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May 13, 2009 > Smart & Final to Open in Union City

Smart & Final to Open in Union City

By Simon Wong

Smart & Final's anticipated arrival at Union Landing at the end of this year will create 75-100 jobs. It will occupy 31070 Dyer St, the former Linens 'n' Things site.

Smart & Final is the only company interested in the vacant space at Union Landing. The property owner, KPDT Enterprises, LLC, approached more than 30 other anchor tenants whose store-opening activity will not pick up for another 2-3 years, given the poor economic outlook.

KPDT Enterprises owns 70,000 sq ft at 31070-31090 Dyer St and leases space to Michaels and Petco. KPDT Enterprises and its representative, Adam Tennant of WestGate Ventures, contested the City's zoning interpretation of this site.

On April 28, the Council voted 3-2 to uphold the appeal. Councilman Manny Fernandez and Vice-Mayor Dutra-Vernaci denied it.

Smart & Final acquired the former Linens 'n' Things lease through the Bankruptcy Court before checking valid uses for the 28,030 sq ft space.

Zoning does not permit traditional food stores such as supermarkets in this part of Union Landing. The Zoning Ordinance provides for specialty food stores less than 20,000 sq ft. Such grocery stores differentiate themselves from conventional food stores. The Zoning Ordinance defines a food store as "any store where 50% or more of total floor area of the store is devoted to pre-packaged food and grocery sales."

The debate and stalemate centered on the City's and landlord's respective interpretations of the nature of Smart & Final's business, viz. supermarket, specialty food store and specialty store, in relation to the Zoning Ordinance.

In February, the City began speaking with the property owners who, dissatisfied with the determination that Smart & Final is a supermarket and not a specialty food store, appeared unexpectedly before the Council on March 10 to plead their case. Council referred them to the appeals procedure.

The Planning Commission denied the appeal on March 19 and voted 3-2 to affirm the City's original determination.

The appellant regards Smart & Final as a "specialty store" for several reasons. First, the sale of specialized, non-food products, such as cooking equipment, and bulk quantities of food and non-food products. Second, Smart & Final is a Warehouse Club Store. Third, the business targets caterers and other business customers. Fourth, the company's Standard Industry Classification is Grocery General - Wholesale; Lucky's SIC is Grocery Stores - Retail. Fifth, Costco and Sam's Club are Smart & Final's direct competitors.

The City found Smart & Final could not be designated a specialty food store because it offers specialty products, not specialty foods, and 31070 Dyer St exceeds the 20,000 sq ft threshold. It is not a general merchandise store because more than half the floor area is devoted to pre-packaged food and groceries. Wholesale grocery, as per SIC, is not allowed in Union Landing. Smart & Final is not "retail use" because of the wholesale element and wide range of non-taxable food products.

Additionally, the City found that Smart & Final and supermarkets have many food products in common; bulk quantity has no bearing. Discount stores, or a Warehouse Club Store, are not permitted in this part of Union Landing.

There is public sentiment that Smart & Final is a "specialty food store." The company fills a market niche by combining elements of several different food store models, including discount clubs and supermarkets, and provides regional draw.

The City might have appeared intransigent but worked closely with the landlord. Records show that a zoning text amendment and use permit might have been the most straightforward option and the impasse avoided. Staff will prepare a zoning text amendment and use permit following the Council's decision to uphold the owner's appeal.

Michaels' and Petco's leases include co-tenancy clauses. Michaels can terminate its lease if the Linens 'n' Things space remains vacant for a certain period. In turn, Petco can leave if the Michaels' site is empty for a certain time. Occupancy of 31070 Dyer St and retention of the other tenants will generate much needed revenue for the City.

When Linens 'n Things came to Union City in 2002, the Redevelopment Agency provided a $650,000 forgiven loan to improve the property. Linens 'n' Things generated $35,000 sales tax revenue annually. Smart & Final is expected to produce at least $50,000 per annum.

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