The highly contentious proposal to convert the iconic President Hotel building in downtown Palo Alto from a residential complex to a boutique hotel could win approval later this month, despite Palo Alto's prior determination that the project would violate numerous zoning laws.
In a report he released Thursday night, City Manager Ed Shikada is recommending that the council approve the project that Chicago-based developer Adventurous Journeys Capital Ventures has proposed for the building at 488 University Ave. The recommendation is a significant change of direction for the city, which has spent several years advocating for more housing in downtown Palo Alto and which passed a law last year specifically banning conversion of residential space for non-residential use.
The City Council is scheduled to consider the recommendation on June 22.
The project has galvanized significant opposition since June 2018, when AJ Capital notified residents of the 75 apartments that they would have to leave the building. Residents and their supporters from the wider community attended numerous public hearings in 2018 and 2019, urging the council to preserve housing and to not allow the conversion. Planning Director Jonathan Lait also informed AJ Capital in a July 2018 letter that a city review had concluded that the establishment of a hotel as described "is impermissible based on existing regulations and site characteristics."
Lait wrote at the time that the proposed hotel would be "non-complying with respect to maximum building height and floor area requirements of the Municipal Code and perhaps other provisions as well."
The council added a fresh legal hurdle for the proposed conversion in April 2019, when it approved an ordinance banning conversion of "grandfathered" buildings (those that were built before the city had established height limits, density restrictions and other development standards) from residential uses to non-residential ones. The ordinance included a "waiver" provision that allows developers to seek exemptions from the law — a clause that critics argued would weaken the law.
Now, Palo Alto staff is arguing that the city should grant AJ Capital such a waiver, a key step toward allowing the conversion. David Lanferman, attorney for AJ Capital, argued in a letter that the city's prohibition against the change in use on a grandfathered facility from residential to non-residential use would be an "unconstitutional taking, in violation of both the federal and state constitutions, as applied against a property owner who has exercised its Ellis Act rights."
But even as he argued that the council's prohibition on the use change is illegal, notwithstanding the "waiver" clause, he also asked the council to approve the waiver for the President Hotel project. He pointed to staff's comments in June 2018, when the building was purchased by AJ Capital, that the conversion would be allowed "by right," a position that the city has since walked back.
"The record amply reflects that Adventurous Journeys justifiably relied on the City's established practices, interpretations of the zoning code, and public representations regarding the ability to restore and convert the Hotel President to lawful use as a commercial hotel 'by right,'" Lanferman wrote in a September 2019 letter.
The new report from Shikada appears to endorse this position. The proposed hotel use, Shikada's report states, "is consistent with the historic use of the property, which operated as a hotel from 1930 to 1968."
"The existing ground-floor retail uses at the subject property would mostly remain though modifications will be made to the ground-floor tenant spaces to accommodate a first-floor lobby for the hotel use," the report states.
The city's stunning reversal is a major coup for AJ Capital, which also scored a victory last month, when the Historic Resources Board approved his plans to rehabilitate the Birge Clark-designed building. The board, however, was focused exclusively on design features and not on land use.
Planning staff, however, is now arguing that the proposed use is consistent with the city's long-term plans for the area, notwithstanding the council's direction last year to ban conversion of residential uses to non-residential ones. Shikada's report notes that the Comprehensive Plan designates that site as "regional/community commercial," which is "intended to provide a wider variety of goods and services that the neighborhood shopping areas and include such uses as department stores, bookstores furniture stores, apparel shops, restaurants and non-retail services such as offices and banks." As such, the hotel conversion is consistent with the Comprehensive Plan, the staff report states.
And even though housing production is a stated goal for the City Council, the report from Shikada notes that the President Hotel building was never identified in the city's housing inventory.
"Therefore, the conversion of these units would not result in a loss of housing units that affects the City's RHNA targets," the report notes, citing the Regional Housing Needs Allocation process, which sets housing quotas for each city.
Staff is also proposing that AJ Capital be allowed to only provide 35 parking spaces, including 14 on-site and 25 off-site at 330 Everett Ave. That's well short of the 115 that staff says the project would have to include under the city code. The developer plans to pay "in-lieu fees" for the remaining 76 spaces, or about $106,171 per space (the price is expected to go up to $111,862 per space in August, according to the report).