It's not clear whether Adventurous Journeys Capital Partners (AJ Capital) did a terrible job at researching the zoning obstacles they would face when buying the 75-room President Hotel in 2018 or brashly thought they could just steamroll Palo Alto officials and residents into approving their conversion of an apartment building back into a hotel.
But the privately held firm, which has developed some 20 hotels in college towns since its Graduate Hotels chain was started in 2014, has now opted to pursue a transactional strategy of pledging $2.4 million to popular community organizations if it can win approval of its project.
Saying it wanted to become part of the "fabric of the community," the company recently published a slick, 43-page promotional brochure describing its vision for the renovation of the now-empty University Avenue apartment building and hosted an "open house" Tuesday at Il Fornaio to chat up the public and answer questions. Guests, many of whom oppose the conversion, enjoyed free wine and appetizers as a handful of protesters carried signs outside.
Ironically, among the promised recipients of a million dollars is Palo Alto Housing, the nonprofit housing developer that should be leading the opposition to the loss of rental housing that would result from the President's conversion to a hotel. Other announced potential beneficiaries of AJ Capital's "philanthropy" are the Downtown Streets Team, Palo Alto Partners in Education, the Palo Alto History Museum and the Palo Alto Transportation Management Association.
None of these organizations have announced support for the President Apartment project, and several said the donations being pledged were not being viewed as firm commitments because they were contingent on AJ being issued a building permit. A footnote in the AJ Capital brochure makes similar qualifiers.
Offers of cash in exchange for zoning changes may have been a successful strategy for AJ Capital in other projects, but it would be unprecedented in Palo Alto. While development proposals are usually required to mitigate their impacts through fees and, sometimes, negotiated infrastructure improvements, community benefits unrelated to the development have been limited to special "planned community" developments where such benefits were required. Partially because of the appearance that developers were just paying money for the right to exceed zoning requirements, this practice was halted by the City Council several years ago.
Facebook has made many donations to nonprofits in the east Menlo Park and East Palo Alto communities prior to seeking approvals of its various developments from the Menlo Park City Council, hoping that such philanthropy will create good will. But it has not conditioned such gifts to specific approvals.
AJ Capital is therefore plowing dangerous ground as it both curries favor among some Palo Alto nonprofits and prepares for a legal challenge against Palo Alto's zoning laws.
City zoning requires 200 parking places for a hotel of this size, and only 10 spaces currently exist. That total can be cut through the use of valet parking and incentives for restoring an historic building, but even with those measures there would be a large parking deficit, and potential in-lieu parking fees could reach $10 million.
In addition to the parking problem, the city passed an ordinance in April banning the conversion of residential uses to non-residential ones. AJ argues this doesn't apply to them because it took effect after all the tenants had moved out, rendering the apartments no longer a residential use. Such logic would mean that any apartment building property owner could simply allow a building to become vacant and then proceed with converting it to non-residential use. That is clearly not the intent.
But besides these and other legal obstacles, the conversion would eliminate badly needed housing at a time when housing creation and protection is a top city priority. By all accounts, AJ Capital is a quality developer whose recent hotel projects in college towns have been tasteful and well-received. If Palo Alto was short on hotels and the preservation of moderately priced housing was not such an urgent need, it might be the ideal developer of such a project.
"Where others see challenges, we see opportunity" is the prominent slogan on the AJ Capital website. In this case, AJ has miscalculated. Having acquired the President Hotel apartment building assuming it could woo support for its concept, zoning be damned, it should hear loudly and clearly that project approvals in Palo Alto aren't for sale, nor are our nonprofits going to be pawns in a quid pro quo for their support.