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Property owner seeks city's help to fill vacancy in Homer Avenue building

Original post made on Sep 26, 2023

Citing anemic demand for downtown office space in the aftermath of the pandemic, a Palo Alto developer is asking the city to remove a long-standing restriction on the space that a tenant can occupy in its Homer Avenue building.

Read the full story here Web Link posted Tuesday, September 26, 2023, 7:52 AM

Comments (13)

Posted by commonsense
a resident of Professorville
on Sep 26, 2023 at 10:50 am

commonsense is a registered user.

Seems like a dumb rule. What's the difference in impact to PA residents if five businesses occupy five different spaces in a building vs. one business occupying the whole thing? Same number of people. Same number of cars.

Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Sep 26, 2023 at 11:44 am

Online Name is a registered user.

Those published vacancy numbers seem really low given all the For Lease signs around town and the fact that San Francisco's office vacancy rate of around 35%.

And yet developers keep adding millions of square feet of office space to every housing development instead of adding the housing we're told ,the area so desperately needs and that we have no right to even discuss for another 8 years.

Posted by Rose
a resident of Mayfield
on Sep 26, 2023 at 11:47 am

Rose is a registered user.

Tall Tree can lower the rent to attract new leases. Why is rent so high in Palo Alto? Because developers and owners have been so greedy. Now they can deal with the consequences by moving in the other direction. It’s called supply and demand.

Posted by Mondoman
a resident of Green Acres
on Sep 26, 2023 at 1:11 pm

Mondoman is a registered user.

As noted above, all Tall Tree has to do is to lower the rent a bit or provide other incentives to fill their empty space. Problem solved with no need to go back on the development deal. In any case, the vacancy info with end-of-2022 timing mentioned in the story indicates that rising interest rates are the cause, not work-from-home. WFH has been around a lot longer than 9 months, while that timing fits the start of the Fed's raising interest rates. Don't we have a limit on office space square footage in downtown PA anyway?

Posted by wmconlon
a resident of Old Palo Alto
on Sep 26, 2023 at 1:13 pm

wmconlon is a registered user.

I think it's kind of tough luck for Tall Trees, as they accepted the rules when they constructed the building. In keeping with the original intent, I think a more compelling request would be to convert some office space to residential, although this might be difficult due to the building code.

Posted by TR
a resident of Menlo Park
on Sep 26, 2023 at 1:53 pm

TR is a registered user.

Triple Net does not "include" these other costs it means the tenant must pay them ALSO

"asking rent for triple-net leases (which include costs like utilities, taxes and maintenance)"

It would also be useful to quote $/sq ft per what unit time? Monthly or annual?

Posted by commonsense
a resident of Professorville
on Sep 26, 2023 at 1:55 pm

commonsense is a registered user.

understood, you all want to stick it to the evil developer. But same question - how does this benefit us residents of Palo Alto? The rule makes no sense.

Posted by anon1234
a resident of College Terrace
on Sep 27, 2023 at 10:20 am

anon1234 is a registered user.

The point of limiting office size is to create more opportunities for smaller businesses that serve locals residents and businesses to compete
With tech companies who generally have deeper pockets.
Thus local residents can walk and bike to accountants, therapists etc….

Posted by Evergreen Park Observer
a resident of Evergreen Park
on Sep 28, 2023 at 11:44 am

Evergreen Park Observer is a registered user.

No sympathy for a property owner who wants all of the high rental rates when times are good, and City help when they aren’t.

Posted by Rebecca Eisenberg
a resident of Old Palo Alto
on Sep 30, 2023 at 1:54 am

Rebecca Eisenberg is a registered user.

It's time for Palo Alto to stop bailing out landlords in this way. As others have said above, supply and demand should be setting the rent. After raising rents 1000% over the past decade, landlords can afford to adjust rents down. And if they don't want to do that, they can sell their building, do a 1039 exchange for a different building, and avoid paying taxes on their millions (or tens of millions) of dollars of appreciation. They have ample options.

They also can seek state or federal funding to turn empty office space into housing. That would be nice. There are dozens of empty office spaces in Victorian-looking houses being used for offices (with turrets, so lovely) that clearly were built to be homes near University Ave. Why not make the owners convert back to housing after being empty for a certain length of time as office space? It is 100% certain that housing in those areas will be in huge demand -- which also, btw, would help Palo Alto meet its housing demands without the need for controversial, time-consuming, and expensive new construction. Win-win-win.

The triple net "rule" is a red herring. Leases are always fully negotiable, and tenants succeed in removing that term on a regular basis, either at time of signing or else when the tenant threatens to leave so the landlord sweetens the lease agreement to keep them. It is a blatant lie to say that triple net provisions control landlords. Landlords control triple-net provisions, and if they want their buildings filled, they need to lower the rent, improve the lease terms, or do both. They are not held hostage by their own choices.

We really need a vacancy tax. Many/most Palo Alto offices are vacant only because landlords refuse to charge a market rate rent. Meanwhile, the largest (private equity/firm) landlords don't really care if they have vacancies or not. They make the bulk of their profit on appreciation, whether their buildings are occupied or not. Rents for commercial investment firms can be mostly window dressing to justify their large carry interest & management fees. They don't need our help.

Posted by curious
a resident of Menlo Park
on Sep 30, 2023 at 9:21 am

curious is a registered user.

What is your source for the 1000% increase in rents? What is the federal program that funds the conversion of offices to housing? What process allows a tenant to leave in the middle of a lease without penalty? Only thing I have heard of is rejecting a lease in bankruptcy. Which PE firms don't care about rents on real estate investments?

Posted by Rebecca Eisenberg
a resident of Old Palo Alto
on Oct 4, 2023 at 3:04 am

Rebecca Eisenberg is a registered user.


I meant to write 100 not 1000. Here is a nice almost-hockey stick line chart to show residential rents. It is bizarre you are unaware of the unprecedented increase of commercial rent prices over time:

Web Link

There are numerous programs being proposed and launched to convert commercial to residential. The state also offers big grants, e.g. the Homekey program. Try googling it!

I have no idea what you are asking about a program that allows a tenant to leave in the middle of a lease without penalty? Is that how you interpreted my statement about negotiation of lease rates? That's silly. Tenants break their leases all the time when they cannot afford to pay rent. Landlords have the opportunity to try to enforce the lease on them -- which often is good money chasing bad -- or they have the option to renegotiate the lease. It is called doing business in the USA!

Posted by curious
a resident of Menlo Park
on Oct 4, 2023 at 9:32 am

curious is a registered user.

My issue is you were making up facts to support your argument. Commercial rents were not up 1000 percent. There is no federal program for conversions. You can't leave a lease without penalty and you can't renegotiate without giving something up to the landlord. You didn't address your false premise of PE firms land banking property in Palo Alto for no rent.

There are probably very reasonable arguments against what the property owner is requesting but making arguments based entirely on falsehoods is not very convincing or helpful.

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