy is taking a terrible toll on the other businesses in the shopping center. A large number of the retailers are barely hanging on, and holding out in hopes that a deal can be reached.

But thus far the city is doing little to nothing. They simply have not taken an active role in trying to bring a grocer to this location.

Apparently the property owners still have a pending appeal of the Planning Commission's decision which is still listed on the City Council's long range calendar. Moreover, as DANG pointed out, the City has never enforced a number of code violations. They put a notice for instance to repair the loading dock. It was a two week notice given more than two years ago. It has not been repaired. The broken window in the front of the building which has been there for years is also a code violation that has never been enforced by the City.

Asked what is going to happen next Eric Nelson, one of the members of DANG declared, "we're going to wait, keep our powder dry and our guns loaded."

Russ Snyder, another DANG member was more optimistic. He believes that they have exploded the myth that a market cannot do well in this location. Here is a very experienced grocer who is confident that a store can be run there. There is no question in their minds. The Delanos are willing to put money and their reputation on the line.

Moreover, Russ Snyder suggested that the center's landlord's decision to gut the location has created a financial liability that will make it difficult and expensive to get the location back in shape to house a grocer.

But most of all he feels like they are close. In a meeting with DANG, Mr. Hosseinyoun said that he is committed to having a grocer at this location. But if he's indeed committed, he needs to make the investment. Everyone agrees the Delano's Markets would be a great fit and successful. So from that standpoint it would seem logical to make this deal.

Eric Nelson also pointed out that the Delanos are just one of several grocers who had the same feeling.

DANG member David Thompson suggested that there is not much they can do at this point. They tried to put as much pressure as they could during the last month to encourage everyone (the property owner, the Delanos and the bank) to close the deal. They can't really do anymore than they have done. Mr. Hosseinyoun seems willing to sit with an empty food market and an empty shopping center.

Eric Nelson speculated that perhaps they will sell the property to someone who would actually care enough to get a grocer because he feels it is obvious that Mr. Hosseinyoun does not.

David Thompson added that DANG was willing to accept an 11,000 square foot store as long as there was an actual grocer who had the qualities they were looking for and the services people needed.

It is DANG's position that they are not going to agree to zoning changes generically, the only leverage they have to get their West Davis neighborhood a real grocery store is the current zoning.

David Thompson also expressed concern about what will happen to West Davis if it does not have a grocery store. Right now he is concerned also about the future of Emerson Jr. High School. If people have no grocery store or school it will be a tremendous hit to West Davis.

As Russ Snyder put it, it is about a community where people come together and can interact rather than a place where a bunch of people come and sleep.

Right now it is a community that has been missing a grocery store for nearly three years, it is a large number of businesses in the shopping center in deep fiscal jeopardy, and it is a community group that has grown tired of being given false promises and broken handshake deals.

If there is to be a grocery store that moves into Westlake, it needs to happen soon for the sake of this community, this neighborhood, and the fiscal and financial health of the city. It is high time that city staff start taking as much of an interest in this shopping center as they have taken in trying to insure that Trader Joe's and Target come to Davis.

---David M. Greenwald reporting