Palo Alto's plan to bring an affordable-housing complex to a Maybell Avenue orchard may have dissolved on Election Day, but the city is in no rush to recoup the money it loaned to the developer.
The City Council on Monday voted unanimously not to terminate its $5.8 million loan to the Palo Alto Housing Corporation, a nonprofit developer that builds and manages affordable-housing complexes throughout the city. The developer used the funds to purchase a 2.4-acre site at 567 Maybell Ave., where it had planned to build a 60-unit complex for low-income seniors and 12 single-family homes that would be sold at market rate. The development received the council's unanimous approval but was shot down by the citizens 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 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 for addressing 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. Keene said staff doesn't think the Housing Corporation "should be punished or lose money as a result of this project coming to an end."
Keene also argued against the idea that the city should purchase the site and use it for senior housing, a soccer field or some other public amenity. 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 under way that really should not be derailed by really a kind of an ad hoc request to make a public investment," Keene said.
Council members agreed wholeheartedly. Several characterized the Monday discussion as one they had never wanted to have. While they maintained that affordable housing remains a critical need in the community, they agreed that buying the property would not be in the city's best interests.
"The City of Palo Alto has many strengths and lots of expertise, but we are not an affordable-housing agency," Councilwoman Gail Price said. "The experts in that area are the Palo Alto Housing Corporation and I think 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.
Though the Housing Corporation's proposal was ultimately rebuffed by the voters, its loss may not be total. 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 the county would be last. Any proceeds that remain could be applied to a different affordable housing project.
Several Barron Park residents addressed the council and urged the council to work with the Housing Corporation to come up with a senior-housing project that would be acceptable to the surrounding neighborhood. Leaders of the "No on Measure D" campaign had repeatedly stressed that while they support senior housing, they oppose the site's densification and the market-rate component of the Maybell project. Joe Hirsch, who opposed Measure D, said he and his neighbors had reached out to the Housing Corporation in hopes of getting a compromise on a development, but the agency did not respond to its requests for a meeting.
"We would be willing to talk and hope a mutually satisfactory plan could be developed," Hirsch said.
Such a compromise now seems extremely unlikely. Candice Gonzalez, executive director of the Housing Corporation, said Monday that the agency was already at the edge of what was financially feasible. The project's density was necessary, she said, to secure state tax credits. Even if the City Council agreed to kick in a few million dollars to compensate for a loss of market-rate homes, the agency would have trouble sustaining the cost of running the facility.
"The last thing we wanted to do is to be here under these unfortunate circumstances," Gonzalez said. "We did not have a scaled-back alternative. There's just a lack of funds at the city, state and federal level."
The agency supported a staff proposal not to terminate the loan but to let the Housing Corporation proceed at its own pace in selling the property, which under the existing zoning could accommodate 34 to 46 housing units, depending on how many units the developer chooses to devote to affordable housing.
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. No one on the council wanted to go that route.
Price and Councilwoman Liz Kniss both said lamented the fact that the Maybell project was struck down and spoke in favor of allowing the Housing Corporation to explore other options. Councilman Marc Berman wished the Housing Corporation good luck in finding another site for affordable housing.
"The sooner you can find affordable housing somewhere else, the better off we all will be," Berman said.