It is ironic that at the very time the city is promoting a community discussion about the future of the area surrounding the University Avenue train station it would even consider giving up a lease that gives it substantial influence and control over the site.
But that is what the Palo Alto city staff is recommending to the City Council and that will be reviewed by the Council’s policy committee next week.
A complicated agreement with Stanford dating back to 1981 gives Palo Alto control over almost 3 acres that includes the train station and the bus transit center and parking areas around it. The lease runs another 19 years, until 2033. The train station itself was built and had been owned by Southern Pacific until 1981, when it gave it to Stanford, which then turned around and leased it to the city.
Since then, the city has been subleasing the building and land to the Santa Clara Valley Transportation Authority (VTA), which uses the property as its northernmost bus transportation hub and, in turn, subleases the train depot to a coffee house and a bike shop.
The city has been breaking even on the arrangement, simply passing on the rent and tax obligations under its sublease to VTA. But that sublease expired last July and now continues on a month-to-month basis. Both VTA and Stanford want Palo Alto out as the master lease-holder.
Until 1999, Palo Alto also held the ground lease for the area occupied by the Sheraton Hotel, MacArthur Park restaurant and the Red Cross building, but released it as part of a deal to reduce its lease fees to Stanford for the use of El Camino Park, which is also on Stanford property.
It was Stanford’s regaining control over those lands that made John Arrillaga’s 27 University Ave. proposal possible. Stanford has not renewed its lease with the Red Cross, and that building will soon be vacant.
The city staff argues that this whole arrangement is needlessly complicated and that the city would be better off relinquishing the 19 years remaining on the lease of the transit facilities and let Stanford and VTA work out their own lease arrangements directly.
To bolster its argument, the staff points to a provision in the lease that permits Stanford to raise the lease rate substantially, from about $160,000 a year to over $400,000, on July 1, which the city would pass along to VTA.
For reasons that aren’t clear, Stanford is so motivated to get back control over the ground lease that it is willing to let VTA use the building and land at no cost going forward if Palo Alto would terminate its lease with the university. And Stanford has pledged to take an active role in the maintenance of the area, including having its police force patrol it. (Or, as an alternative, Stanford has offered to hold the rent at current levels for two more years to give VTA and the city a chance to sort out options for the area.)
The city staff offers no explanation for why VTA should receive substantial financial benefits if the city agrees to cancel the remaining 19 years on the lease it has with Stanford, while the city gets none. It does suggest that a memorandum of understanding be made with Stanford and VTA to spell out the city’s role and input in future plans for the area.
We sympathize with the city staff’s desire to rid itself of the complications and obligations of its current lease and the need to negotiate and manage a sublease of the property with VTA.
But long-term leases of valuable real estate are normally worth a substantial amount, and since the city holds zoning powers over the site this is especially the case. We find it hard to believe that the value of the remaining 19 years on the lease is not a substantial asset for the city, and wonder why we would want to relinquish that asset with no consideration.
It is appropriate to question Stanford about its motivations and plans. Why is it that the university would forego substantial rental income in order to get Palo Alto to terminate its lease?
With so much about the future of this critical area of the city up in the air and the subject of upcoming community debate, it seems like an unwise time to relinquish our leverage. The right move for Palo Alto is to maintain this lease, complete a comprehensive plan for the entire area, and then negotiate with Stanford the termination of the lease so that the plan’s vision can be implemented.
This smells like a sweetheart deal for Arrillaga’s 27 University Ave project.
I agree with Anonymous! If it smells like sweetheart, it likely is.
Much contention in the city regarding the ABAG requirements surrounding the North PA Depot area. If you remove the depot from the control of PA then that changes up the ABAG requirements as we have no control over the sites.
SU is doing a very good job at this time on working the new and additional housing for its employees and students. If nothing else it takes the stress off the continual wrangling over meeting requirements that no one is in agreement with.
If you change the assumptions then you change the outcome.
Damn you Southern Pacific. : ) I don’t see the problem letting Stanford take this over. They have a vested interest in keeping the transit center going and it would be pretty neat to have their security force patrol it. Does anybody really think that Palo Alto City government wouldn’t start selling off parts of it to the highest bidder if they owned it?
“…the long-term leases of valuable real estate are normally worth a substantial amount, and since the city holds zoning powers over the site this is especially the case. We find it hard to believe that the value of the remaining 19 years on the lease is not a substantial asset for the city, and wonder why we would want to relinquish that asset with no consideration.”
Well, the Stanford/Caltrain solution is a lot easier than trying to buy votes, which has been established cannot be bought in PA. And the maligned Palo Alto “process” which is inconvenient to master projects like this can be avoided.
Sounds like the plan to take Stanford to New York City may instead be to bring New York City to Stanford.
Questions – anyone
1. Does the City retain zoning powers over the site? or does losing the lease speed up losing this site to things like emminent domain for Caltrain. In other words, would giving up the lease just speed up massive development intended there anyway. They could build tall buildings there? 19 years is worth holding on to, if nothing else to solve traffic problems first.
Oh traffic. No mention of that anywhere.
2. While the difference between market rates for this property and the lease are likely big, with nothing there for 20 years, the value could be deemed not as much.
What would need to be factored in is the COST of having a massive project there, which is currently being avoided with PA involved. Without substantial benefit to residents, the costs to residents of a planned Stanford/Caltrain project there, are the value of the lease.
What is the lease structure? Palo Alto pays how much for it?
Add to this the costs of losing influence, and trading away that lease cannot be cheap.
resident 1,
“Much contention in the city regarding the ABAG requirements surrounding the North PA Depot area. If you remove the depot from the control of PA then that changes up the ABAG requirements as we have no control over the sites.
SU is doing a very good job at this time on working the new and additional housing for its employees and students. If nothing else it takes the stress off the continual wrangling over meeting requirements that no one is in agreement with.
If you change the assumptions then you change the outcome.”
Getting rid of ABAG for any project is a substantial benefit. Except, depending on the size, a project could still generate related jobs around Palo Alto (an amount would need to be counted in for that) but either way we are stuck with pressure on infrastructure, schools, water, yes water. Campus police would not exactly cover that.
One more question:
Since Stanford does not pay regular property taxes, there would also be no ongoing tax revenue from these properties?
Stanford owns all of the land – even that which the faculty and student houses are on. I believe they pay property taxes but probably have a very complicated set of income tax regulations since they have commercial – Stanford Shopping Center, educational portion, and hospital portion. Property taxes are paid directly to Santa Clara County for everyone then distributed back as appropriate – school bonds, etc.
Mr. Levy’s blog revolves around ABAG requirements – I put that question to him – if we have no control over Stanford and their decisions, and VA Hospital – a government facility – then how and why are we suppose to cover that. Stanford can cover their own requirements based on their building plans – we do not have privy to their building plans.
The depot is not going anywhere so I do not see PA changing up any buildings in that area. Maybe down towards Page Mill Road since Caltrain wants to put some type of structure at that point.
We still have the California Street Depot so we can build that up as a major facility for transportation.
Given recent history of our top city managers secret dealings with Arrillaga in TWO instances (and Stanford as well, they work together) over 27 University, and then on the 7.8 acres in Foothill Park, I do not trust our managers to deal with Stanford.
Sorry, they lost our trust it cannot be quickly rebuilt.
We owe the Weekly great thanks for being watchful.
Something is seriously wrong with the actions of our Planning Dept, or whatever staff has been involved in these dealings. They are totally contrary to the long-held views of Palo Altans.
Are both the staff and the Council so populated with people who are clueless, or pushing their own agendas, or what?
I should have added that the staff’s actions have, unbelievably, been against our interests, again and again.