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Despite signs of promise, Palo Alto's newest housing tool fails to deliver

Developers pitched nearly 700 new units under 'planned home zone.' Not a single project advanced.

Far Western Land & Investment had proposed building 290 apartments to a commercial site at 3997 Fabian Way in Palo Alto by relying the city's newly created "planned home zone." After receiving negative feedback from the City Council, it did not file a formal application. Rendering by Architects Orange.

When Palo Alto created the "planned home" zoning designation in 2020, city leaders saw it as a promising tool for addressing the utter lack of housing applications and helping the city meet its goal of producing 300 dwellings per year.

Under "planned home" zoning, residential developers can exceed development standards such as height limits, density restrictions and setback requirements in exchange for that rarest of commodities: new housing.

In that sense, it functioned much like the city's old "planned community" zone, which allowed developers to haggle with the City Council over public benefits and zoning exemptions. The main differences were that the new planned home zone applied specifically to residential projects and that the public benefit would be clearly defined as housing.

Since then, the city has received pitches from developers for a variety of zone-busting housing projects in different parts of town. The projects have ranged in size from 24 apartments in a single-family zone in College Terrace to a 290-apartment complex in an industrial area on Fabian Way. When combined, these projects carried the potential to add nearly 700 dwellings to the city's housing stock, according to data from the Department of Planning and Development Services.

The potential, however, has not been realized. To date, not a single developer who proposed a planned-home zone project has actually advanced a project, Planning Director Jonathan Lait said earlier this month. As a result, the city only approved 95 new dwellings in 2021, of which 89 are accessory dwelling units, Lait told the council during its annual retreat on Feb. 5.

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"I think at this point, we don't have confidence that any of them are moving forward at this time," Lait said.

The developers' reasons for not proceeding with applications vary. In some cases, the decision to abandon the projects was based on negative feedback. The process is inherently a negotiation and in several cases the council decided that the proposal represented a bad deal for the city. In other cases, developers cited economic factors or complications with putting a feasible project together.

Cato Investments proposed a 24-apartment project at 2239 and 2241 Wellesley St. in Palo Alto. Photo taken Feb. 9, 2021 by Magali Gauthier.

The proposal from Cato Investments for a 24-apartment complex at 2239 Wellesley Ave. falls squarely in the former camp. Even though the proposal was the smallest of those received in terms of the number of units, its location in a single-family neighborhood made it a tough sell politically. With neighbors rallying against the project, the council made a point of clarifying last April that the planned-home zone would not be allowed in single-family zones, effectively killing the Cato project.

After the council took that action, Cato representative Cynthia Gildea accused the city in a letter of "changing the rules in the middle of the game."

"While the City Council continues to pay lip service to the housing crisis, this action sends the message to housing developers that Palo Alto is not a place to build," Gildea wrote.

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At other times, the council deemed the location for a planned-home zone project suitable but concluded that the project was either too large or did not offer enough apartments at below-market-rate.

When Jeff Farrar proposed a 62-foot-tall building with 290 apartments at a commercial site on 3997 Fabian Way, council members pointed to both factors to explain their opposition. Tom DuBois spoke for most of his council colleagues when he called the project "very aggressive" and suggested that it "pushes too far." Pat Burt said he would support a "significant project" at the Fabian Way site but called it excessive.

"I'm not closed-minded to a significant project here, but I think it needs to be not breaking the bank," Burt said.

A look at projects that have applied under the city's "planned home zone" as of Feb. 17, 2022. Map by Jamey Padojino.

Other developers pointed to economic factors as central to their decision not to proceed. Architect Heather Young received generally positive feedback from the council last May after she pitched a mixed-use project with 36 studios and 6,000 square feet of office space at 955 Alma St. Though some council members argued that the project should have a larger affordable-housing component, they generally agreed that the building's location near downtown and the Town & Country Village shopping center made it well-suited for the type of project that Young had proposed on behalf of property owner John Tarlton. Council members also said they would support height increases to make the project possible.

Despite this feedback, Tarlton opted not to move ahead with the project at this time, Young said in an email.

"At this point it's economically infeasible to build, but we're cautiously optimistic that with the new and upcoming State and Assembly Bills there will be a path forward for the property as a mixed-use development," Young said.

Acclaim Companies also received plaudits from the city for its proposal to build 113 apartments in the Ventura neighborhood as part of a mixed-use development that consolidates three parcels at El Camino Real and Olive Avenue.

The Menlo Park-based developer revised and slightly scaled down its proposal after getting a mixed reaction in October 2020. The project it presented in January 2021 consisted of 24 studios, 65 one-bedroom apartments and 24 two-bedroom apartments, with 23 dwellings being offered at below market rate.

"I think this is the kind of proposal we asked for when we talked about this planned housing zone," DuBois said during the council's review of the project in January 2021.

Since then, however, the project has run into complications. Gary Johnson, vice president at Acclaim Companies, told this news organization that the company has not been able to pursue its plan to combine the parcels because a property owner who was initially on board did not follow through. At the same time, the company has been dealing with escalating construction costs and constraints in the supply chain.

"There have been a few times in my life where I've been really excited about a project and that has been one of them," Johnson said in an interview. "It's heartbreaking that the project has not been able to go ahead."

He said the company continues to hold out hope that the project will come together in the future. And while he expressed some concern about Palo Alto's recent move to increase affordable-housing impact fees for residential developers, he said he looks forward to working with the council on future housing projects.

"There are so many great opportunities that are ahead of us in the city of Palo Alto," Johnson said.

While the city saw an early wave of planned-home proposals just after the zoning designation was created, Lait said that the city is currently not processing any applications from developers looking to utilize the city's new zoning tool.

"I think it's probably a combination of the economy and COVID has put a little bit of a wild card into some of these applications. Others were maybe looking for a little more incentive than the program was anticipated to provide," Lait said.

"I've had a conversation with a couple of property owners. We may get a couple of more that may be forthcoming, but as of now we're not actively working on any of them and I don't have a sense that any of them will be going forward."

While most developers have dropped their proposals without filing a formal application, there is one exception: in December, the company Smith Development applied to build a four-story, 70-apartment complex at 660 University Ave., with 20% of the units designated for affordable housing. The project has yet to go through the city's formal review process, but last October the council gave generally positive feedback to the developer during an informal pre-screening hearing. Council member Alison Cormack noted that the project, which combines three parcels near Middlefield Road, fits in wither other surrounding multi-family buildings.

"I think this is a thoughtful proposal," Cormack said at the hearing. "I think it's in the right place."

Editor's note: This story was revised to clarify that contrary to Planning Director Jonathan Lait's comments at the retreat, one developer did move forward with a formal application for a PHZ project. The proposal at 660 University Ave. has yet to go through the city's approval process.

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Gennady Sheyner
 
Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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Despite signs of promise, Palo Alto's newest housing tool fails to deliver

Developers pitched nearly 700 new units under 'planned home zone.' Not a single project advanced.

by / Palo Alto Weekly

Uploaded: Thu, Feb 17, 2022, 8:55 am

When Palo Alto created the "planned home" zoning designation in 2020, city leaders saw it as a promising tool for addressing the utter lack of housing applications and helping the city meet its goal of producing 300 dwellings per year.

Under "planned home" zoning, residential developers can exceed development standards such as height limits, density restrictions and setback requirements in exchange for that rarest of commodities: new housing.

In that sense, it functioned much like the city's old "planned community" zone, which allowed developers to haggle with the City Council over public benefits and zoning exemptions. The main differences were that the new planned home zone applied specifically to residential projects and that the public benefit would be clearly defined as housing.

Since then, the city has received pitches from developers for a variety of zone-busting housing projects in different parts of town. The projects have ranged in size from 24 apartments in a single-family zone in College Terrace to a 290-apartment complex in an industrial area on Fabian Way. When combined, these projects carried the potential to add nearly 700 dwellings to the city's housing stock, according to data from the Department of Planning and Development Services.

The potential, however, has not been realized. To date, not a single developer who proposed a planned-home zone project has actually advanced a project, Planning Director Jonathan Lait said earlier this month. As a result, the city only approved 95 new dwellings in 2021, of which 89 are accessory dwelling units, Lait told the council during its annual retreat on Feb. 5.

"I think at this point, we don't have confidence that any of them are moving forward at this time," Lait said.

The developers' reasons for not proceeding with applications vary. In some cases, the decision to abandon the projects was based on negative feedback. The process is inherently a negotiation and in several cases the council decided that the proposal represented a bad deal for the city. In other cases, developers cited economic factors or complications with putting a feasible project together.

The proposal from Cato Investments for a 24-apartment complex at 2239 Wellesley Ave. falls squarely in the former camp. Even though the proposal was the smallest of those received in terms of the number of units, its location in a single-family neighborhood made it a tough sell politically. With neighbors rallying against the project, the council made a point of clarifying last April that the planned-home zone would not be allowed in single-family zones, effectively killing the Cato project.

After the council took that action, Cato representative Cynthia Gildea accused the city in a letter of "changing the rules in the middle of the game."

"While the City Council continues to pay lip service to the housing crisis, this action sends the message to housing developers that Palo Alto is not a place to build," Gildea wrote.

At other times, the council deemed the location for a planned-home zone project suitable but concluded that the project was either too large or did not offer enough apartments at below-market-rate.

When Jeff Farrar proposed a 62-foot-tall building with 290 apartments at a commercial site on 3997 Fabian Way, council members pointed to both factors to explain their opposition. Tom DuBois spoke for most of his council colleagues when he called the project "very aggressive" and suggested that it "pushes too far." Pat Burt said he would support a "significant project" at the Fabian Way site but called it excessive.

"I'm not closed-minded to a significant project here, but I think it needs to be not breaking the bank," Burt said.

Other developers pointed to economic factors as central to their decision not to proceed. Architect Heather Young received generally positive feedback from the council last May after she pitched a mixed-use project with 36 studios and 6,000 square feet of office space at 955 Alma St. Though some council members argued that the project should have a larger affordable-housing component, they generally agreed that the building's location near downtown and the Town & Country Village shopping center made it well-suited for the type of project that Young had proposed on behalf of property owner John Tarlton. Council members also said they would support height increases to make the project possible.

Despite this feedback, Tarlton opted not to move ahead with the project at this time, Young said in an email.

"At this point it's economically infeasible to build, but we're cautiously optimistic that with the new and upcoming State and Assembly Bills there will be a path forward for the property as a mixed-use development," Young said.

Acclaim Companies also received plaudits from the city for its proposal to build 113 apartments in the Ventura neighborhood as part of a mixed-use development that consolidates three parcels at El Camino Real and Olive Avenue.

The Menlo Park-based developer revised and slightly scaled down its proposal after getting a mixed reaction in October 2020. The project it presented in January 2021 consisted of 24 studios, 65 one-bedroom apartments and 24 two-bedroom apartments, with 23 dwellings being offered at below market rate.

"I think this is the kind of proposal we asked for when we talked about this planned housing zone," DuBois said during the council's review of the project in January 2021.

Since then, however, the project has run into complications. Gary Johnson, vice president at Acclaim Companies, told this news organization that the company has not been able to pursue its plan to combine the parcels because a property owner who was initially on board did not follow through. At the same time, the company has been dealing with escalating construction costs and constraints in the supply chain.

"There have been a few times in my life where I've been really excited about a project and that has been one of them," Johnson said in an interview. "It's heartbreaking that the project has not been able to go ahead."

He said the company continues to hold out hope that the project will come together in the future. And while he expressed some concern about Palo Alto's recent move to increase affordable-housing impact fees for residential developers, he said he looks forward to working with the council on future housing projects.

"There are so many great opportunities that are ahead of us in the city of Palo Alto," Johnson said.

While the city saw an early wave of planned-home proposals just after the zoning designation was created, Lait said that the city is currently not processing any applications from developers looking to utilize the city's new zoning tool.

"I think it's probably a combination of the economy and COVID has put a little bit of a wild card into some of these applications. Others were maybe looking for a little more incentive than the program was anticipated to provide," Lait said.

"I've had a conversation with a couple of property owners. We may get a couple of more that may be forthcoming, but as of now we're not actively working on any of them and I don't have a sense that any of them will be going forward."

While most developers have dropped their proposals without filing a formal application, there is one exception: in December, the company Smith Development applied to build a four-story, 70-apartment complex at 660 University Ave., with 20% of the units designated for affordable housing. The project has yet to go through the city's formal review process, but last October the council gave generally positive feedback to the developer during an informal pre-screening hearing. Council member Alison Cormack noted that the project, which combines three parcels near Middlefield Road, fits in wither other surrounding multi-family buildings.

"I think this is a thoughtful proposal," Cormack said at the hearing. "I think it's in the right place."

Editor's note: This story was revised to clarify that contrary to Planning Director Jonathan Lait's comments at the retreat, one developer did move forward with a formal application for a PHZ project. The proposal at 660 University Ave. has yet to go through the city's approval process.

Comments

Sunny Living
Registered user
Midtown
on Feb 17, 2022 at 9:56 am
Sunny Living, Midtown
Registered user
on Feb 17, 2022 at 9:56 am

Obstruction. Call it what it is. Anyone who has done battle with Palo Alto's planning department knows the lengths the city will go to in order to avoid development.


ALB
Registered user
College Terrace
on Feb 17, 2022 at 11:13 am
ALB, College Terrace
Registered user
on Feb 17, 2022 at 11:13 am

The thesis statement here is applications from developers are not being submitted.
To place blame on the city for not building housing is incorrect. PHZ was never intended for R1 and the investment firm, Cato LLC knew that when they tried to set a precedent for the entire city when this 24 apartment proposal was pitched. It was the wrong place. It would have been suited for the El Camino Real.

What is the real story here? Did these developers have difficulties getting bank loans?

It is not fair to say that the city is at fault for the lack of housing.


anon
Registered user
College Terrace
on Feb 17, 2022 at 11:16 am
anon, College Terrace
Registered user
on Feb 17, 2022 at 11:16 am

To the commenter above Sunny Living:
According to Senior Planner Jodie Gerhardt with the city of Palo alto planning Department "99 % of applications the city receives are approved."
The city's planning department does not try to obstruct development.

The article makes it clear that some projects proposed under the PHZ zoning were withdrawn by the applicant. Probably because of a variety of reasons ; bank loans not available, cost of materials has skyrocketed and the shortage nationwide of workers in the building trades , or site acquisitions that didn't pan out.

Some projects such as the Cato Project 24 unit apartment building proposed in a single family zone were considered inappropriate for the location. The Cato project would have been a good "model " for another location as it was all housing with no new Office added; proving that an all residential project is financially viable!!!


Online Name
Registered user
Embarcadero Oaks/Leland
on Feb 17, 2022 at 11:33 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Feb 17, 2022 at 11:33 am

"According to Senior Planner Jodie Gerhardt with the city of Palo alto planning Department "99 % of applications the city receives are approved."
The city's planning department does not try to obstruct development.

That's the understatement of the decade; look at how they've jumped through hoops for Casti.

As for a PA tool not working, not surprised. How many times has PA announced they announced the launch of their app to track road work and construction to help us avoid traffic delays? Anyone else tried the new Crime Tracker tool?


Sunny Living
Registered user
Midtown
on Feb 17, 2022 at 1:49 pm
Sunny Living, Midtown
Registered user
on Feb 17, 2022 at 1:49 pm

Have any of you actually worked with the city on a project? I've done a residential project and also a commercial office. I'm not a large scale developer or expert, just a resident who also works here. That said, doing anything with the city of Palo Alto is like pulling teeth. Saying something like "99% of projects are approved" ignores the scope reduction and delays required to play ball with the city. By the time you do that scope reduction, many projects no longer make sense. In addition, residents have weaponized comment periods and environmental review to avoid any slight inconvenience that might affect them. You see the evidence of these fundamental issues spread out across many high visibility projects. The Castilleja back and forth has been going on for years. Cubberley just got pulled again. If Palo Alto (and its residents) wanted more housing, they would operate very differently.

Just look at the results. 6 new homes in Palo Alto built in 2021 (we all know those ADUs are primarily being used as WFH offices). Does no one else see a problem with that? Sure. Maybe these specific residential projects all failed because banks pulled funding (read the quotes, people are implying it was a bigger issue than that), but *6* new houses, even *95*, if you give those ADUs the benefit of the doubt, in a city our size and density is absurd.

I want more housing in Palo Alto. Normal people can't live here - I have multiple friends who work in the Stanford medical system who can't afford a place in Palo Alto, WTF people. I would like our council to find ways to encourage development of new housing and to welcome developers. That means taking a hard look at the way the city works and driving reform. We can't let ourselves stagnate just because so many of you are afraid of progress. I welcome state intervention at this point, it's clearly the only path forward to build the housing we need.


Resident 1-Adobe Meadows
Registered user
Adobe-Meadow
on Feb 18, 2022 at 6:11 pm
Resident 1-Adobe Meadows, Adobe-Meadow
Registered user
on Feb 18, 2022 at 6:11 pm

One answer is obvious-Sunny wants PA to provide housing for people working at SU. The one organization that has land to build on is SU. SU has a huge amount of land - why do their employees have to look for housing in PA? SU was going to build in Portola Valley but PV put up a big stink about that - now sure what that outcome is.

Time for SU to be on the hook for building more housing for people that work at their facilities.

Does ABAG see SU as a separate entity for building? Or is ABAG making PA accountable for SU's hiring practices and land management practices? Someone needs to take on the facts concerning land management accountability regarding SU and PA. Why should our quality of life be on the hook for what SU does - or does not do. They are the only ones here who have land that qualifies for development.

Oh - and check out if they plan on electricity only facilities. The big crunch is the cost of the utility systems - water, sewer, electricity hook-ups. Just laying those basic elements is a huge expense. People think it is just plunking a house on the land - NO - big cost to put in the utility systems for undeveloped land. And SU would have to pay for that.


Online Name
Registered user
Embarcadero Oaks/Leland
on Feb 18, 2022 at 6:21 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Feb 18, 2022 at 6:21 pm

Why do you think more housing will make things more affordable when the pace of job creation and office construction still dramatically outpaces housing?

Has land gotten cheaper? Will more people competing for the same number of housing units reduce costs? How? Have building materials gotten cheaper?

As for working with the city, I still laugh at the hoops and amount of time my friendly plumber and I had to jump through to get the $25 promised rebate for a new water heater! The city wouldn't let the homeowner apply, only the plumber!

News flash: plumbers make more than $25 an hour!!


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