Skeptical Palo Alto council not sold on Page Mill development

Palo Alto officials call for additional analysis before ruling on zoning exceptions

A plan to replace four homes on a busy stretch of Page Mill Road with a three-story building featuring apartments, office space and retail ran into a wall of skepticism Monday night when Palo Alto officials declined to grant the developer the requested zoning exceptions and demanded a fresh financial analysis of the project.

The development at 441 Page Mill Road is one of several mixed-use projects that have recently been approved in the busy and often congested area around Page Mill Road and El Camino Real.

Unlike the other projects — a crop that includes mixed-use projects at 3159 El Camino Real, 2180 El Camino Real, 2500 El Camino Real and 195 Page Mill Road — this one relied heavily on a state law that automatically grants developers zoning concessions if they provide affordable-housing units. As such, it was a test case for the Palo Alto council, which last year adopted a local version of the density-bonus ordinance.

Designed by Stoecker and Northway Architects, the development at 441 Page Mill Road would include 10 apartments, three of which would be sold below market rate. In exchange for providing these three units, property owner Norm Schwab is requesting more density. He is seeking to build 21,540 square feet of office space at the site, double of what would normally be allowed under the zoning code.

He is also seeking a lot coverage of 18,520 square feet, more than 5,000 square beyond what would normally be allowed, and an increase in the project's overall density. While the site's zoning would accommodate a development 26,926 square feet, Schwab's proposal comes in at 35,521 square feet. It would replace four existing homes on a largely commercial block that includes Kelly-Moore Paints, the AT&T retail store and an animal hospital.

The project has already undergone numerous reviews and had recently secured the approvals of the Planning and Transportation Commission and the Architectural Review Board.

The reception from the public has been mixed, with many praising the building's design and calling it exactly the type of mixed-use development that the city should encourage at the transit-rich corridor. Others argued that the project would further exacerbate the traffic congestion in the rapidly changing area near the California Avenue Business District.

The council was likewise ambivalent. Though members generally liked the project's design, they had a problem with its size and density.

After a discussion that lasted more than four hours, the council unanimously agreed to commission another analysis before approving what they characterized as a precedent-setting development.

The main questions revolved around the value of the zoning concessions. In seeking the concessions under the state's density-bonus law, the applicant was required to demonstrate that the extra density is needed to support the creation of affordable housing.

The city's economic consultants, Keyser Marston Associates, confirmed that this is indeed the case. The cost of constructing the new units in the firm's estimation was greater than the benefit that the developer would get from the increased density.

The firm estimated that the net cost of the additional housing units would be about $1.85 million. The net value increment from the concessions was projected to be $1.28 million. This led Keyser Marston to conclude that "all three of the requested concessions are needed to address the BMR (below-market-rate) housing costs in the proposed project."

But with commercial real estate market booming in Palo Alto, the council wasn't sold on this analysis. Councilman Eric Filseth led the charge and asserted that the figures in the Keyser Marston report don't account for the type of double-digit growth Palo Alto has been experiencing in the past decade.

He noted that real estate rent in downtown Palo Alto has been going up by 11 percent annually over the past decade and plugged in his own numbers, which suggested that the project would generate far more revenue than the consultant had indicated.

Filseth said the Keyser Marson's approach uses "simplified models" and "shortcuts for a really discounted cash-flow analysis." The simplified model, he said, doesn't work in the high-growth climate of Palo Alto, he argued.

"I think we used a model that's not quite appropriate for the exact circumstances in Palo Alto," Filseth said. "These numbers are the basis for deciding whether the city is legally entitled to grant concessions. The current model gives the wrong answer and we can't use it to make that judgment."

Councilman Tom DuBois, who like Filseth is affiliated with the slow-growth group Palo Altans for Sensible Zoning, levied his own criticisms at the consultant's methodology and said it "doesn't pass the sniff test."

While Filseth focused on the revenue projections, DuBois zoomed in on construction costs and argued that the report placed too much burden on the affordable-housing units in justifying the project's overall costs. The methodology, he said, could prompt a developer to inflate his construction costs by installing amenities such as marble entryways and golden urinals — all for the sole purpose of justifying the density concessions he is seeking.

"I'd like this to find a method that shields the city from individual construction costs and the potential of loading expensive things to the building and spreading that over the BMRs (below-market-rate units)," DuBois said. "Because at that point you will be able to justify whatever density you want."

After Filseth proposed commissioning a fresh analysis that considers local growth trends, DuBois and other council members began tacking on their own conditions to the motion. The long discussion ultimately netted a laundry list of conditions, including a direction to staff to conduct additional traffic analysis and a requirement that the building's occupants use its garage. The council voted unanimously not to approve the project Monday night but to defer its decision until the new studies are concluded.

The council's caution was fueled by the fact that this was the city's first test of the density-bonus ordinance and council members stressed the need to "get it right."

Councilman Marc Berman was one of several council members to make that point, even as he then criticized the state law that makes the density bonuses almost automatic.

"We all agree that affordable housing is a good thing and is desperately needed in Palo Alto, but when setting precedent we need to be diligent to make sure we're making an appropriate analysis for our community," Berman said.

Berman lauded the "quality of the project" but called the building too big. He criticized the state law for its unintended consequences and said he was "uncomfortable with the fact that we lost all local control based on a state density-bonus law."

The proposal was further complicated by the applicant's decision not to rely on the local density-bonus ordinance that the city passed last year. Intended as as companion piece to the state law, the Palo Alto ordinance created a menu of concessions that a developer can automatically receive for providing affordable housing (these include things such as extra height and parking exemptions).

The project at 441 Page Mill Road was designed before the local ordinance was approved and it relies on concessions that are not on the city's menu. Because the developer went "off menu" in requesting concessions, he was required by the local ordinance to submit an economic analysis justifying its requests.

The fact that the concessions involved a significant increase in density further complicated the decision by making the project a tough sell for council members who had promised during last year's election to protect the community against unfettered commercial growth and to oppose the types of parking and zoning exemptions that have been common in recent proposals. The Page Mill project is also seeking parking exemptions that would allow it to provide 91 parking spaces — 19 fewer that the city's code would otherwise require. This, however, wasn't as big of a stumbling block as the sheer size of the proposed building.

"I'm probably more open to being persuaded that the parking could be adequately addressed on the site if it weren't for such a huge office bonus that's going on here," Councilman Patrick Burt said.

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19 people like this
Posted by common sense
a resident of Midtown
on Jan 27, 2015 at 6:58 am

I'd like to applaud the oversight that the new council members performed on this development proposal. Thanks for following through on your campaign promises.

14 people like this
Posted by resident
a resident of Downtown North
on Jan 27, 2015 at 8:35 am

Reading this article is a breath of fresh air! Our new city council members reining in developers and over development. Thank you Eric and Tom! It's too late for downtown, but hopefully our new city council can save California Avenue. We can't stop the development completely, but if it's done right their will be a balance that will maintain the quality of life for the residents in that area.

11 people like this
Posted by Duveneck Resident
a resident of Duveneck/St. Francis
on Jan 27, 2015 at 9:46 am

Approving this project wuold set a precedent for developers to justify extensive zoning exceptions. The financial analysis and methodology were highly favorable to the developer and not reflecting the true Palo Alto real-estate market. I'd like to see the council reject and litigate if necessary since this would be such a bad precedent not only for Palo Alto but for California.

13 people like this
Posted by local
a resident of Another Palo Alto neighborhood
on Jan 27, 2015 at 10:01 am

Bravo to a smarter and more reflective Council!

I also think the design looks nice, but here's where the rules need to start including some aspects of context. That location is simply not appropriate to grant a parking exemption, not even for 1 car.

13 people like this
Posted by Crescent Park Dad
a resident of Crescent Park
on Jan 27, 2015 at 10:30 am

Exactly why I voted for these guys...Bravo!

13 people like this
Posted by Another Duveneck Resident
a resident of Duveneck/St. Francis
on Jan 27, 2015 at 10:39 am

Thank you Tom and Eric! This is the kind of analysis that needs to happen when these giant projects are proposed. Palo Alto should never take developer figures as gospel.

12 people like this
Posted by Good!
a resident of Embarcadero Oaks/Leland
on Jan 27, 2015 at 10:40 am

Fantastic. Finally, a sane vote!

Our vet, the Animal Doctors, gets a reprieve/

28 people like this
Posted by disappointed
a resident of Ventura
on Jan 27, 2015 at 10:53 am

While I appreciate due diligence, as a neighbor close to this site I'm disappointed that its redevelopment is being delayed. The homes that this building is supposed to replace have been shuttered for years and the property is dilapidated with a huge chain link fence surrounding it on all sides. It has attracted strangers onto those properties that have no business being there and has created a safety concern for the neighborhood. I'd like to see this property beautified and secured. Right now, it's an eye sore.

As for density, this is 4 story building next to the Caltrain. That's not very dense and if we're going to add more development, then putting it right next to the Caltrain as well as right next to the Marguerite shuttle stop and the VTA bus stop make more sense than putting it anywhere else. It's a good example of a mixed use project that's finally starting to put housing together with office space (as well as retail) and we should be more encouraging of projects like this, rather than just single use office space buildings. I wish the other projects going on in this area were also mixed use like this because plain old office buildings don't really add much to the neighborhood or the community. We could also use more retail on this side of Cal Ave, and hopefully it's not another cell phone store...

5 people like this
Posted by Wim
a resident of Duveneck/St. Francis
on Jan 27, 2015 at 10:59 am

Just the intelligent discussion we have been waiting for. The thoughtful (and probably well-paid) analysis from the economic consultants is brushed aside by the incredibly intelligent "doesn't pass the sniff test" remark.

The 11 percent annual growth number that Filseth has referenced should be adjusted going forward in view of the current council attitude. With their approach we should be lucky to break even over the next decade.

12 people like this
Posted by Andy
a resident of Duveneck/St. Francis
on Jan 27, 2015 at 11:02 am

Wow -- an intelligent discussion instead of a rubber stamp! Kudos to the new City Council!

14 people like this
Posted by resident 1
a resident of Adobe-Meadow
on Jan 27, 2015 at 11:15 am

WOW - I have to hand it to the new members of the PACC. SMART, ARTICULATE, KNOW HOW TO ANALYZE THE DATA. I am so impressed - thank you for running and winning office. I feel that now the right decisions can be made concerning how we proceed.
What was very interesting is that the state now has a whole set of rules concerning urbanization and these people will break the code for us.

14 people like this
Posted by red beats
a resident of Green Acres
on Jan 27, 2015 at 11:34 am

Another WOW!! Thank you Eric and Tom for your intelligent, knowledgeable analysis and articulate comments in regards to the Page Mill project.
We so need your skills on the PACC.
Keep up the good work!!

8 people like this
Posted by Sheridan Ave Resident
a resident of Evergreen Park
on Jan 27, 2015 at 12:00 pm

Thank you Eric and Tom for taking the approach we need so badly to control the overburdening of our infrastructure. The proposed building is visually attractive (although oversized and needs to shrink) and a plus for that small stretch of Page Milll. However, isn't there a developer or architect out there that knows how to stay within the zoning rules and still make a reasonable profit? How about "reasonable" instead of "I'm going to make a killing"!

18 people like this
Posted by new majority
a resident of Another Palo Alto neighborhood
on Jan 27, 2015 at 12:21 pm

Eric and Tom fulfilled the promise of a new enlightened Council majority which delivered big-time for the residents and future of this City.
The meeting started out the same way -a caution that State law was limiting
local control, a consultant financial report in hand,former veteran ARBer Judith Wasserman weighing in praising the project as a paradigm somehow viewing it in isolation from its profound impacts,and the staff recommendation for approval. In the first two minutes Kniss began to formulate a motion. It never happened. Filseth, DuBois, Schmid, Burt and Mayor Holman produced a different outcome- the status quo of the last at least dozen years was crushed. This group deserves our strong support
as we go forward.

4 people like this
Posted by Gale Johnson
a resident of Adobe-Meadow
on Jan 27, 2015 at 12:27 pm

I need to do some homework to learn what our ordinance and the State law says re affordable housing. Also would like input from anyone knowledgeable on the subject. Define affordable. $$ please. And I think we all know that developers are masters
at putting Shinola on any project they propose. So thank you Council for deferring until more facts are known.

10 people like this
Posted by Jo Ann
a resident of Embarcadero Oaks/Leland
on Jan 27, 2015 at 12:29 pm

New Majority, thanks for your report. Where did the rest of the council members come out? Scharff? Corey?

14 people like this
Posted by Resident
a resident of JLS Middle School
on Jan 27, 2015 at 12:32 pm

Thank you, thoughtful counsel members. We need you looking out for us!

17 people like this
Posted by Smart Growth
a resident of Leland Manor/Garland Drive
on Jan 27, 2015 at 12:33 pm

Congratulations to Eric and Tom for holding the line against developers who manipulate numbers and regulations for their own self interest! Developers focus on making money any way they can, even if it means leaving the rest of us with urban blight, congested roads and bumper to bumper parking on every street! This is definitely not the Palo Alto we want and we all appreciate greatly the skill, good judgment and determination which the new council brings to these problems. Thank you!

4 people like this
Posted by John
a resident of Barron Park
on Jan 27, 2015 at 12:44 pm

What is the parking situation? Page Mill is, of course, a very busy street, which would make on-street parking dangerous for patrons of the included retail space. Parking is so tight near that corner now that Comcast has a sign in their lot warning AT&T customers not to park in it.

8 people like this
Posted by What a Shame
a resident of South of Midtown
on Jan 27, 2015 at 1:01 pm

Perhaps someone can show some judgement in stopping the steamrolling of University Avenue by developers!
I can't help but be saddened by all the focus that has come on this development on the speedway portion of Page Mill contrasted with how little discussion there has been on the Wong's building displacing Shady Lane.

28 people like this
Posted by jm
a resident of Barron Park
on Jan 27, 2015 at 1:09 pm

This is the kind of analysis and discussion that should have been done by the Planning and Transport. Not kicked up to the council.

That the analysis and resulting questions have to be raised by council members speaks volumes about either the PT&C members bias or lack of experience, or both. So now we have council members spending their time doing the homework that in the past was undertaken by members of the Planning and Transport Commission.

And in December in a last cynical act the previous council majority removed Art Keller from the Planning and Transportation Commission. The last remaining member who had the skill set and the inclination to ask developers the hard questions because he couldn't be fooled. Who was not inclined to rubber stamp applications after lightweight analysis.

In the last few years it would appear that the previous council majority has carefully stacked the PT&C to be a tool for developers. As does the Planning Department appear to be from the quality of their staff reports. And this is the result.

10 people like this
Posted by Midtown
a resident of Midtown
on Jan 27, 2015 at 2:15 pm

We are going to give away the farm for 3 BRM units while destroying over 100 real existing BRM units? Something is not right here! Oh I forgot, the developers can't make money on those unless they get bulldozed.

18 people like this
Posted by Lots to watch
a resident of Midtown
on Jan 27, 2015 at 2:19 pm

It was a long evening but the councilmembers were so intelligent and focused, I was mesmerized by those good hard-working people. Some interesting bits:
Kniss was the first council speaker and she tried to preempt everyone by offering a motion to accept the proposal, before anyone spoke! She didn't even get a second.

Several architects spoke in favor of the project: Judith Wasserman lauded it, Martin Bernstein, and even Daniel Garber (Arrillaga's architect for 27 University) stood up for their architect buddy. Having brought disgrace on the city by way of a Grand Jury Report is no reason for him to be shy when money is involved.

It was heart-warming to see our representatives actually representing us.

4 people like this
Posted by Jerry Underdal
a resident of Barron Park
on Jan 27, 2015 at 3:21 pm

Jerry Underdal is a registered user.

Completely concur with "Lots to watch"s assessment. The council members were working hard up there, sweating bullets from worry that they risked a law suit the city would not win if they didn't have a reasonable basis for challenging the determination by the city's, not the developer's, financial consultants that the costs of providing the affordable units was greater than the added value for the developer. Congratulations to all for a reasoned discussion, especially to Eric Filseth and Tom Dubois for raising the objections they did. Better to have a ruling on those issues now, with the first case, than regret the precedent set down the line.

The daily newspaper with the blue banner noted Cory Wolbach's and Pat Burt's alarm that the proposal would create work spaces for 86 and only 10 housing units. But there was no talk about greedy developers, instead there were acknowledgements all around that this is a beautifully designed project, the kind Palo Alto wants to encourage, just too big to let through without seeing if there's a legal path to getting something just as good but smaller.

I was impressed by the grace of the developer and his team in dealing with the council's request for additional studies to be done before it would decide whether to approve the project.

4 people like this
Posted by curmudgeon
a resident of Downtown North
on Jan 27, 2015 at 3:21 pm

"if we're going to add more development, then putting it right next to the Caltrain as well as right next to the Marguerite shuttle stop and the VTA bus stop make more sense than putting it anywhere else."

That only intensifies the traffic near CalTrain, VTA, and Marguerite stops, causing more pollution and carbon emissions.

No data has ever been collected to find out if inhabitants of developments near CalTrain, VTA, and Marguerite stops in Palo Alto use CalTrain, VTA, and Marguerite any more than the general population does. Developers and their lackeys in city hall do not want the answer, so the question never gets asked.

15 people like this
Posted by Abitarian
a resident of Downtown North
on Jan 27, 2015 at 3:50 pm

Last night was a real win for the citizens of Palo Alto. It was exciting -- exciting! -- to see our new Council Members Eric Filseth and Tom DuBois rock the chamber armed with nothing more than data and logic.

Certainly, the location seems appropriate for a mixed use facility, but not one of the proposed scale. "As is", this project would clearly contribute to the existing jobs/housing imbalance and traffic/parking woes.

If the new state law truly intends to provide such hugs benefits to developers in exchange for just a few BMR units, Palo Alto should indeed challenge Sacramento. It seems other cities across the state would readily join the cause.

Once again, we see the PTC and ARB fail in their role as watchdogs for the City. We also see Keyser Marston, the firm chosen by the City, fail to provide objective economic analysis. Now the taxpayers will be stuck with the bill for revising the evaluation.

Regardless of the eventual outcome, it restores my faith to see our new Residentialist officials take a strong stance in protecting our best interests. Hopefully this is a sign that better governance has finally arrived in Palo Alto.

1 person likes this
Posted by Reality Check
a resident of Another Palo Alto neighborhood
on Jan 27, 2015 at 4:00 pm

The pictures shown in today's Daily Post show a building that looks dated and ugly--like something from the austere late fifties or early sixties. That alone is enough to nix it.

More importantly, the plan is for this monstrosity to be comprised of mostly businesses.

Make the building more consistent with the rest of PA ( unlike the already dated-looking Hilton Garden Inn), and make housing the majority of it, and it might be more appealing.

12 people like this
Posted by curmudgeon
a resident of Downtown North
on Jan 27, 2015 at 4:42 pm

"make housing the majority of it, and it might be more appealing."

Appealing to PA residents, not to its developers. Those BMR units are a cynical ploy to enable overdevelopment of a business office project.

Will the city ever check if the "residential" units have magically transformed into premium luxury office suites with a wet bar and all the comforts of home, like at 499 University?


3 people like this
Posted by Sunshine
a resident of Barron Park
on Jan 27, 2015 at 10:23 pm

Things that should not be allowed or granted to any development project: 1. Up zoning. If a property is zoned RM 15 it should not be re zoned to accommodate a higher density development; 2. Developers must include the full number of full size parking spaces specified. This is the minimum number of parking spaces that should be provided; 3. No special concessions should be granted to developers for including a few below market rate living units.
The area of Page Mill/Oregon and El Camino is already a nightmare during commute hours. It is bad at any time, but extremely bad during morning and afternoon/evening commute hours. New developments should not be allowed that will contribute to this congestion. It often takes two or three light changes to make a right turn from northbound El Camino onto eastbound Oregon.
Too many other developments are planned or this area. Most of Park in this area is already occupied by a huge development.

Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Jan 28, 2015 at 11:36 am

I don't disagree. But how do you get around the State sanctioned exceptions?

2 people like this
Posted by resident 1
a resident of Adobe-Meadow
on Jan 28, 2015 at 12:23 pm

My understanding - seen the PACC Meeting - is that the state sanctions are based on a mathematical formula. Said formula can be loaded to obtain the desired results. It appears that the formula used by the developers was based on inaccurate data which is now an action item to update and correct.

2 people like this
Posted by weird
a resident of Adobe-Meadow
on Jan 28, 2015 at 3:53 pm

On the one hand, it's great that Filseth and DuBois are taking their jobs seriously.

On the other hand, this is no way to review a project. There are standard valuation methodologies and models. Mr. Filseth could have asked for the currently employed model, and understand if it is in general use, and evidence of its predictive capabilities. It should not be the case that each council member should create their own individual back-of-the-envelope models and talk past each other.

In addition, the density bonus is part of an ordinance to promote BMR construction in Palo Alto. If we don't like the ordinance, then change that. We shouldn't arbitrarily decide when we're going to enforce the ordinance and when we don't feel like enforcing the ordinance.

4 people like this
Posted by resident 1
a resident of Adobe-Meadow
on Jan 28, 2015 at 5:25 pm

The staff did not back up their data and during the meeting did not have the answers to basic questions which reflect today's current information. Also, the developer representative did not have the answers to the questions asked concerning how the calculations were derived. It is the staff's job to be on top of the current data - that is what they are paid to do. If they cannot answer questions during the review of the project then it is back to the drawing board until they understand what is required to provide a valid proposition.

No one should be approving any approaches which can not be backed up with realistic and current data. Vice Mayor also did not get the answers to the questions he asked. So the PACC is looking for data that is relevant and current - that is what they are suppose to do.

No way to review a project?? The project should have been contained the correct data so it could be reviewed. The staff has to step up to the plate and fill in the blanks with the most current information. Don't take the PACC to task for the shortcomings of the staff and developer.

4 people like this
Posted by resident 1
a resident of Adobe-Meadow
on Jan 28, 2015 at 5:31 pm

Other comment - a representative for the developer kept using Berkley as a comparison point. If you have spent any time in Berkley you know that the tax base for Berkley vs Palo Alto has no comparison - they are working with a different set of problems than we are, different tax base, different transportation issues, etc. They also have considerable off-campus housing - apartments - much more dense than in PA. That is just lazy on their part - they need to using the demographics for PA.

Like this comment
Posted by common sense
a resident of Midtown
on Jan 28, 2015 at 10:30 pm

Weird @ Adobe Meadows - the report commissioned by the city states that the cost to build the BMR units is $630 per square foot (this does not include land costs). This is way too high of a cost per square foot for residential construction. More typical is $250 - $300 per square foot. Council member Dubois deserves much credit for bringing this up. Also the report cites property taxes as an expense, in reducing the income from rent. Other BMR rental properties do not pay property taxes - another error in the analysis presented to the council.

2 people like this
Posted by resident 1
a resident of Adobe-Meadow
on Jan 29, 2015 at 12:33 pm

Good points - note that non-profit organizations are exempt from property taxes. So we keep saying isn't it great that a non-profit is doing the job when in fact the non-profit is not contributing to the tax base for the city. There is a movement going on that non-profits which are large organizations will not be exempt from property taxes - that includes universities, private schools, non-profit health organizations, large charities, etc.
Also note that a lawyer for PA was present at the meeting and the lawyer could not answer all of the questions pertinent to their area of expertise.

The PA staff and developer were not prepared to step up to what the current requirements are under current state direction.

Sorry, but further commenting on this topic has been closed.

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