Palo Alto and The Sobrato Organization have reached a sweeping deal that would pave the way for redevelopment of the former Fry's Electronic site to accommodate new townhomes, a park and an affordable-housing project while allowing the property owner to retain research and development uses.

Mayor Pat Burt announced the agreement on Tuesday night, immediately after the City Council met in a closed session to discuss the property at 340 Portage Ave., which has been subject to extensive debate since the departure of Fry's in 2019. The one-time cannery building is also at the heart of the North Ventura Coordinated Area Plan, the city's long-range plan for transforming a 60-acre portion of the Ventura neighborhood.

The council plans to further discuss the concept in August, at which time it will solicit public comments before staff and property owner Sobrato prepare a more detailed development agreement that would be presented to the Planning and Transportation Commission and the council, according to the city.

The tentative agreement offers a path toward resolution in the legal dispute between Sobrato and the city pertaining to allowed uses at the Portage Avenue site. As part of its Tuesday action, the council has directed staff to draft a tolling agreement that would delay any litigation by Sobrato against the city while the formal agreement is being developed.

The agreement follows months of negotiations between Sobrato and a council ad hoc committee composed of Vice Mayor Lydia Kou and council member Tom DuBois. The council discussed the proposed deal over the course of two closed sessions this week.

DuBois said in an interview that the terms represent only a framework for a formal agreement, which remain subject to public review before the deal is formalized. He and Kou have been meeting with Sobrato representatives on a weekly basis since the end of last year, he said.

Each side had some leverage over the other. While the city had control over the site's underlying zoning, Sobrato was preparing to rely on Senate Bill 330 to get its townhome project approved. Despite some public disagreements, the two sides ultimately worked out solutions that would allow Sobrato to retain commercial uses while enabling the city to advance some of the goals of the North Ventura Coordinated Area Plan, most notably the creation of a park and addition of affordable housing.

Under the terms of the potential agreement, Sobrato would dedicate 3.25 acres of land next to Matadero Creek to create a park and a housing complex, which would occupy about 1 acre of the land. DuBois said there may be opportunities to connect the land to the nearby Boulware Park.

"I think there will be quite a bit of housing in the area so having that open space in a larger chunk is going to be huge," DuBois said.

If the development agreement wins approval, it will have the immediate effect of halting Sobrato's threat of litigation against the city over allowed uses at 340 Portage Ave., which is zoned for multifamily housing but which has for decades accommodated commercial and research-and-development uses. Last year, the council backed a zoning interpretation that would have required Sobrato to revert to the ratio of "non-conforming" commercial and research-and-industrial uses that were in place in 2006, a decision that would have required the property owner to renegotiate leases and that prompted a legal dispute.

The deal would also provide relief to Sobrato because it means that the city will no longer be advancing an amortization study that would pave the way for ultimately eliminating commercial uses from the site, an effort that officials have been flirting with for years.

Under the terms of the agreement, the majority of the building at 340 Portage Ave. would be preserved, rehabilitated and recognized with a plaque extolling its historic significance as a cannery.

Built by Thomas Foon Chew in 1918, the building was the third-largest cannery in the world by 1920, according to the city's historic evaluation. It continued to expand under Chew and, later, the Sutter Packing Company, before closing in 1949. The building has since accommodated numerous commercial and research-and-development uses, most notably Fry's Electronics. Today, the building houses Playground Global, a venture capital firm that focuses on early-stage technology.

The historic roof and internal truss system in the building would be retained and there will be space for the public to enter the building and see its historic features.

While the existing research-and-development space would be retained, about 84,000 square feet of the building would be replaced to accommodate a 74-townhome development that Sobrato is planning to develop on the northeastern side of the building, near Park Boulevard.

Sobrato would also be allowed to retain existing office uses at 3225 Ash St., which also is part of the commercial campus, and to convert the building at 3290 Park Blvd. from automotive to research-and-development use.

The city, for its part, would receive about 3.25 acres of land near Matadero Creek for use as a future park and an upcoming affordable-housing development. Sobrato will not be required to build the affordable-housing project, though city officials hope that the land dedication will allow them to partner with a nonprofit development to bring below-market-rate units to the site in the future. As part of the negotiated development agreement, Sobrato would also dedicate $4 million to the city's affordable housing fund to be used in the North Ventura Coordinated Area Plan area.

Tim Steele, Sobrato senior vice president of real estate development, represented the company in negotiations. DuBois credited him with being "really engaged and working with us to come up with a solution."

Steele was not available to comment on the agreement.

Burt said in an interview that a major benefit of the potential agreement is that it would allow the city to add housing without expanding commercial use at the site, a prospect that was deemed as economically infeasible by city staff and consultants over the course of the NVCAP planning process. The dedication of land for affordable housing would allow the city to seek partnerships with nonprofit developers to build a project in the area.

"Once the affordable-housing land is there, it's way easier to assemble all the funds for the construction," Burt said.

He noted that the land would be next to the new park and Matadero Creek, which is currently a concrete channel but which city officials and nearby residents want to see naturalized in the coming years. Sobrato would also contribute $1 million for park improvements, which may include a pedestrian bridge over the creek.

"It really is looking promising on having a design that's really well suited for bikes and pedestrians and a balance of affordable housing and market rate housing," Burt said.

Under the agreed-upon terms, Sobrato would construct a parking garage behind the cannery building, close to Olive Avenue, to replace the parking spaces it would lose to enable the land dedication. It would not, however, be required to add any significant retail space. The terms only call for about 2,600 square feet of retail or "retail-like uses."

"Ultimately, we just didn't think there was going to be enough development to have a significant retail node there," Burt said.

The council approved the framework behind closed doors in its final meeting before the summer recess. The final redevelopment proposal will need to go through the environmental-review process and through public hearings in front of the Architectural Review Board.

Kou called the negotiations with Sobrato a "balancing act" and said she looks forward to hearing from the residents of Ventura about the proposed agreement in the coming months. She said she was particularly pleased by Sobrato's acknowledgement of the important role of the cannery building in the city's history and the company's willingness to create opportunities for the community to appreciate the facility.

"The vision is just to make sure Ventura gets more parks, and more housing, particularly deep affordable housing, and at the same time that we preserve the historical significance of the cannery," Kou said in an interview.

She also noted that many neighborhood residents had identified park space as an important priority for the neighborhood. The agreement aims to address that, she said.

"It will take a little more time to get it there for them and make it a park, but it will definitely enhance the open space," Kou said.

While it's still early in the process, DuBois said in an interview he hopes the community will get onboard with this framework.

"No negotiation is perfect, but I think we got a lot of positive things," DuBois said. "We've got to go through the process and make sure everything works, but I'm hoping people will really accept this framework."