When Palo Alto leaders struck a deal with The Sobrato Organization in June to redevelop the large Ventura property that used to house Fry's Electronics, the developer agreed to preserve and enhance a portion of the building that a century ago stood out as the world's third largest cannery of fruits and vegetables.

The development agreement specifically calls for Sobrato to "facilitate public appreciation of the interior historic elements of the cannery building," which was constructed by Thomas Foon Chew in 1918 and which for three decades has been considered as a potential site for accommodating hundreds of apartments.

Terry Holzemer, a member of the North Ventura Coordinated Area Plan working group, called the building an "irreplaceable historic resource." The group had been working since 2019 on developing a new vision for a 60-acre portion of Ventura, which includes the Portage Avenue cannery.

"It's time to look at this first and prioritize the historic structure and look at that before any of the processes move forward," Holzemer told the Planning and Transportation Commission last month during a public hearing on the Ventura plan and the development agreement.

Since then, however, the prospects of preserving the cannery have dimmed. On Wednesday night, the Planning and Transportation Commission learned that portions of the building were in worse condition than was previously believed and that the structure cannot retain historic features while complying with modern building codes.

The roof, for example, would be unable to accommodate solar panels and would need to be reconstructed, project planner Claire Raybould told the commission. The walls between the monitor roof area in the former Fry's space and the neighboring space at 380 Portage Ave. that houses Playground Global would also need more reconstruction than the city and Sobrato had expected when they struck the deal over the summer.

"It came to staff's attention that there may be more modifications to this building than we were originally envisioning," project planner Claire Raybould told the commission. "We wanted to make sure the public and the planning commission were aware of that."

One area that's unclear is whether the building's corrugated metal exterior could be reused. A report from the Department of Planning and Development Services notes that some of the cladding "has holes that have been patched over time" or is "otherwise in disrepair."

Sobrato, the report states, proposes to "salvage the corrugated metal where feasible and to replace all materials in-kind that cannot be replaced."

Whether or not the development agreement advances, the building is set to undergo major renovations that would render it ineligible for possible inclusion on the state Register of Historic Places. Sobrato plans to demolish about a third of it to construct a townhome development.

If the city approves the agreement, the development would consist of 74 townhomes. Sobrato would also donate to the city 3.25 acres of land to make room for a park and a future affordable-housing development.

If the city rejects the development agreement, Sobrato is expected to advance a housing project that it applied for more than two years ago, which includes 91 townhomes. To advance the project, Sobrato relied on Senate Bill 330, which freezes in place the design standards that were in place at the time of the application submission and restricts the city's ability to request modifications.

After a long discussion, the commission voted 5-1, with Vice Chair Doria Summa dissenting, to advance the development agreement process (Chair Ed Lauing, who will join the City Council in January, recused from the commission's discussion). In doing so, however, numerous commissioners indicated that they are unlikely to support the agreement when it returns to the commission for a formal decision early next year.

For Sobrato, a critical component of the proposed agreement is commitment from the city that the cannery building would be able to retain its existing research-and-development use. The site is zoned for multifamily housing and council members had for decades envisioned it as a place that can accommodate more than 200 housing units.

Commissioner Bryna Chang noted that converting the cannery to housing could potentially generate more than 400 housing units, particularly if the city follows suit with planned zone changes that increase density in multifamily neighborhoods. Allowing commercial use to continue at the Fry's building, as the development agreement would do, also runs counter to the city's goal of narrowing its jobs-to-housing imbalance.

"To me, it doesn't seem like the greatest deal given our housing and jobs challenges in the city," Chang said.

Commissioner Keith Reckdahl said he is casting his vote to advance the development agreement "grudgingly." Like Chang, he said he was concerned about continuing commercial use at the former Fry's building.

"We're giving up a lot of housing and that just seems wrong so close to the train station," Reckdahl said.

Summa also objected to the deal, particularly in light of the recent information about proposed modifications to the building. She said she is concerned about the prospect of iconic portions of the building, such as the monitor roof, getting demolished.

"I'm really worried that we're going to get to the point with this where that portion of the building cannot be saved," Summa said. "And If we promised them that it's going to be commercial at a very high FAR (floor-area ratio) and they can't save the building, where are we and how have we come out ahead?"

The development agreement between Sobrato and the city followed years of negotiations that fluctuated between cooperative and acrimonious. Various council members have indicated in the past that they would like to see housing at the Portage Avenue site, a position that appeared to become more viable after Fry's departed in 2019. Sobrato, for its part, threatened to sue the city over its interpretation of a zoning provision that could have required Sobrato to renegotiate leases with tenants to meet the required ratios of land uses.

The proposed development agreement, which came out of meetings between Sobrato and a committee consisting of Vice Chair Lydia Kou and council member Tom DuBois, represented a truce. The council unanimously approved last summer a tolling agreement with Sobrato that keeps both the potential litigation and the application for the 91-townhome project at bay while the city formally reviews the development agreement.

Some commissioners highlighted on Wednesday the benefits of the proposed deal. Commissioner Bart Hechtman noted that the project development agreement would provide more park space than the SB 330 project as well as land for affordable housing.

Commissioner Cari Templeton emphasized the practical benefits to pursuing a development agreement: a willingness from the property owner to actually build the proposed project. The same cannot be said about the 400 dwellings that other commissioners said they would like to see at the site.

"Zoning is theoretical housing," Templeton said. "It's not there yet and it may never be there. And there's no guarantee it will be there. We can't coerce the property owner into doing something with it that they don't want. They own the property."