A good idea gone sour? A good idea gone sour? (July 07, 2004)

City won't see profit from leasing building to restaurant in near future

by Bill D'Agostino

The aromas of India and Singapore could be wafting from a new downtown restaurant on the corner of Lytton Avenue and Bryant Street by the end of the year. But for the City of Palo Alto, the building smells more and more like an investment gone sour.

Palo Alto used a $3.5 million bond to build the 7,410-square-foot building. But since the best bid for the property's lease was only $3 a square foot for 10 years, the city's general fund will need to partially pay off that investment for the first seven years, according to Bill Fellman, the city's property manager.

All told the general fund will have to kick in $750,000.

It is the first commercial real estate investment designed solely to make profit for the local government. (Other city buildings are inhabited by the local government, the public or leased to nonprofits at low rates.) The bond used to pay for it cost $320,000 a year for the next 20 years. The City Council will vote on the lease at its July 19 meeting. A fitness club also applied for the space.

At the time the building was proposed, in 1999, there was very little vacancy downtown and rents were approximately $4.50. The building is located next to one of the new parking garages. Although it was built at the same time as the garage, it was paid for differently. Downtown businesses paid for the garages.

The profits for the space was planned to go toward services for teenagers, since the construction displaced a teen center. Without such funds, those services will not be considered.

"That part is, in my opinion, too bad," said Councilman Vic Ojakian, who was also on the council when the building was approved. "That was a great idea."

The new restaurant, which will likely win the lease, will be upscale, serving "fusion south Asian" cuisine.

"It's going to be quite a dining experience," said Sabena Puri, one of the restaurant's founders. "It's very different from anything we have in the Bay Area, especially on the Peninsula."

The building's two stories will allow for some unique features, like a wine bar, Puri said.

Staff writer Bill D'Agostino can be e-mailed at bdagostino@paweekly.com

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