A long-stalled effort to spruce up Palo Alto's dilapidated Edgewood Plaza shall go on, the City Council decided March 4, despite the developer's illegal demolition of a historical building at the plaza last fall.

The plaza, located in Palo Alto's Duveneck/St. Francis neighborhood, has been largely deserted for the past seven years, since the Albertsons grocery store closed its doors. It took years for the developer, Sand Hill Property Company, to reach an agreement with neighborhood residents on a plan to renovate the rundown plaza on Channing Avenue. The plan that the city approved last fall allows Sand Hill to build 10 homes at the plaza in addition to a new grocery store.

Sand Hill was also required to rehabilitate two historical buildings, one of which was to be refurbished at its present site while the other would be disassembled, refurbished and reassembled at a different location in the plaza.

That plan, however, fell apart in September when the developer's contractor completely demolished the building that was supposed to be disassembled. The demolition, which was performed without a city permit, threw the project into turmoil and left the council with a quandary: how to penalize the developer without forcing the neighborhood to suffer through years of construction delays.

After much debate, council members agreed on Monday that while the developer should pay for its error, the project should move along for the sake of the community. The council voted 6-3, with Karen Holman, Gail Price and Greg Schmid dissenting, to allow Sand Hill to proceed with the redevelopment.

Councilwoman Liz Kniss said she hopes the developer could soon move forward with the project, noting that the neighborhood has suffered a deficit ever since the Albertsons closed. Residents, she said, have for months been expecting to see a new market at Edgewood Plaza.

"I think it is time something happened there," Kniss said.

Councilman Larry Klein agreed and said it's in the public interest to "get this project done as soon as possible."

"Our citizens who live in that neighborhood are suffering right now," Klein said. "It's not fun to have a big project in your neighborhood."

The proposed development at Edgewood Plaza has been contentious for most of the past decade, with various experts disagreeing on whether the plaza, which was built in the late 1950s, can truly be considered "historical." Ultimately, the city decided that it is because it's a rare example of a Joseph Eichler commercial development. Eichler, a prominent builder who had his office at the site, emphasized open spaces, floor-to-ceiling windows, post-and-beam construction and sliding doors.

The redeveloper, John Tze of Sand Hill Property Company, apologized to the council for the unauthorized demolition, which he said was performed without his permission, and breaking his promise to the community. The construction company hired to work on the rehabilitation demolished the building on its own initiative after discovering "things that we didn't expect."

The company's historical consultant, J. Gordon Turnbull, also concluded that much of the building was "not repairable, was not in good condition and would need to be replaced with new materials to match the material, configuration, character and finish of the original."

Tze vowed to repair the damage caused by the demolition.

"I broke a trust," Tze said.

After an initial lawsuit years ago from area residents regarding historic preservation, Tze said, "everyone worked with me to build that trust." He said he would like to do "everything I can" to get the project moving along so that the new grocery store, Fresh Market, could move in as soon as possible.

"The demolition wasn't authorized by me or by the city but occurred because of the failure of my organization. I'm sorry it happened, and I take full responsibility."

Most council members agreed that, while there should be a penalty, the project shouldn't be held up any longer than necessary. Members asked staff to return at a later date with a proposed fine, an amount that would consider the economic benefits of building the new houses at Edgewood Plaza. In the meantime, Sand Hill will be allowed to proceed with the construction.

Residents had different ideas about how to handle the demolition, with some urging the council to move the project along and others calling for the council to hold the developer accountable for the breach. Area resident Robert Smith fell into the former camp and said he doesn't consider the destroyed building "historical."

"I think it's an example of '50s commercial architecture -- strip malls and so on," Smith said. "It was a failure. It didn't work for the people. It was an economic disaster for the stores here."

Jeff Levinsky, who also lives near Edgewood Plaza, took the opposite stance and asked the council to slow the project down and make sure it's done right. He called the demolition a "breakdown of the PC process in Palo Alto," referring to the controversial "planned community" zoning that allows developers to exceed city regulations in exchange for negotiated "public benefits." In the case of Edgewood Plaza, the main public benefits are a new grocery store and rehabilitation of historical buildings.

"This would be the most egregious example yet for a PC being violated," Levinsky said. "Let's get things going the right way."

By law, the city can issue a fine of about $10,000 for the illegal demolition, though the fine can be raised significantly for a demolition of a historic structure. The council agreed that this penalty falls far short of what the city should ask for. Sand Hill will also be required now to perform a supplemental Environmental Impact Report to account for the changing nature of the project.

Price opposed the proposal and urged her colleagues to put the brakes on the housing component of the plaza for the time being. She favored more severe consequences for Sand Hill.

The council's decision means that construction of the Edgewood Plaza grocery store remains on track. Fresh Market, a North Carolina-based chain, plans to open its first West Coast store at Edgewood Plaza in May.