The developers behind the College Terrace Centre believe they have found a grocer to replace the beloved JJ&F Market, but the City Council made it clear Monday night that it's not buying the latest proposal.

For the second time in less than four months, the Palo Alto council rejected a proposal that would have placed James Smailey, a member of the development team, in charge of the supermarket in the new development at 2180 El Camino Real. After a long discussion, council members agreed that Smailey, whose father Patrick Smailey headed the development team, is unlikely to offer products service comparable to JJ&F. They also agreed to extend the permitting period until March to give the applicants time to find a new grocer.

The council expressed similar concerns in August, when the applicants submitted a proposal that listed James Smailey as the market's new owner and operator and redacted the names of the grocery store's top executives. Given that Smailey has no prior experience in the grocery businesses and wasn't willing to divulge his purportedly experienced management team, council members turned him down and demanded more information.

Since then, the applicants have submitted more than 200 pages of information, including lease agreements between the parties involved in the grocery store and a proposal from the property owner to pay a monthly penalty of $11,250 if the grocery store goes out of business and is not replaced within six months. The developers also provided the resume of the man who would be doing most of the work in running the store: Uriel Chavez, whose family had run small markets throughout Northern California, including La Hacienda, Arteagas and Mi Pueblo. In the revised proposal, Chavez would be the grocery operations officer of what would be known as the College Terrace Market.

According to the proposal, Chavez, "along with industry experts of his choosing, will be responsible for designing the Market, its refrigeration and display racks and other specialty features for the market." He would also be in charge of the store's financial operations, according to the proposal.

For the council, this didn't go far enough. Much like in August, members expressed deep reservations about the fact that the grocer who would actually be under lease for the market is the developer's son. As in the prior meeting, the council heard from a procession of skeptical College Terrace residents before voting to send the developer back to the drawing board.

Councilman Greg Scharff was among the leading skeptics.

"This notion of Mr. Chavez being long time in personal services doesn't really make sense to me," Scharff said. "I'd really like to see a direct grocery tenant in there who has experience in the business, where it doesn't seem like it's just nepotism.

"That's just how it feels right now. The 'experienced grocer' appears to be a consultant earning a fee."

The Monday debate had as much to do with Palo Alto's development policies as it did with the viability of a particular grocery business.

When the City Council approved the block-long College Terrace Centre in January 2010, its main objective was to keep JJ&F from leaving. The project, which includes nearly 40,000 square feet of office space, eight below-market-rate units and an 8,000-square-foot grocery store, was approved after a "Save JJ&F" campaign from project supporters, including many residents. The new grocery store, which would give JJ&F more visibility, was seen as the prime "public benefit" for the zone-busting development.

Despite the council's approval of College Terrace Centre, the Garcia family ultimately agreed to close the store. Smailey's team has been looking for a replacement ever since, so far with little luck. The approved "planned-community" zone empowers the council to approve the new grocer and specify that approval "shall not be withheld unless the City reasonably finds that such proposed grocery tenant is not likely to be comparable in quality or products and service as JJ&F as it existed and operated on Dec. 7, 2009."

On Monday, the council agreed that the odds of an inexperienced owner running a store comparable to the popular JJ&F Market is slim. Councilman Larry Klein acknowledged that he can claim no expertise in groceries. But he is familiar with "good management" and in this case, he said he doesn't see it.

Klein made a motion to reject the proposal and extend the deadline on the planned-community ordinance until March (the official vote on extending the ordinance will be on the council's consent calendar on Dec. 8).

"What we have is a lessee, a person who may be a great business man, I don't know, but he has zero experience in running a grocery business," Klein said. "I compare this to years and years and years of experience that the Garcias had, which was our standard in 2009."

The council also voted 7-2, with Klein and Councilman Greg Schmid dissenting, to accept an amendment proposed by Scharff and Councilman Pat Burt that lists specific things that should be included in the next proposal.

The list includes a daily penalty of $2,000 in the event a market goes out of business and is not replaced with another experienced grocery operator within six months (the applicants earlier indicated that such a condition would be acceptable). It also specifies that the store should be leased directly to the grocery store operator, without a middle man.

Smailey's lack of grocery store experience wasn't the only source of frustration for residents and council members. The project has been plagued by complaints about late submittals of application materials, concerns about transparency and general cynicism about planned-community projects (the fact that JJ&F left shortly after the project's approval didn't help matters).

Councilwoman Karen Holman, who as a member of the Planning and Transportation Commission voted against the project, also noted the project's rocky history.

"I think one of the things that has happened with this project going way back when is there's been overstatements and over-promises made," Holman said. "That just raises concerns, raises suspicions, and look what happened."

There are also conflicting accounts about the level of interest from other grocers. In August, the applicants' attorney, Michael Polentz, told the council that the team hasn't received proposals from any grocers for the El Camino Real development other than Smailey. The team had had "real estate brokers pounding the pavement, trying to find an established grocer" who would lease the space, he said.

"To this day, we're still looking for established grocers to come forward. No one has," Polentz said in August. "No grocer has proposed any business terms to lease that space with the exception of J&A Family Market."

But on Monday night, Klein and Scharff both said that they had spoken in recent weeks with grocers who said they were close to making a deal for the College Terrace market but were ultimately turned down by Smailey.

Scharff said he had spoken with Miki Werness, whose grocery store at Alma Village closed last year. He said Werness had indicated that he was "completely willing to do it" and had several meetings and was putting together a team. He was "ready to go forward" but the deal did not happen because the applicants "were not allowing him to be the operator," Scharff said.

Klein said he had spoken to Mark Khoury, whose family briefly ran the market at the JJ&F site after the Garcia family left. Klein said Khoury had negotiated with Patrick Smailey and thought he had an agreement before the agreement was "yanked out from him."

Klein said he was told that "at the last moment, Mr. Smailey pulled out from that and instead had negotiated the lease that we have before us tonight."

Polentz maintained on Monday night that neither Werness' nor Khoury's accounts were entirely true. The deal with Werness was going to be a "joint venture" in which he would be an owner and not an operator. It was "his decision alone to pull out," Polentz said. The Khoury family was also offered the opportunity to be operator but would not "meet the minimum requirement that would make the project economically viable," he said.

But the conflicting accounts gave some council members pause. Klein said he found it "disappointing, if not misleading" that those two parties were not mentioned before.

"In contrast, what we heard from the developer was that there was nobody who was interested in this project, to run the grocery store," Klein said. That's really not the case."

Members of the public gave the grocery proposal a mixed reception. Several vouched for Smailey and urged the council to approve the proposal. Others argued that it will not succeed and urged the council to reject it.

Doria Summa, who lives in College Terrace, said many of her neighbors are convinced that the Smailey-run grocery store has "no chance of success" and that the neighborhood will have "one more massive PC project with insufficient public benefits."

Summa also noted that the "Vision and Values" statement provided by College Terrace Market includes passages cribbed directly from chef Alice Waters' book, "In the Green Kitchen." In the book, for instance, Waters writes, "Cooking creates a sense of well-being for yourself and the people you love and brings beauty and meaning to everyday life." Later, she describes regular shopping routines as "pleasing, efficient and economical" and says there is "enormous pleasure in cooking good food simply and in sharing the cooking and the eating with friends and family." Each of these sentences or phrases appears on the College Terrace Market values sheet.

"What you're hearing from our residents is concern and distrust based on previous PCs that have not provided the public benefits promised to the community," Councilman Marc Berman said near the conclusion of the long discussion. "I don't think the applicant did himself any favors in some of the elements of the proposal that were scrutinized by some of the members of the public tonight."

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• College Terrace Centre clears final obstacle

• New grocer revealed for College Terrace Centre

• Demolition for College Terrace Centre begins