The City Council on Monday voted unanimously not to terminate its $5.8 million loan to the Palo Alto Housing Corporation, a nonprofit that builds and manages affordable-housing complexes throughout the city. The Housing Corporation used the funds to purchase a 2.4-acre site at 567 Maybell Ave. and proposed 60 low-rent apartments for seniors and 12 single-family homes to be sold at market rate. The development received the council's unanimous approval in June but was shot down by voters in a referendum on Nov. 5.
With the election fresh on their minds, council members considered on Monday what to do about the loans it had made to the Housing Corporation. Their decision? Do nothing.
That was the recommendation from City Manager James Keene, who argued that affordable housing is still a critical need and that the Housing Corporation is the party best suited to address the issue. He dismissed alternative proposals from members of the public, some of whom argued that the city should buy the orchard site and develop it on its own.
The city has many other priorities for spending, including a shrinking but still sizable infrastructure backlog, he said, and staff has little expertise or desire to get into the development business.
"The city doesn't, in my view, have the money to buy this property, and it has had years of public process in exploring infrastructure investments and other needs underway that really should not be derailed by ... an ad hoc request to make a public investment," Keene said.
Council members agreed wholeheartedly.
"The City of Palo Alto has many strengths and lots of expertise, but we are not an affordable-housing agency," Councilwoman Gail Price said. "For us or for community members to assume that we can get involved in a protracted discussion and yield a development that really addressed affordable housing or senior affordable housing is, I believe, unrealistic."
By doing nothing, the council effectively agreed to stand by while the Housing Corporation looks for a market-rate developer who would buy the property. The Housing Corporation had bought the site for $15.6 million, outbidding at least five other would-be buyers. The agency ultimately benefited from its nonprofit status, which enabled the family selling the orchard to receive a tax write-off.
With Palo Alto's home values rising fast — by about 20 percent in the past year alone, according to staff — the city believes the property can now be sold for about $18.7 million. Once the property is sold, the city would be third in line to collect its loans (two other lenders, Low Income Investment Fund and the Local Initiative Support Corporation would be the first to collect, while Santa Clara County would be last). Any proceeds that remain could be applied to a different affordable-housing project.
Several Barron Park residents urged the council to work with the Housing Corporation to come up with a senior-housing project at the Maybell site that would be acceptable to the surrounding neighborhood.
But Candice Gonzalez, executive director of the Housing Corporation, said Monday the agency was already at the edge of what was financially feasible. The density of the project was necessary to secure state tax credits, she said. Even if the City Council were to agree to kick in a few million dollars to compensate for elimination of the lucrative market-rate homes, the agency would have trouble sustaining the cost of running the facility.
"We did not have a scaled-back alternative. There's just a lack of funds at the city, state and federal level," Gonzalez said.
The housing agency supported a staff proposal not to terminate the loan but to let the nonprofit proceed at its own pace in selling the property, which under the existing zoning could accommodate 34 to 46 housing units.
Had the council chosen to terminate the loan, it would have forced the Housing Corporation to immediately sell the property and pay the city back. Price and Councilwoman Liz Kniss both spoke in favor of allowing the nonprofit to explore other options. Councilman Marc Berman wished the Housing Corporation good luck in finding another site.
"The sooner you can find affordable housing somewhere else, the better off we all will be," Berman said.