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City sued over Monroe Park development

Builder of townhouses challenges Palo Alto's affordable-housing requirement

A developer building a housing complex at the former site of Palo Alto Bowl has filed a lawsuit against the city, challenging its requirement for affordable housing.

Monroe Place, LP, the developer behind the 26-unit condominium complex at 4301 El Camino Real, is arguing in a complaint that the city's below-market-rate program, which requires a portion of developments to be devoted to affordable housing, unfairly forces the developer to address community concerns that are unrelated to the project.

The lawsuit pertains only to the residential portion of the approved project, located in the Monroe Park neighborhood and known as Classics at Monroe Place. In addition to the 26 three-story townhouses, a 167-room hotel is being developed separately.

In the claim, Monroe Place argues that the city's "ostensible BMR Program was and is an unjustified and unconstitutional attempt to arbitrarily and unfairly shift the city's perceived responsibilities for addressing general community-wide needs for more affordable housing disproportionally onto persons not shown to be involved in creating or aggravating those community-wide needs."

The city's policy requires 15 percent of the units in a new residential development to be set aside as affordable housing. The developer had agreed to this provision in 2009, when the project was approved by the City Council.

Monroe Place is asking the Santa Clara County Superior Court to invalidate the affordable-housing requirement and to require the city to refund to the developer all fees related to the below-market-rate program. In this case, 3.9 of the 26 housing units were to be sold at below-market pricing. The city had initially requested that four units be designated for affordable housing but later changed the requirement to three homes, with the developer providing an "in-lieu payment" for the remaining 0.9 units.

The lawsuit maintains that this "letter agreement" was executed "under circumstances of duress, business necessity, and economic compulsion, without opportunity for appeal or relief" and claims that the conditions were presented as "non-negotiable" by the city.

The developer calls the city's ratio for affordable housing "arbitrary" and describes the long-standing housing policy as "capricious, not supported by substantial evidence, and excessive."

The city, the lawsuit claims, has failed to demonstrate that "this project would cause any increased need for subsidized housing, or add to the city's costs of addressing its perceived needs for 'below market rate' housing, nor demonstrate that the disputed BMR housing exactions were reasonably related to the reasonable costs of addressing the city's perceived needs for additional housing caused or otherwise attributable to any impacts of this project or new residential development in general."

Palo Alto has withstood similar challenges in the past from Classic Communities, Monroe Place's parent company. In 2010, John and Forrest Mozart (father and son, respectively) of Classic Communities had filed separate lawsuits challenging the city's affordable-housing program. That year, a judge ruled in the city's favor in the John Mozart case that the city's program "encourages and promotes the development and availability of affordable housing for families and individuals whose incomes are insufficient to afford market rate housing by requiring developers to provide BMR units in their developments, or alternatively, to make payments to Defendant's Housing Development Funds."

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