Seeking to ensure that recently approved housing projects actually get built, Palo Alto is preparing to extend the expiration period for planning entitlements — a move meant to give developers more time to line up financing and prepare for construction.
The immediate goal of the extension is to preserve two recently approved projects: a three-unit development at 3585 El Camino Real and a 102-apartment project at 788 San Antonio Road. The planning entitlements for the two projects are set to expire in December and in January, consistent with the 12-month timeline in the city code. The extension will give the developers another 18 months to line up their building permits.
In proposing the move, staff from the Department of Planning and Development Services cited the ongoing challenges that developers are facing as they try to build residential projects. These include high interest rates as well as high costs of labor and supplies.
These issues also came up on Nov. 13, when the council was approving a series of zone changes to allow more building height and greater density in several sections of the city, including around San Antonio Road and on a segment of El Camino Real, between Page Mill Road and Matadero Avenue. Those actions, much like the proposed extension, aim to help developers overcome regulatory barriers and help the city meet its state-mandated goal of producing 6,086 dwellings by 2031.
During the Nov. 13 discussion, Council member Pat Burt warned that some developers may have a hard time pursuing new projects given the challenging economic environment.
"Those projects that have financing are moving forward, but we are likely to see as a region a significant downturn in the next several years of new projects breaking ground until interest rates come back — not to where they were, but just off this very high level," Burt said.
City planners had initially proposed extending the entitlement period either by 18 months or until the state Department of Housing and Community Development (HCD) approves the city's Housing Element, which documents the city's strategies for producing the required housing. The state agency has twice rejected the city's submissions, including the Housing Element that the council formally adopted in May. City staff is now revising some of the policies and considering additional housing sites, including the ones along El Camino.
The council's Policy and Services Committee swiftly approved on Nov. 14 the proposal from Planning Director Jonathan Lait to grant the extension. To simplify the proposal, the committee also agreed that the extension should be for 18 months, regardless of when the HCD certifies the city's housing plans.
"The home-building environment remains somewhat volatile with interest rates and construction costs, so some of these projects have not moved to the building permit phase of the entitlement processing," Lait told the committee on Nov. 14.
He also noted in a report that the proposed ordinances to extend the planning entitlement period "further the council's goals as expressed in the city's adopted housing element and mitigates the potential loss or delay of planned housing unit production in Palo Alto."
Megan Watson, director for development at Grubb Properties, applauded the move. Grubb bought the property at 788 San Antonio Road in July 2022 and submitted a building permit application in December 2022 to construct a 102-apartment project.
The City Council had approved the planning entitlement for the housing project in November 2020, well before Grubb bought the property.
But after submitting the permit application last December, Grubb made the decision in April to put the application process on hold, Watson wrote. As the reason for the suspension, she cited "worsening economic conditions in the construction financing sector unfolding across the country."
Grubb is now working with the planning department to "find comprehensive solutions to maintain the economic viability of this housing project."
With the entitlement expiring on Jan. 6, 2024, Watson requested an extension to July 6, 2025.
"Approval of this request allows our respective parties to continue coordination efforts on the feasibility of this housing project at 788 San Antonio Road," she wrote.
She also urged the committee on Nov. 14 to remove the option of having entitlements expire when the HCD approves the city's housing plans.
"Once the HCD does certify, we would still be left in the same position of still having a project that's potentially unentitled and still having to seek a new project approval, which is specifically called out as imposing additional time and cost, which we're trying to prevent here," Watson said.
The committee acceded to her request and approved the proposal, which has a sunset date of Dec. 31, 2024. Council member Vicki Veenker also recommended a requirement showing that these extensions should only be granted at the planning director's discretion when an applicant has demonstrated "good cause."
"It seems like a little bit of a no-brainer, given our strong priority for promoting housing and the housing crisis we're facing," Veenker said.
Planning Director Jonathan Lait stressed that the extension is meant to be a short-term measure and that the city is not making any changes to the city's code that would permanently alter the approval process.
"Hopefully, folks are keeping an eye on their entitlement expiration dates and being mindful and coming in for extension if this is something that would work for them," Lait said.