The owner of President Hotel Apartments submitted plans this week to convert the historic apartment building in downtown Palo Alto back to its original use as a hotel — a controversial project that continues to face significant zoning hurdles.
Among the biggest obstacles standing in the way of Adventurous Journeys Capital Partners, the Chicago-based firm that bought the six-story building at 488 University Ave. last June, is a downtown cap on non-residential development. The downtown cap, which was adopted in 1986, allows up to 350,000 square feet of new non-residential development. The city has already approved more than 331,000 square feet since 1986, leaving about 18,000 square feet left to be developed. The conversion of the 56,603-square-foot building would puncture the cap.
That, however, can change on Monday night, when the City Council considers the divisive proposition of eliminating the downtown cap altogether. Doing so would be consistent with the direction that the council took in January 2017, when members split 5-4 over a proposal by then-Councilman Cory Wolbach to get rid of the cap.
The move, which was supported by every member of the council's more pro-growth wing and opposed by all four slow-growth "residentialist" members, resulted in the city removing the policy that created the downtown cap.
But while the policy is no longer in the Comprehensive Plan, which the city uses as its broad guiding document, the limitations on commercial development remain in the zoning code. As such, they effectively make AJ Capital's planned hotel conversion illegal. And there are some signs that the current council isn't as eager to remove the downtown restriction as the 2017 council. Councilmen Greg Scharff and Wolbach, who both supported abolishing the cap, are no longer on the council. Mayor Eric Filseth and Councilman Tom DuBois have both vehemently opposed the removal of the downtown cap during the last election season. And newly elected Councilwoman Alison Cormack, for whom commercial restrictions were not a campaign priority, said during a public debate that she saw no good reason to remove the downtown cap.
The project suffered another zoning blow last week, when the Planning and Transportation Commission recommended scrapping an ordinance that requires "grandfathered" buildings (those not complying with current zoning rules) like President Hotel, to retain their same use when undergoing renovation. In doing so, however, it expressly prohibited the conversions of such buildings from residential to non-residential uses — a restriction that effectively prohibits the hotel conversion and that AJ Capital is expected to challenge in court.
AJ Capital recognized both zoning obstacles late last year as it entered into negotiations with the city and with the tenants of the 75-unit building. During these discussions, it had conditioned its willingness to postpone tenants' evictions from the building on the council's elimination of both of these zoning restrictions by Dec. 17, 2018, a deadline that the city did not meet.
Failure to comply with zoning laws didn't stop AJ Capital from submitting a formal application for the hotel conversion on Monday. Its 28-page plan calls for preserving existing ground-floor retail and create a hotel lobby and a lounge in the existing apartment lobby and vacant retail spaces.
The 75 apartments in the building would be converted to 100 hotel guest rooms and existing roof gardens would remain, according to the plans. AJ Capital also plans to seismically retrofit the building and install new "historically correct storefront systems," which will include copper mullions and ceramic tile bases. AJ Capital is also proposing to repaint the building's exterior with "a new color palette that celebrates the historic nature of the building."
The submitted plans are perhaps most remarkable for the one thing it doesn't include: parking. The application calls for reconfiguring the building's basement level to increase the number of parking spaces from 11 to 12.
Under the current zoning laws, which require one parking space for every 250 square feet of commercial development, the hotel would have to provide close to 200 spaces. Historically, downtown's commercial developers had often addressed their inability to supply the necessary parking by paying "in-lieu fees" to the city, totaling $70,094 for every space they failed to provide. But in December 2018, as part of its broad effort to revise the zoning code and encourage more housing, the council suspended the "in-lieu fee" program for commercial developers for a year.
AJ Capital had previously identified parking as a key issue that needs to be resolved before its plans move ahead. In September, the company drafted a "term sheet" to the city that explicitly called for the City Council to approve "exempting Hotel President from parking requirements no later than Oct. 8, 2018" in exchange for the tenants being granted a few extra months. Later, in a revised term sheet, the developer requested that the council reach by Dec. 10 a "binding consensus" to resolve "applicable parking issues" to allow the conversion to proceed without payment on in-lieu parking fees, which would have totaled nearly $13 million.
Planning Director Jonathan Lait told the Weekly that the city is still analyzing how many parking spaces AJ Capital would have to provide for the potential conversion. He noted, however, that a hotel is a "more intense use" than an apartment building and, as such would require more parking.
"The amount of parking required if the hotel is allowed to convert has not been determined but it is greater than what is there today," Lait said.
The unresolved zoning and parking issues suggest that the application for the hotel conversion is unlikely to win the city's approval any time soon. Lait said the city is still analyzing the application, though it has already identified several areas in which it fails to meet the city's codes — including the ordinances barring changes of uses and establishing the downtown cap.
"The way it's set up now, the application does not meet our current regulations," Lait said.
Meanwhile, all but a handful of residents already left Hotel President, with fewer than 10 remaining. AJ Capital gave some an extension until the end of February, while one resident is seeking a somewhat longer stay because of his disability.
That resident, Dennis Backlund, is being assisted by Project Sentinel, a nonprofit that provides services relating to fair-housing laws. The nonprofit last month requested that AJ Capital provide Backlund with "reasonable accommodations" — namely, an extended stay.
The city also submitted a letter to AJ Capital last week notifying the property owner of a local provision requiring one-year lease agreements between landlords and tenants (the city generally does not actively enforce this provision, though tenants can cite it in potential court proceedings).
"We are communicating directly to you to ensure that, prior to any eviction action, you are similarly aware of the Ordinance and responsibilities of landlords as prescribed," the letter from City Manager Ed Shikada states.
The city's assertion of this local provision heartened some residents, a few of whom attended the Monday meeting of the City Council to thank Shikada. Backlund, a former historical preservation planner with the city, was among them.
"I simply cannot lose my apartment at this time, during the rainy season because when it rains, I cannot go out unless ... I am accompanied by another person to keep me falling on wet pavement," Backlund told the council.