Palo Alto Weekly

News - November 30, 2012

Undisclosed meetings, private funds cloud downtown debate

Negotiations between City of Palo Alto and John Arrillaga leave sparse paper trail

by Gennady Sheyner

In July 2011, just weeks after Palo Alto approved the mammoth expansion of the Stanford University Medical Center the largest development in the city's history city officials learned about another giant project, this one nearby in downtown Palo Alto.

John Arrillaga, a billionaire philanthropist who made his fortune building commercial complexes throughout Silicon Valley, called Deputy City Manager Steve Emslie to relay his latest ambition to build a glitzy office complex on the conspicuous but largely neglected area next to the downtown Caltrain station. Emslie, who had worked with Arrillaga in the past, agreed to hear him out. They arranged a meeting at City Hall with Planning Director Curtis Williams, Emslie said.

The concept Arrillaga unveiled at the first meeting on what is now known as 27 University Ave. bore little resemblance to the project that residents would see in March 2012, when the plan first became public. In its original iteration, it included two sleek and sprawling oval office buildings with slanted rooflines and glassy facades a marriage of flying saucers and silicon chips. The renderings, which the Weekly obtained through a Public Records Act request, also show wide strips of pavement surrounding the two eight-story buildings, each of which rises well above 100 feet. The modest green plazas surrounding the new buildings are nearly swallowed by the gray of asphalt.

About the only thing that hasn't changed between July 2011 and November 2012 is the buildings' location. Emslie said in an interview this week that Arrillaga's intention always was to build the complexes at 27 University, a site currently occupied by the MacArthur Park restaurant.

"He said, 'I'd like to build this in MacArthur Park' and talked about how this put Palo Alto on the map. He was very enthusiastic about it," Emslie said.

The developer also offered to move the historic Julia Morgan-designed building that houses the restaurant to a site of the city's choosing, Emslie said.

The renderings, emails and other documents obtained by the Weekly show the huge changes that the project has undergone since the initial meetings. The project's major public benefits a performing-arts theater and a slew of road improvements around the transit depot are absent in the initial proposal and were added upon urging from staff. Documents also indicate that city staff to a large degree shared the developer's enthusiasm for transforming the site and that staff and Arrillaga are now exploring a host of other potential partnerships including the developer's offer to buy a 7.7-acre property next to Foothills Park for $175,000 and his proposal to build three athletic fields on Geng Road as part of the city's upcoming reconfiguration of the Palo Alto Municipal Golf Course.

But perhaps more telling are the documents that aren't in the packet. Despite a year and a half of discussions and revisions and the inherent complexity of building an office-and-theater complex at one of Palo Alto's most central sites, the city and the developer produced hardly any paperwork documenting the negotiation process for 27 University Ave. The Weekly requested all written communication between the city and Arrillaga and between city staff and members of the City Council. The documents released by the city contain no summaries of discussions, no meeting notes and no written exchanges about the project or the many complex and controversial issues surrounding it.

For example, there are no documents pertaining to the ongoing discussion about transcending the 50-foot height limit for new developments and no mention of the fact that the city would have to modify its land-use bible, the Comprehensive Plan, to accommodate the project. There is no indication of how or when the initial oval buildings became four traditional office towers, with one soaring to 162 feet, according to a plan that has since been further revised. All negotiations, it appears, took place verbally, leaving no paper trail.

The only document authored by Arrillaga in the entire packet is a two-paragraph letter in which he expresses his interest in building the three athletic fields.

Emslie attributed the slim volume of documents pertaining to 27 University Ave. to Arrillaga's business style his tendency to hold one-on-one meetings and phone conversations and his reliance on personal connections. As for the city, many of its internal discussions about the project were conducted verbally and left no documentation, Emslie said.

In keeping with Arrillaga's reputation for reticence, the philanthropist has enjoyed a low profile during the council's debate. He has not participated in any of the public discussions on 27 University Ave. and has not responded to a request for an interview.

But he's been far less bashful about communicating with council members, with whom he discussed the project on an individual basis long before it ever went public. Council members knew about Arrillaga's plans for 27 University Ave. since at least fall of 2011. In September, members received an email from City Manager James Keene with the subject line, "Mr. Arrillaga may contact you." By that time, staff had been negotiating with Arrillaga for several months, urging him to add public benefits to his proposal. The developer agreed to revise his offer and to add to his proposal a shell for the new theater, which would be occupied by TheatreWorks.

"Staff has been very positive in general in our initial meetings with him, given the potential for the Performing Arts Center," Keene wrote to the council on Sept. 27, 2011. "Obviously we are in the early stages. Please remember that Mr. Arrillaga is looking at giving much to the City as you meet with him. We want to ensure we can unfold a process that works through this in the most effective way, whatever the outcome."

Despite the council's knowledge of the project since fall of 2011, it was not publicized in any way until March of this year, when the City Council authorized spending $250,000 for design work associated with the site.

Since then, negotiations and revisions between the developer and the city's design consultants has continued to unfold. The latest revisions, which cut the height of the tallest office buildings from 162 feet to 114 feet, reduce the development at the site by close to 50,000 square feet and add a tunnel at Lytton Avenue for pedestrians and bicyclists, were released to the public on Nov. 21 and are set to be discussed by the council on Monday, Dec. 3.

The proposal currently in front of the council is only the latest chapter in Palo Alto's decades-long quest to improve the labyrinthine site around the downtown Caltrain station. Planners and consultants have grappled with ways to make the busy area more efficient and pedestrian friendly since at least the early 1990s, when a so-called "Dream Team" of planners from the city and Stanford explored ways to improve the town-and-gown connection. Though the effort considered a slew of proposals including a new "village green" near Alma Street and University and lowering the Alma overpass to University level its recommendations languished from a lack of funding.

The idea of improving circulation also loomed large in Palo Alto's negotiations with Stanford University Medical Center. The development agreement between the city and the hospital allocates $2.25 million in funding for pedestrian and bicycle improvements between the transit center and the intersection of El Camino Real and Quarry Road.

So when Arrillaga came to City Hall just weeks after the hospital expansion was approved, city officials saw it as an opportunity to revive the Dream Team's long-deferred dream.

"It's an area that's been studied and studied but has had very little action to make the improvements," Emslie said. "In a lot of ways, it's very unfortunate that we haven't been able to figure this out, literally, over decades."

By the time the project was unveiled to the public in March, it contained a complete revamp of the transit hub, including increasing the capacity of the bus depot. The project also now included the shell of a performance theater another goal that the city and Stanford have been evaluating for more than a decade. Arrillaga and the nonprofit TheatreWorks informally agreed that the developer would build the shell and the theater company would complete it, Emslie said.

Though the project in March was still in its embryo stage and had yet to receive any public input, it was already generating significant buzz at City Hall. In a March report, Emslie called it "a unique opportunity to create an attractive, vibrant urban destination and identity for people arriving by transit to Palo Alto." City staff's enthusiasm hadn't diminished by September, when the planning department released revised details showing the proposed office complex to consist of four towers, one of which would be 162-feet tall. The report refers to an "unprecedented opportunity" and an "extraordinary public-private partnership involving several parties, which would allow goals that have been pursued for many years to be realized."

The partnership between Palo Alto and Arrillaga is "extraordinary" for various reasons. The sheer size of the jackpot is one of them. If voters accede to the concept of what the city now calls the "arts and innovation district," they would enable tens of millions of private dollars to be spent for significant transit improvements in one of the city's prominent areas.

But it is also extraordinary in that it pits a city famous for its lengthy and complex public processes for new developments (the considerably smaller Alma Plaza project in south Palo Alto was a subject of more than a dozen public meetings before it earned the city's approval in 2009) with a developer who famously shuns the spotlight and prefers to deal behind the scenes.

The tension means that city officials, for all their talk about "transparency" and commitment to a "democratic process," now find themselves discussing projects with tremendous implications for the city's future outside of public view. The public, meanwhile, doesn't get to be privy to the discussions until they are already well advanced. The council, for example, didn't have any public hearings about Arrillaga's proposal to buy 7.7 acres of undeveloped city-owned land near Foothills Park, opting to consider the item in a Sept. 18 closed session (the land is surrounded by properties owned by Arrillaga). City officials said at the time that they planned to schedule a public meeting on this proposal in October but that didn't happen.

The council also hasn't had any public discussions about Arrillaga's proposal to fund athletic fields adjacent to the city's golf course near the Baylands. The Weekly learned about this offer only from the single letter from Arrillaga, which was submitted the day before the council's closed-session discussion.

"As I believe you are aware from our many discussions, I am at a stage in my life where I am thoroughly enjoying improving public facilities in our community and one of the projects I have identified that excites me, is developing for the City of Palo (Alto) three new athletic fields with natural turf and related irrigation, all to be located at 1900 Geng Road, Palo Alto," Arrillaga wrote in a Sept. 17 letter addressed to Mayor Yiaway Yeh. (The fact that it's addressed to Yeh is a formality. City Attorney Molly Stump said the letter alludes to discussions between Arrillaga and city staff). "You and I have discussed this project in great detail, and we both agree that it will be an improvement that (will) be welcomed by the City, its citizens and visitors. I commit to the City of Palo Alto that the above project shall be developed and constructed, at no cost and/or expense to the City of Palo Alto, and the development of the project shall commence by the Spring of 2013 and is projected to be completed within three months thereafter weather permitting."

While staff has been doing most of the negotiations, council members have been on the receiving end of Arrillaga's overtures. (Yeh and Larry Klein are the only exceptions because each has a spouse with Stanford affiliations and each recuses himself from discussions pertaining to 27 University Ave.)

Santa Clara County Supervisor Liz Kniss, who will reclaim her former seat on the City Council in January, recalled discussing the project with Arrillaga in June. Kniss said in a September interview that Arrillaga talked about his plans for 27 University Ave. while they attended a Stanford football game. The developer, who has a long history of building athletic facilities for Stanford, said he doesn't want to "go through all the stuff they make you go through" in Palo Alto's planning process, Kniss said. She said she left the meeting unconvinced about the project's merits, saying that the office complex "looks like it will loom large over the city."

"A good part of the city's group is enamored with it," Kniss told the Weekly, referring to staff and consultants. "For me, it's not worth it."

Vice Mayor Greg Scharff said he met with Arrillaga for about 10 minutes at the developer's office, as did other council members and community leaders (Scharff recalled seeing former Mayor Gary Fazzino leaving the office as he was coming in). He said Arrillaga showed him the renderings for the proposed building, after which time Scharff expressed some concerns about the designs but said he found the theater concept exciting.

Councilwoman Karen Holman said she met Arrillaga last fall and was surprised by the level of details in his drawings.

"My expectation of that meeting was that it would be a general conceptual discussion about the project," Holman said. "It was much more fine-grained than I expected. There were building designs and heights and some site planning."

As these details evolved, council members were brought in for private meetings with staff to discuss updates in the various Arrillaga projects. In late June, staff and consultants met privately with council members to discuss revised plans for 27 University Ave. And in early October, the city arranged tours for council members of the property next to Foothills Park that Arrillaga had proposed to buy.

Because in both cases, the meetings involved two or three council members at a time, they did not need to be publicly disclosed under the Ralph M. Brown Act, which governs open meetings. But at least one council member raised flags about the lack of transparency in this process in June, when staff from Keene's office was trying to schedule a series of 30-minute update meetings between council members, staff and consultants working on the project. Holman wrote in an emailed response that she was concerned about the fact that "the public has yet to have a clear picture of what is being considered even in the most general fashion."

"With these additional meetings being proposed that include designers as part of the meetings, I have even greater concerns about transparency," Holman wrote in late June. "Please help me understand what causes the need for private meetings with City Council members rather than meetings that could be held in public."

Holman said she doesn't recall getting a response from staff addressing her concerns about private meetings, other than a brief message indicating that staff would like to update the council.

Several council members stressed that they are trying to be as transparent as possible and that there's nothing inappropriate about members meeting privately with staff to discuss the latest changes before the full council weighs in on them. Scharff emphasized that there haven't been any decisions made about the project and that feedback from council and staff has greatly improved Arrillaga's proposal.

"It's easy to kill something," Scharff said. "That's the easy thing. The hardest thing is to say, 'Given this opportunity, how can we make it work for the community?'"

Council members recognize that they are walking a fine line in the potentially lucrative and continuously evolving relationship between the city and Arrillaga. In an interview in late September, Councilman Pat Burt said the philanthropic component of the downtown proposal limits the number of demands the council can place on Arrillaga without risking all the potential public benefits, which Burt estimated could amount to $100 million.

"If we said to Lucie Stern, 'We don't want a community center; we want a police building,' do you think we'd have the Lucie Stern Community Center?" Burt said. "This being a philanthropic project limits the demands we can make."

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

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