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.