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

imageWestlake Plaza

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

Author

  • David Greenwald

    Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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51 comments

  1. Huh? The Delanos are the ones who need the $250K, that's their term. H pulled out of the deal that he had agreed to. All DANG is trying to do is to get a grocer there, they don't have the capital to put up for 250K. I don't get your post unless you are related to the owners.

  2. A store out there would be great!However, it is a business, and the numbers have to pencil out.First Northern Bank is a conservative local bank. Times are tough. Unless you are in the room during discussions, you have no idea who said what … my sense of it is that there is a lot of risk with a new store out there, and the owner/tenant are at odds, and both appear under-capitalized. Don't blame our local bank about being wary before entering into a deal that is too risky given the very difficult economic times that we all face.The City constantly assists local businesses with their projects. We gave away millions in city agenda and staff time, and lost opportunities to do other things, to the Covell Village Partners. And now our friendly CC majority is trying to do it again with the current proposal that is making the rounds.I think the city should figure out a way to invest some funds in that deal and make it happen. Secure the note with the shopping center, or some land owned by the Delanos with lots of equity in it.

  3. I think the city should figure out a way to invest some funds in that deal and make it happen.Unclear,the way this is written: should the city pursue a new Covell Village or help Delano Grocery open a store in Westlake Village.

  4. I don't get it. If the Delano family has a chain of successful grocery stores, why can't they get their own financing? I think there is a lot of risk in putting another grocery store there, on the very edge of town, when Safeway and SaveMart are only a mile or mile and a half away. There seem to be some fundamentals making this a difficult location for a grocer, thus the repeated failures.

  5. NeighborNo, the part I do get is that there is a faction of people in West Davis pining for a grocery store when the economics don't support it. It's his property. He owns it. He has the right to run it into the ground, refurbish it, or rent it. Instead, he has a bunch of do-gooders who will end up driving to Safeway or Costco to save money, making demands and setting ultimatums, but none of whom are willing to put up their own money. If a grocery in West Davis is such a good idea, then start a coop, or an investment fund to help out the poor Delanos or to make it happen in another way.

  6. If there is the possibility of bringing 30 to 40 jobs to Davis then I definitely think that the city should be aggressive in trying to attract Delano's, including securing some or all of the loan.As a west Davis resident I would shop there if the workers are reasonably compensated.

  7. Anonymous: I don't think you really understand the issues here. The current owner bears responsibility for the gutting of the infrastructure, the Delanos are not willing subsidize the current owners irresponsibility.

  8. It is simply amazing to me how many people on this blog are willing to simply forgive the blatant irresponsibility and reckless actions of Mr. H and Mr. B (sorry I can't spell their names). You guys are such fricking apologists, it is not even funny.

  9. Times are tough, but grocery stores seem to be the one industry that is doing better than most – more people eating at home rather than at restaurants.The owner should help cover the cost of reversing the gutting of the building (he appears to have gambled that the City would be more inclined to change the zoning, and lost). Why support planning that makes automobile use a requirement? Having a grocery store in the neighborhood, in a building that is designed for it, is good for the environment I don't know how Covell Village sneaked its way into this conversation. Are people still obsessing about that project? Move on – the rest of the community has already and we are not interested.

  10. The owners don't want a grocery store there and they don't want the shopping center. They want to be able to show it is failing in order to get it rezoned for residential. Eventually, the housing market will stabilize and they stand to make a lot more from a residential development than from the shopping center.

  11. No it is not nitpicking at all. He is currently required to have a grocery store there by city ordinance. He knew this when he bought the property. He is out of compliance.

  12. Why is the city not fining the owner or otherwise punishing him for not keeping his property up to code? That area is an eyesore. I would like to see a grocery store, but I would first I'd like to see that location not look like a dump. That is the owner's fault.

  13. …condemn it as blight, use eminent domain to pay (currently depressed, thanks to the neglect of the owner) market price for the blighted property,…Very VERY bad idea. The Keho decision you cite sent shockwaves and resulted in the California ballot measure we just saw attempting to *restrict* eminent domain. Fortunately, it lost, I believe. Westlake would be the worst possible reason for exercising eminent domain and fits no reasonable definition of blight. If Westlake is blight, then what is the old Ralphs shopping center? Or the coop shopping center. Where does it end?The bottom line is it sounds like the Westlake property owner has picked up his ball and gone home. To imply that he should LOAN a prospective tenant $750k is ludicrious. That he backed out of a $250k subsidy is disappointing, but then again, DANG didn't get a written commitment, a pretty basic thing to do. There is no requirement to have a food store there. The only requirement is that nothing else can go there in its absence. It's perfectly legal for it to remain vacant. If the Westlake owner is willing to roll the dice with the city after they've already been denied, that's they're prerogative too. It's not a chance I would take and it would make sense for them to cut their losses and honor their commitment with agreeable lease terms.

  14. Regardless of what this lazy property owner did he still is required, but has not been held to the requirement, to bring a store into West Lake Plaza.That's what the real issue is regardless of what DANG did or didn't do.So the question now is; what is our city council going to do about this?

  15. I doubt that there are many of us blogging on this site that know the particulars of the property owner's financial situation. Recent months have significantly changed the financial realities for many people and companies. It is a fact that there is a severe shortage of loans for many commercial real estate investors and for many retail operators (we've already seen this in Davis with Centro and Trader Joe), and so the owner's story of his concerns about his financial situation could have some truth. It wouldn't be surprising if the same may also be true for Delano. As Lexicon Artist noted, most property owners are financially rational, and it is possible that the set of terms and conditions that had once been discussed between the owner and tenant are now not feasible. Having the owner put in more capital may not be possible or rational for this owner at this time. It is quite clear that DANG (whoever that really is) seems to be much more interested in having a grocery store in this neighborhood than is the property owner, so the owner's suggestion that the neighbors invest is perhaps a good one – someone is apparently going to have to subsidize a grocery tenant to get a grocery in the space. Wait – I know – lets get some of that government …stimulus… money for the City so they can buy it from current owner, DANG can operate it (thereby creating jobs for the neighborhood) and once again Davis can prove that we are really smart and that neighborhood grocery stores do work in suburban environments.

  16. The Vanguard article missed a key point: last November DANG began to work on creating a Capital Fund Drive to help assist a quality grocer to come to Westlake Plaza. By creating this fund and soliciting contributions from our membership and other community citizens it was DANG

  17. condemn it as blight, use eminent domain to pay (currently depressed, thanks to the neglect of the owner) market price for the blighted property, and then sell it to the first investor willing to get a grocery store in there. there was a supreme court decision on this. come on, souza, you feigned shock about the filled-in loading dock right around the election, after it had been like that for months. time to do something about it.

  18. …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, what an arrogant bunch DANG is. With no money on the table and far less political influence than they think, DANG nonetheless thinks it can dictate terms to other participants. It seems only reasonable, despite DANG’s skepticism, that Hosseinyoun may have suffered some financial reversals recently. Who hasn’t? Undaunted by this reality DANG is trying to bully instead of barter a deal. It is very easy to take risks with other people’s money. DANG’s net effect is essentially doing everything to kill the deal. A faceless acronym is really muddying up the water here. I sure can understand why the …real… participants (city, store, property owner) are backpedaling. DANG, take a time-out and let the pros work this out.

  19. …Unclear,the way this is written: should the city pursue a new Covell Village or help Delano Grocery open a store in Westlake Village. …Huh? In English this time.

  20. I don’t think Mike Harrington believes the city should pursue anything at the Covell Village site, so I’d go with the second interpretation.I am not surprised that a financing deal for the Westlake site fell through. I’d be very surprised if anything much happens there in the next year or soFrom retailerdaily.com in January; the situation has gotten worse since this report:Mall Vacancies Hit 10-Year HighPublished on January 08, 2009 | As declining retail sales put more stores out of business, vacancies at US malls and shopping centers are approaching 10-year highs, according to Reis Inc. (via Bloomberg).Regional mall vacancies rose to 7.1% in Q4, up from 6.6% in Q3

  21. Anonymous: really, you don’t get it? The owners of Westlake gutted the inside, filled in the cargo bay, etc, they caused the cost of moving to get jacked up. The Delanos are willing to take out a line of credit for the 500K, but wanted the current owners to show good faith by coming up with 250K in cash. You really don’t get this?

  22. …He has the right to run it into the ground, refurbish it, or rent it. …Actually he really doesn’t have that right. That’s why there are code violations and zoning codes.

  23. Look at it this way – if you had a million dollars to invest would you put it in a grocery store in a place where similar stores have failed? What is the incentive? There is subtantial competition – Safeway, Costco and Trader Joes.Time to focus on a financially viable alternative.

  24. That’s not the problem for the Delanos or apparently several others. They believe they can be successful there. Their models have been successful elsewhere. The issue is one of financing and the problem that the owners have basically vastly increased the costs of startup through their largely irresponsible actions.

  25. …As a west Davis resident I would shop there if the workers are reasonably compensated….This sentence perfectly describes why there never will be a store in that location–If the workers make a wage high enough to satisfy some overeducated imbecile who has never run a competitive enterprise.

  26. Again, this doesn’t make sense. Regardless of the state of the infrastructure, DPD’s accounts says the owner was going to LEND them $250k. Presumably, there are other negotiated leasehold improvements. The part at issue is stated to be a $250k loan, not an investment by the owner. The Delanos would be on the hook to pay that back, right? If him pulling that offer is a deal killer, then why can’t they get that funding elsewhere? Especially if the economics are so favorable for this investment? The story doesn’t make sense, unless they are pushing nonpayment liability on the owner, or requesting favorable (below-market) terms. Maybe I don’t understand all the issues, which I wouldn’t expect to, because frankly, I live in East Davis and don’t really care if there is a grocery store on the far edge of West Davis. This isn’t an issue I have a horse in, but the story and venom don’t make sense. By the way, in east Davis, I live farther from Safeway and Nugget, than the people in West Davis live from the west Safeway and Savemart. Why isn’t there another grocery store in East Davis? Because the economics don’t support it.

  27. DPD,That’s nitpicking. Yes, he has to (or is supposed to) meet code and safety requirements. The City should enforce that. But beyond that, it’s his property to manage or mismanage as he sees fit. Even if he’s a moron and the worst business person in history, it’s his asset (or maybe liability) until someone else buys it from him.

  28. Ok, then I stand corrected on that point. Maybe the city should pass another ordinance requiring that all residents west of Hwy 113 buy all of their groceries from that store. That would probably make financing easier to obtain.

  29. …To imply that he should LOAN a prospective tenant $750k is ludicrious….Right. That’s why they’re property owners: because property is considered a pretty safe investment. What could be more risky than investing $750k in a retail project right now? That’s a risk banks and investment firms make, not individuals. Doesn’t DANG at least get THAT?

  30. …My guess is DANG feel frustrated at feeling used and manipulated by Hosseinyoun….Clearly they can use some anger management control. That never works when the other guy holds all the cards. The letter and its demands was really dumb.

  31. …He doesn’t hold all the cards, he doesn’t have it zoned the way he wants and that is clearly something he wants to get changed….Makes no difference. If he’s not holding a note for the property, he can sit on it until the market changes. It’s HIS property. He does holds the cards because ultimately its HIS decision whether he decides to lease to a tenant. Common sense dictates that he would, but it DOESN’t mean he has to become a loaning entity.

  32. The other problem with him not holding the cards is that he’s essentially subsidizing his other tenants. If they go under, he loses more money. He might be assuming that he’s going to get a zoning change, but I don’t see three votes (in fact I may not even see one vote at this point to do that). So if he wants to continue to eat the loses, he can do so.

  33. The owner of Westlake Plaza is essentially a lazy slumloard that is not being required by our city council, city manager, city attorney, or any other authority to uphold his end of the deal (keeping the place looking decent and recruiting a store).DPD, can you see if he give $$$ to council members (saylor, souza, asmundson in particular)?Why are they not holding him responsible???We live in West Davis and have been waiting for a good grocery store that doesn’t have outdated food on the shelves and good fruits and vegetables.It’s time for some accountability!!! We have it nationally now with President Obama. How about accountability in Davis? Or, are we too special to require that?Thank you for the story David.

  34. The fatal flaw is that DANG thinks the property owner should bankroll the new tenant. Quite honestly, I wouldn’t have revealed that part of the letter if I were you. It doesn’t help their cause and is pure amateurism. Anger in business negotiations never works. This is why citizen activist groups often do more harm than good.

  35. Y’all whine and complain about not having a grocery store to walk to yet a majority of you voted to put a Target in my backyard (that you’ll have to drive to anyway). I’m having a hard time drumming up sympathy for your situation. Hey, I know, let’s switch houses! That way you’ll get your grocery store within walking distance. Guess there’s no perfect place to live in Davis …other than next to a city council member that is.