News

Despite backlash, President Hotel owner presses ahead with hotel conversion

AJ Capital hosts open house, submits new legal arguments in attempt to win city's approval for contentious project

The development firm that last year bought the historic President Hotel apartment building in downtown Palo Alto with the intention of converting it to a hotel made a renewed pitch for the highly contentious project on Tuesday night, even as critics continued to assail the proposal as ill-conceived and illegal.

Adventurous Journeys Capital Partners (AJ Capital), which bought the building at 488 University Ave. in June 2018, hosted an "open house" Tuesday with the goal of showcasing the merits of a project that has created a torrent of community opposition. The informal gathering brought residents, consultants and former city officials to the back room of Il Fornaio, a restaurant around the corner from the iconic downtown building. As visitors mingled at the buffet, chatted with the project team and studied postcards with renderings of comparable projects, about a dozen residents outside the restaurant waved signs — including "We Don't Need no Stinkin' Hotel" and "AJ Capital puts profits over people. Shame!"

The dueling messages have by now become the norm for the project, which has galvanized significant opposition and resulted in the eviction of residents from the building's 75 apartments. In addition to political pushback, AJ Capital continues to face numerous zoning hurdles, including a provision that the council adopted in April explicitly banning the conversion of "grandfathered" downtown buildings (those that were built before current development standards were adopted) from residential uses to non-residential ones. The law, however, also includes a waiver for those who wish to circumvent that restriction.

AJ Capital's attorney, David Lanferman, has argued that the restriction violates the Ellis Act, a state law that limits the ability of cities to keep property owners from getting out of the rental business. He also argued in a Sept. 25 letter to the city that the law would not apply to the AJ Capital project because the building was already vacant when the restriction kicked in last May. As such, it did not have a "residential use." In the same letter, Lanferman requested the waiver.

Parking is another point of heavy contention. If the hotel were a new development, the zoning code would require the developer to provide about 200 parking spaces. The President Hotel has only 10 spaces in the basement. AJ Capital is hoping to fill the gap by offering a valet program and by giving employees public-transit passes. The developer had also commissioned a transportation study, which concluded in August that the city's parking requirements are "substantially higher than the actual parking demand expected based on industry standards and locally surveyed parking demands for hotels."

The study by the consulting firm Fehr & Peers estimated that actual demand for a 100-room hotel would be about 60 to 70 spaces. With the proposed valet program, the demand at President Hotel would be between 30 to 40 spaces, the study concluded.

AJ Capital believes that restoring the building to its original purpose as a hotel is the "highest and best use for the asset," said Alex Stanford, the company's chief development officer for the west coast.

In the lead-up to the meeting, the developer released in recent weeks a 43-page brochure detailing the benefits that the project would bring to the Palo Alto community, including hotel-tax revenues, contributions to local nonprofits and the restoration of the 1929 building. Its $50 million budget for the project includes $9 million for "critical upgrades," including a seismic retrofit, new mechanical, electrical and plumbing systems, ADA accessibility and fire and life safety.

"We're confident we can restore Hotel President to its original grandeur," Stanford said.

Resident Jeff Levinsky, a land-use watchdog who has been critical of the hotel proposal, highlighted the project's parking plan as one of its most glaring flaws. Even with valets and "stacker" spaces, the developer would only be able to provide 18 spots in the hotel's basement, Levinsky noted, citing an estimate from AJ Capital's valet provider, All About Parking.

Even assuming that the developer gets a 25% parking reduction for restoring a historical resource, AJ Capital would need to provide in-lieu fees for 91 spaces, Levinsky estimated. With each space valued at $106,171, this means AJ Capital would owe the city at least $9.7 million in in-lieu fees.

Palo Alto's planning staff has also found AJ Capital's parking plan insufficient. Last March, Planning Director Jonathan Lait deemed the application to be incomplete and in violation of numerous zoning laws, including parking requirements. Lait wrote in his letter to Stanford that the city's zoning code has "no provisions for a commercial parking reduction available to this property."

Levinsky, who last year alerted the city to a little-known zoning provision that barred conversions of "grandfathered" downtown buildings to other uses (the city has since revised the law), also challenged Lanferman's argument that the since-amended law on grandfathered buildings is illegal. (Lanferman's reasoning: If it were legal, it would not apply to AJ Capital; and even it if did apply, AJ Capital should be granted a waiver.)

"By his reasoning, any apartment building could simply cease renting out its units, declare itself out of the residential business, and then a day later apply for a new non-residential use by stating it has no 'residential portion.' In other words, he is arguing the entire law is moot, which is an interpretation courts are unlikely to accept," Levinsky wrote in a report analyzing AJ Capital's latest submission.

Levinsky also told the Weekly that the project continues to exceed the city's restrictions on floor area ratio (a measure of building density).

"It's not fair for the other hotels in town for one hotel to just be able to avoid following the law," Levinsky said.

In its promotional material, AJ Capital pledged to fund local organizations, including ones focusing on housing. Stanford told the Weekly said the company wants to become part of the "fabric of the community" by supporting nonprofits including the Palo Alto History Museum and Palo Alto Housing. While he declined to discuss the specific amounts of money the developer plans to give these nonprofits, the company's promotional book states that AJ Capital plans to award $2.4 million to various organizations, including $1 million to Palo Alto Housing, the nonprofit that is now developing a 59-unit apartment building for low-income residents at El Camino Real and Wilton Avenue.

The AJ Capital brochure also includes the logos of several potential partners, including the Downtown Streets Team, the Palo Alto Transportation Management Association and Palo Alto Partners in Education. Stanford said AJ Capital decided to support these nonprofits after holding meetings with various organizations over the summer.

To date, however, the contributions are conceptual and purely prospective. Downtown Streets Team staff told the Weekly that the developer has offered a "pledge" but has not made a contribution. And Palo Alto History Museum Executive Director Laura Bajuk said the funding is contingent on the hotel project getting approved. As such, she is not counting on the proposed contribution as part of fundraising total for the museum, which is slated to open in the Roth Building on Homer Avenue.

Levinsky pointed to a footnote in AJ Capital's brochure stating that its contributions are "to-be-confirmed," "subject to change" and "contingent upon the hotel being issued a building permit." These conditions, he argued, undercut its commitment to the nonprofits. He compared it to AJ Capital's offer last year of financial benefits to tenants — payments that were contingent on tenants not speaking against the project.

"We don't know if similar quid pro quo conditions apply to these new proposed contributions," Levinsky wrote.

Other residents offered a broader criticism of the AJ Capital proposal: It is taking away homes at a time of a significant housing shortage. Outside the building, Palo Alto resident Winter Dellenbach led a group of about 10 people who held signs and flyers.

Every now and then, a former President Hotel tenant approached the group of residents outside the hotel to thank them for their work. Passersby picked up flyers titled "The President Hotel: Keep it Residential" as they strolled past the restaurant or walked inside.

"There are only a couple of downtown residential buildings that come close to having 75 units of housing," the flyers stated. "Losing it for a hotel is a huge blow to Palo Alto's housing supply."

Dellenbach said the goal of the demonstration was to highlight the loss of housing at President Hotel and to bring attention to the fact that AJ Capital can still take a different path that would work out well for both the city and the developer: the preservation of housing.

"They can profit from it. The community can benefit from it. And they wouldn't have to be going through this torturous process and trying to convince people that the project is sound and right and is a benefit to them. We feel that it is not," Dellenbach said. "What is going on with this open house is really a view that's based on a 'house of cards' and not really on housing the people."

The Tuesday meeting also attracted several former President Hotel residents, most of whom vehemently oppose the AJ Capital project. Some said they had moved out of town; others found other local apartments but now face much steeper rents. Susan Powers, a former tenant who works at VA Palo Alto Health Care System, said she had rented a studio at President Hotel for $1,900. Now, she pays $2,800 for a studio. While the building was pretty rundown, no one complained because the rates were relatively cheap, she said.

Powers said she is still able to pay rent, even as it takes a much greater share of her income. Many of her former neighbors are having a harder time, she said.

"It's painful to talk to many of these neighbors who can't turn the heat on because they can barely pay the rent," Powers said.

She said she doesn't resent AJ Capital, which she said creates beautiful projects, but believes Palo Alto is the wrong place to pursue such a project, given its severe lack of housing.

Michelle Kraus sees things differently. A former President Hotel tenant who last year helped organize residents in opposing the planned evictions, she now works as an adviser to AJ Capital, using her background in public affairs. She told the Weekly that her new job "fits with what I do professionally." She also suggested that the project can be good for Palo Alto.

"It was not a great building. And these people are willing to step up and do what has to be done. Who else is going to do that?" Kraus said.

She also dismissed the notion that her new role may conflict in some ways with her prior role, which included dealing with the tenants' legal counsel. The tenants, she said, "did a good job in taking care of each other until the end." She said she didn't become an adviser for AJ Capital until late June, well after the eviction period.

Her changing role didn't sit well with everyone. Powers told Kraus at the meeting that she and other tenants were "heartbroken" to see Kraus involved in the hotel conversion.

"Why are you on the wrong side of this?" Powers asked Kraus.

"Stay tuned. It isn't all that it appears," Kraus replied.

"It appears to me like it's pretty much what it seems to be," Powers said. "I felt like I got socked in the gut when I heard you were on the other side of this."

Pemo Theodore, a former President Hotel tenant, said she was able to find a new apartment nearby. Her monthly rent has risen from $1,900 to $3,000, a situation that has subjected her to significant financial stress, she said.

"I think it's an affront for them to come here, after the way they treated us," Theodore said of AJ Capital. "And now they're deciding to build a community here? Wouldn't it be better to start that way, rather than trying to salvage a sinking ship?"

"You can't make a community with money," she added.

---

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Comments

45 people like this
Posted by Help Preserve Housing
a resident of Crescent Park
on Oct 30, 2019 at 3:41 am

Thank you Palo Alto Weekly for covering this story. We need housing, not hotels. AJ Capital has no permit to convert the building and yet evicted all the existing tenants. Now we read that was part of some absurd legal maneuver that seems unlikely to even work. That alone speaks volumes as to the true character of AJ Capital.

Developers have been able to push their weight around in City Hall for years. They've ignored zoning laws and finagled huge exemptions worth millions of dollars. The President Hotel story shows the tragic consequences of letting developers run the city and flout our laws. So it's heartwarming to see outraged residents working to turn this around. Let's insist the City finally enforce its own laws and preserve the building as much-needed housing.


35 people like this
Posted by Resist
a resident of Another Palo Alto neighborhood
on Oct 30, 2019 at 8:08 am

It would take at least $45 million to replace the hotel's 75 units of housing while AJ would get millions of dollars for Transferable Development Rights in return for doing the seismic upgrade and historic restoration. AJ wins and Palo Alto loses. Another buyer of this building would likely do both upgrades given the value for doing so.

We don't need another hotel - more of those are in the pipeline. We need to save the housing we have. The city council and City Attorney must remember this and stand strong against AJ's schemes to convert to a hotel. The city's focus must stay housing, not on AJ's threats, end runs and profit margin.

Clearly this hotel conversion will continue to get the resistance it deserves. When you kick 70 some Palo Altans out of their homes, then also want to eliminate the homes, that seems the only appropriate response. Resist!







25 people like this
Posted by "donation" to TMA?
a resident of another community
on Oct 30, 2019 at 8:14 am

Aren't downtown businesses required to join and contribute to the TMA anyways? If so, sounds like AJ is trying to pose as a generouus philantropist....by simply paying its dues?
By that measure we should all give ourselves a pat in the back ..... comes April 15 every single year :)


38 people like this
Posted by Lulu
a resident of Palo Alto High School
on Oct 30, 2019 at 9:01 am

Michelle Kraus was former Hotel President tenant and was also a wanna be city council candidate back in 2016 and now, working for AJ Capital.

Steve Emslie and Richard Hackmann, both former city employees, consulting for AJ Capital.

Their PR methods are not working. The community sees through their deception.


25 people like this
Posted by Marrol
a resident of Embarcadero Oaks/Leland
on Oct 30, 2019 at 9:05 am

Times and demographics change. The new owners should be able to convert THEIR property into whatever best suits their needs. They have made the substantial investment, incur the liability, and as a property owner should not be dictated as to how or when to develop that investment. Nothing unreasonable about developing this property into a hotel. It's located in a commercial area. There are several other hotels in the downtown area. Why should they be denied, especially on a rental property? The current tenants have no ownership rights. If any of the critics wanted to maintain The President as a rental property then they should have outbid the current owners and bought it. If that were the case I would equally defend their right as a property owner to do so.


7 people like this
Posted by Marc
a resident of Midtown
on Oct 30, 2019 at 9:22 am

Why was no one upset when Casa Olga was closed and converted to the Epiphany Hotel or Palo Alto Hotel was converted to Hotel Keen?

/marc


32 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Oct 30, 2019 at 9:36 am

Online Name is a registered user.

Marc, lots of people were upset about the conversion of Casa Olga into the totally under-parked Epiphany, Now we've got AJ Capital with a 200-car parking space deficit. Surely one of our virtue-signaling officials will be along shortly to tell us it's just fine for hotels to be car-light because all their guests and workers commute via broomstick.


24 people like this
Posted by Resist
a resident of Another Palo Alto neighborhood
on Oct 30, 2019 at 9:49 am

"donation to TMA?" above, makes a good point. AJ, according to its own material, will make a "charitable contribution" to the Transportation Management Association (surely TMA is not a legal charity.) But elsewhere in the material it says it will pay into the TMA to help for transportation alternatives for employees. It's PR double-dipping.

Also noted is AJ needs the city council to approve its Parking Transportation Management Program -Ah Ha! Now we see what this giving to TMA is really about. AJ makes just one payout to TMA to try to make us think it is full of beneficence, while really it's all about getting its lousy project approved.

Finally, so disappointed that Downtown Streets Team folks had a table there, handing out sox for attendees to distribute to homeless people. What a gobsmacking irony for a group that helps the homeless to be supporting AJ by by participating in its open house. The very tenants that it displaced were there confronting AJ, and Streets Team was offering sox.


14 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Oct 30, 2019 at 11:32 am

Posted by Marrol, a resident of Embarcadero Oaks/Leland

>> The new owners should be able to convert THEIR property into whatever best suits their needs.

Wrong. Every property owner (e.g., you, or your landlord, me, or my landlord) is subject to zoning. Don't like the zoning in town A? Move to town B. You were speaking in generalities, so, I'm answering in generalities. Note that the city of Houston, TX, famously did not have zoning. OBTW, instead, they used "covenants"** to contractually restrict property use in much the same way as zoning. Because, most people don't want to buy a house next to an orchard and then have the owner build a pig sty. Even people who like pork don't necessarily want to live next to a pig sty. (The classic zoning example.)

Posted by Marc, a resident of Midtown

>> Why was no one upset when Casa Olga was closed and converted to the Epiphany Hotel

You are kidding, right?

--

** Web Link


25 people like this
Posted by mauricio
a resident of Embarcadero Oaks/Leland
on Oct 30, 2019 at 11:39 am

mauricio is a registered user.

When voters keep voting in council members who carry water for developers, they shouldn't be surprised at what follows. Voting for candidates because of name recognition in spite of their voting record and letting them get away with falsely representing their platform help to diminish democracy. The chickens are coming home to roost because voters aren't educating themselves before they vote.


4 people like this
Posted by Barbara
a resident of Downtown North
on Oct 30, 2019 at 12:39 pm

Let the hotel conversion be a "GO"!! Why more housing? With it comes more autos which overgrown Palo Alto does NOT need!


17 people like this
Posted by Hotel occupants use autos.
a resident of Duveneck/St. Francis
on Oct 30, 2019 at 1:00 pm

Hotel occupants use autos. is a registered user.

To Barbara,

People who stay in hotels don't use autos? Uber, cab, Lyft trips count as an auto trips...as well as limo pick-ups from nearby companies.

NYC is drowning in these trips. It's a problem that city is struggling to manage.


9 people like this
Posted by Let me see
a resident of College Terrace
on Oct 30, 2019 at 1:23 pm

We have a big problem with downtown congestion but AJ Capital is proposing valet parking which doubles the traffic impact!


2 people like this
Posted by commonsense
a resident of Professorville
on Oct 30, 2019 at 3:22 pm

commonsense is a registered user.

It was idiotic for AJ to buy this thinking approvals would be easy. However, it’s not fair to vilify them for trying to turn what was originally a hotel back into a hotel. The housing crisis is not their making and losing 70 units will have minimal effect on the problem. PALO alto needs to spend more energy on approving more housing and increase the height limit. Otherwise, This is all just noise and the affordability issue will continue for many decades


2 people like this
Posted by Midlander
a resident of Midtown
on Oct 30, 2019 at 4:58 pm

Midlander is a registered user.

Dear Palo Alto Online,

Roughly how many people were present at the protest? From the photos, I can count about six (including the dog). Is that way off, or in the right ballpark?

The size (or lack of size) of the demonstration doesn't really affect the core issues, but if you're going to mention a protest, it would be helpful to have a sense of scale.


5 people like this
Posted by Citizen
a resident of Community Center
on Oct 30, 2019 at 9:28 pm

No, more housing is not what we need. We have a housing affordability crisis, not a lack of housing. And a lack of income. As the article mentions,these former president hotel tenants found places to live. It's just that they have to pay more, and of course they prefer to pay under market. Well, they were lucky to pay under market for years. Maybe they could count their blessings.


8 people like this
Posted by I was there
a resident of Evergreen Park
on Oct 30, 2019 at 11:05 pm

Midlander,the photos are misleading, there were quite a number of protesters there before the meeting, then some left and others arrived. Some went in to the meeting, then came out and joined or chatted with the sign-holders. I would guess a total of 25.


13 people like this
Posted by Greenacres
a resident of Green Acres
on Oct 30, 2019 at 11:42 pm

All I can do is shake my head. If Palo Alto housing advocates were a little more willing to think about how conditions have changed in the new Bay Area tech economy, they would realize that protecting affordability means *protecting* and strengthening, not weakening zoning.

Housing spots are not interchangeable with displaced low- and regular-income people. The fact that AJ Capital clearly believed it could defeat zoning is the only reason those longtime residents lost their homes. Redevelopment is brutal when it comes to displacement. Even if they don't build a hotel, any housing that goes there now be for high-income, new tech workers, with a few scraps for people who are designated low-income but probably making more than the people who were booted. Advocates will be appeased because they think (sadly, delusionally, and despite all evidence to the contrary) that density is a proxy, always, for affordability. There is no way to reverse this now, and that's a terrible shame.


4 people like this
Posted by Me 2
a resident of Old Palo Alto
on Oct 31, 2019 at 9:55 am

"I would guess a total of 25."

LOL. In a town of over 67,000 residents, less than .04% of the population showed up to protest.


3 people like this
Posted by I was there
a resident of Evergreen Park
on Oct 31, 2019 at 12:46 pm

Me too, meaningless comparisons to make you sound educated.
Most people didn't even know about this charade and aren't likely to go out on a cold evening to demonstrate.
But they do recognize a greedy, heartless, corrupt, developer.


4 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Oct 31, 2019 at 1:02 pm

>> "Advocates will be appeased because they think (sadly, delusionally, and despite all evidence to the contrary) that density is a proxy, always, for affordability. "

No amount of actual evidence seems to convince these folks. It seems to be a new kind of religion. I just wish they could focus their love of high-rises on some location where people actually want the high-rises, and are willing and able to pay the rent in those new high-rises. Of course, in one location I happen to know something about, the majority of units are owned by investors who live in other places. "Supply and demand" actually does work, it just doesn't work the way they think it does.


13 people like this
Posted by Vip
a resident of Adobe-Meadow
on Oct 31, 2019 at 5:21 pm

Me2- it got big coverage in the weekly because winter Dellanbach was there protesting. She is a PA weekly preferred VIP.


Like this comment
Posted by Mark Weiss
a resident of Downtown North
on Oct 31, 2019 at 9:52 pm

Mark Weiss is a registered user.

Did they have an Anne Bancroft impersonator seducing a Dustin Hoffman double?


12 people like this
Posted by Revolving Door
a resident of Another Palo Alto neighborhood
on Nov 1, 2019 at 6:33 am

The perfidy of Michele Kraus is noted, but a related issue was missed - that of Steve Emslie and Richard Hackman. Both are former Palo Alto city employees and both sold their services to AJ Capital to grease the skids for getting rid of the tenants and converting to hotel use.

So we paid these two to work for us, they gained valuable experience doing so, walked through the revolving door, then sold that experience, their contacts, knowledge, and souls to the AJ bunch.

So how's that going for you, Steve, Richard and Michele? Over 70 tenants kicked out of their homes, first application to the city to convert denied, major legal obstacles and community opposition facing you, and bungled PR with local non-profits. I'd say some well deserved karma is catching up with you.


5 people like this
Posted by anon
a resident of Evergreen Park
on Nov 1, 2019 at 9:46 am

Sure the local turncoats look bad, but the real culprit is AJ capital and whatever city staff and/or electeds lead AJ to believe their scheme was in any way legal.
So lets get to the bottom of that....maybe the Weekly can investigate?

Lets not forget when Jim Keene without any authority to do so "sold " a public park to Palantir for two weeks for a TINY sum!
Astonishing what we put up with in this city.


2 people like this
Posted by Citizen
a resident of Community Center
on Nov 1, 2019 at 10:28 am

I'm sorry, but these are rental apartments. The owner changed hands. The owner wants to repurpose the property for another use. It's unfortunate, but lifelong access and use of someone else's property is not a guarantee.


6 people like this
Posted by PAer
a resident of Crescent Park
on Nov 1, 2019 at 10:48 am

Very sad that the very people that have blocked any sort of real housing growth in Palo Alto are now crying that this hotel is being converted back to a hotel. Rather than fighting development and building housing over the past 60 years, they stand in the street and protest, then drive back to their mansions in cresent park. if they really cared they'd be rent out extra rooms for the displaced folks, but nope. they don't care about the evicted, they care that it may take them an extra minute to find a parking place.
seeing as even the a mediocre Hilton is $500 a night on week nights, I think Palo Alto could use several new hotels.
The rent is too damn high and you'all know who caused it. Hint -- it's not the developer nor the city council.


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