Menlo Equities, which is developing a project at Homer Avenue and Bryant Street, told the Palo Alto Planning and Transportation Commission on Wednesday night that a changing market no longer makes retail leasing viable.
The building's owner asked the commission to amend the development agreement, dropping the 10,000-square-foot limitation per tenant and allowing a single tenant to occupy more than one-third of the office space.
The changes could make way for a venture-capital firm to potentially lease the entire building, with the exception of the third floor, which is allocated for housing, according to Jane Vaughn, a partner at Menlo Equities, which owns the building.
She also asked that medical offices not be allowed.
Developed in accordance with the South of Forest Avenue (SOFA) I Coordinated Area Plan, the approved project consists of four residential units and 35,542 square feet of commercial space.
The original plan limited the amount of space a single tenant could occupy to 10,000 square feet in order to prevent a monolithic single occupant, such as the former Palo Alto Medical Foundation, which heavily impacted the surrounding residential community, according to Commissioner Patrick Burt.
At the time the SOFA I plan was developed, the community's concern was that Palo Alto Medical Foundation had been buying up the surrounding land, Burt said.
The site is currently under construction, with a giant steel frame rising from a deep pit.
But Vaughn told commissioners retail tenants can't afford to move in. She estimated retail space leases at $4 to $5 per square foot.
A tenant such as a venture-capital firm would please area residents because it will generate less traffic than medical offices or other uses, she added. The historic AME Zion Church, which is also part of the redevelopment, would be leased separately.
Vaughn said discussions with several residents indicated continued displeasure with potential traffic from retail and medical tenants. She said certain architectural elements of the French Laundry might be concealed by a drop ceiling and a wall to comply with the 10,000-square-foot limit, but several commissioners said any partitioning of the French Laundry would need to undergo review.
"Two bays were lopped off in consideration of the larger plan with the understanding that architectural elements would be replicated and in some ways preserved," Commissioner Lee Lippert said.
"This was the bone — the smelly bone. The commercial building wasn't greeted with enthusiasm, but it was the essential economic element that got the park, heritage preservation" of AMR Zion Church and French laundry and other considerations, Burt added.
Lippert said he felt the changes white-washed or diluted the intent of SOFA I to support a neighborhood with small offices, medical and retail uses. The building was intended for medical use and smaller offices so people could live and work within the neighborhood, in keeping with the city's objective of a walkable Palo Alto, he added.
Commissioner Arthur Keller expressed concern that changing the plan could open the door for other developers to change zoning when it doesn't suit their purposes. One such allowance has already taken place, he said.
"395 Page Mill Road was built under one type of zoning and then changed when it was not convenient for the owner. We went along with that. We're doing it again, and the building is not even occupied," he said.
Commissioners made three motions about the project. Commissioner Daniel Garber initially moved in favor of granting the changes.
"Market forces are very dynamic in this part of town. The number of examples of zoning not aligning with market forces are legion," he said.
Commission Chair Karen Holman then made a motion to deny the changes, saying she wasn't convinced about the bleak retail prediction. In the end, the commission unanimously agreed to continue the discussion to allow city staff to gather more information.
Commissioners agreed, though did not vote, to keep the medical-use option for the building.
"Almost all of the SOFA plan prohibited (medical offices). This building sought exemption for that. It is the only one allowed for medical use," Burt said.
Keller suggested a Conditional Use Permit could allow for a low-impact large tenant while preserving the original intent of the project. If the tenant moved and another use was desired, a new permit could be required that would protect the community from higher impacts. Several commissioners agreed a Conditional Use Permit could be an option.
The development has been in the making for many years, and a turnover of commissioners and City Council members have left many with little background on the original intent of the plan, commissioners said.
They plan to review the original agreement and explore the feasibility of a Conditional Use Permit during their Oct. 10 meeting, they said.