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For nearly two years, the proposal to convert the iconic President Hotel on University Avenue from an apartment building to a hotel has been widely criticized by residents and city officials for reducing the city’s housing stock and violating local zoning laws.
But even as the COVID-19 pandemic has decimated the local hotel industry, the project continues to move ahead. And last week, it picked up a key victory when the city’s Historic Resources Board unanimously supported the developer’s plans to renovate and seismically upgrade the 1930 building at 488 University Ave.
The May 14 vote does not, in of itself, allow the project to move ahead. The board did not comment on the most controversial element of the project, the conversion of 75 apartments into 100 hotel rooms. It will ultimately be up to the City Council to grant the property owner, AJ Capital Partners, a waiver to convert residential space to non-residential space. The council approved a law in March 2019 to prohibit such conversions, though the attorney for AJ Capital has argued that the law does not apply to the President Hotel project. The building was no longer residential at the time of the law’s passage because by then all the tenants had been evicted, attorney David Lanferman argued in a September 2019 letter.
Even if the law applies, the council agreed to allow applicants to seek waivers to allow such conversions, subject to a public hearing. AJ Capital had indicated that it would seek the waiver if the city deems that the ban on conversions of residential projects to non-residential ones applies to President Hotel.
The city’s Planning and Development Services Department also had determined last year that the project does not comply with the city’s parking laws and its retail preservation requirements.
For the project to advance, the developer would also need to win approval from the city’s Architectural Review Board, which has yet to review the plans.
But the vote by the Historic Resources Board hands a rare victory to a project that has generated significant community opposition since June 2018, when AJ Capital bought the building. Since then, the Chicago-based developer has evicted all the tenants from the apartment building in preparation for the conversion.
The project does not include any additions to the building or changes to its mass or scale. The plan calls for merging the retail spaces on the ground floor of the building and creating a corridor to Cowper Street and renovating the roof terrace. The building’s storefront windows and doors would be replaced and its stucco walls, balconies and mullions would be painted. Non-historic tiles would be removed and replaced with ones that match historic tiles.
In advocating for the project, Alex Stanford, chief development officer for the west coast at AJ Capital, cited the state of disrepair that the building has fallen into over recent decades.
“Unfortunately, as many of you witnessed during tours earlier this year, the building has suffered from decades of deferred maintenance and is in urgent need of restoration and upgrades to critical infrastructure, including seismic retrofit, installation of sprinklers and fire alarm systems and accessibility improvements,” Stanford told the board on Thursday.
Built in 1930, the Birge Clark-designed building functioned as a hotel until 1968, when it became a residential building known as Hotel President Apartments. According to a historic evaluation by the consulting firm Page & Turnbull, much of the building was already occupied by permanent residents at the time of the conversion. The report cites Melville Mack, president of the Hotel President Corporation, who estimated in 1968 that permanent residents had historically occupied 40% of the building and that the change “carries out a long trend toward accommodating permanent residents at the hotel.”
The Page & Turnbull study suggested that other factors also may have contributed to the hotel’s conversion into an apartment-only building. This includes increased competition from other hotels.
“Increasing numbers of auto-friendly motels and resort-style hotels were constructed along El Camino Real, the main thoroughfare for travelers down the San Francisco Peninsula,” the report states. “These cheaper accommodation options brought stiff competition to Palo Alto’s two main downtown hotels, the Cardinal Hotel on Hamilton Avenue and Hotel President.”
By contrast, the city’s hotel scene was seeing a resurgence in 2018, when the project was introduced. Marriott was proceeding with a plan to construct two new hotels on San Antonio Road and several other hotels had recently opened in other parts of the city, including Hilton Homewood Suites, the Epiphany Hotel (now known as Nobu Hotel Palo Alto) and Hilton Garden Inn. Many hotels had occupancy rates of 85% or higher before the COVID-19 pandemic, which has forced many hotels to shut down entirely and has reduced the occupancy rates at those that remain open to single digits.
The proposal by AJ Capital found instant opposition in the community, with many residents pointing to the city’s housing shortage and arguing that the last thing that the city needs is a project that would take away 75 relatively affordable apartments. During an open house last October, protesters held signs opposing the conversion while AJ Capital representatives made their pitch for the project.
The Historic Resources Board expressed no qualms about the loss of housing, an issue outside its purview. It did, however, laud the proposal to restore the building, particularly at a time of deep economic uncertainty. Board member Deborah Shepherd said the city is fortunate to have a hotel-management company with a track record of restoring historic properties move ahead with the conversion.
“Particularly in light of the downturn we’re looking at, I think this opportunity to showcase a building as important as this one and to use it to generate street traffic to support retail, to support restaurants, to support gyms — I think we are very fortunate.”
Chair David Bower agreed, even as he acknowledged at the beginning of the meeting the board’s limited purview over the application. Bower suggested that the rehabilitation will “give a significant extension to the life of the building and the public access to this building at a very difficult time in this country, economically.”
“I don’t think any of us are clear (about) what we’re going to be looking at in the future, as we try to climb out of this pandemic,” Bower said. “But this is really a significant effort by this company to not only preserve a building that is largely untouched. … In need of renovation, certainly, but it’s not been stripped like many buildings of its age.”
Palo Alto city officials are obviously pro-development and the proof is in the pudding.
That said, the development rights to the President Hotel/Apartments go to the owners and not any resident/renters whether past or present.
The 1930 era Birge Clark designs are antiquated & ubiquitous throughout Palo Alto let alone non-original as they are often referred to by architectural scholars as ‘Spanish Revisionist’ so its no big deal one way or the other.
At least give AJ some credit for preserving this old rat trap rather than testing it down.
As for the displaced tenants, nothing lasts forever & perhaps they should have considered buying a place of their own as living in Palo Alto is not a constitutional right.
So sorry that 75 apartment units are no longer available to community.
Sad to see the lost opportunity.
There are limited options for this building.
1. Either the building can be undated with various maintenance projects that have been deferred for decades, or it will soon become a tear-down.
2. If we want to save the building for whatever posterity/historical value it has, we will have to allow the developer (AJ or someone else) to convert it for a use that it finds acceptable.
3. No one (not AJ or anyone else) is going to be interested in converting it to apartments. The city has made that alternative completely unacceptable to any sane developer.
Demanding that it be made an apartment building just sets it up for being torn down.
Remember how this pro-development city council and city staff evicted 75 long-time community residents the next time they dare to ask you for MORE money for their pet housing projects.
And so it goes says
..they should have considered buying a place of their own as living in Palo Alto is not a constitutional right.
You are so rational. The only thing missing in your thinking is heart, humanity, and human values.
AJ Capital is trying to rehab and upgrade a building that was vital to the community back in the 1930s. This building is in need of a major facelift so let the upgrades begin.
This project is the definition of responsible development for Palo Alto. Architectural conformity and increased revenues through taxes and tourism are and have always been good public policy.
Let the upgrades begin!
Why should city council continue to fight them when their intent is to restore the historic project to it’s original use as President Hotel? Isn’t that what historic preservation is designed to enforce?
I don’t know how much tax revenue or jobs this project will create, but i know we desperately need both right now and keeping this project vacant is a losing proposition for everyone. Lets get realistic and support this renovation.
> And so it goes says
..they should have considered buying a place of their own as living in Palo Alto is not a constitutional right.
>> And Human Values says…
You are so rational. The only thing missing in your thinking is heart, humanity, and human values.
^^^ OK. So let’s have a forum vote among all those who favor even more Lego Land-looking developments/dwellings in Palo Alto (along with tax-payer supported subsidized housing outlays) so that EVERYONE who wishes to live here are accommodated.
The displaced and former President Hotel residents had their ‘day in the sun’ & should be grateful for having had that opportunity.
It’s time to move on and as others have mentioned, restorative measures & a revenue generating hotel is now in order.
Given the current state of lost business tax revenues, the City of Palo will need those commercial tax dollars to provide municipal services (along with maintaining its exorbitant city administrator salaries & retirement benefits).
Besides and when it comes to residencies, people are no more than human hermit crabs exchanging various shells…just ask any real estate agent.
Looks like a fire trap. Don’t know how people could feel safe living there. It seemed creepy 50 years ago – even more so now. There are plenty of better places to rent in the Bay Area now.
Hotels can go anywhere …. so, why do we need to reduce the amount of housing we have, particularly for downtown living? I don’t like this. It is like being a traitor, benefitting from Palo Alto for what … almost a century or more, and then just selling to the highest bidder, damn the consequences. Even if it is legal, there is something wrong with that.
To have rational development and progress in our town the city and people itself need to be understood as stakeholders in development – and so sorry if it cuts some projects out or scales them down so that we can maintain an actual community instead of an effin gambling casino.
How many of the pro-conversion comments are by paid trolls of the developer?
Before AJ Capital finalized their purchase their representatives consulted our city manager as to whether they would be allowed to convert the building into a hotel. We can thank our current Planning Director, Jonathan Lait, for advising the city manager who in turn advised AJ Capital that they would have the right to do so. AJ Capital paid a purchase price that reflected the city manager’s assurance that they could “by right” go ahead with a hotel conversion.
Yet it turns out this advice was erroneous. A conversion to a hotel “by right” was not allowed. This resulted in a series of lawsuits against the city. In response city staff has embarked on a multi-year and hugely time consuming effort to change and customize zoning and codes just to accommodate AJ Capital.
It would be interesting to know how much this erroneous decision has cost the city to date from threats of lawsuits and lawsuits filed by AJ Capital, including legal consulting fees, legal staff time, planning office staff time, as well as pushing these specially crafted regulations to the head of the line for hours of Planning Commission and Council time, plus all the staff hours, including overtime, that has entailed to date. Also, and not inconsequentially, forcing the delay of many other top city priorities.
the operation was a success, but the patients died
Did the person who writes headlines for stories actually read this one all the way through? The HRB has no say as to the use of the building, It only reviewed and approved the plans for the restoration of the structure, without reference to its use.
It is troubling that city staff, and perhaps one or more members of the Council, apparently led the new owner prior to their closing on the purchase to believe that the city would look with favor on the eviction of the residents and their replacement with a high end hotel. The cost of providing each additional housing unit for moderate and middle income households is in the 500K-1MM range, yet they casually gave away an existing 75 such units without a thought.
We can’t undo what’s been done, but I would hope that the city would choose to make redevelopment of the President as an apartment building as easy as possible while making it clear that we are strongly against any nonresidential use, including a hotel. The new dwelling units can not possibly be priced for middle income residents, given the costs of upgrading the building but at least they will be a significant addition to the housing stock in a community that talks a good game about the need to reduce the imbalance between jobs and residences but goes out of its way to have those dwelling units built as difficult as possible.
Liars …..I know were. Not supposed to say that but it’s true.
The code prohibits hotels in the city of this size
based on floor area ratio; FAR, which is capped at 2.0 for hotel.
far is an expression of building square feet compared to lot size.
Allowing this change I if use is 100 % unnecessary and illegal.
The council and staff need to uphold the law despite the bad advice from the city attorneys office hHTjt
@Paul Brophy
You say: “I would hope that the city would choose to make redevelopment of the President as an apartment building as easy as possible while making it clear that we are strongly against any nonresidential use, including a hotel.”
The city has slammed the door on potential apartment development. The Buena Vista and Hotel President cases show a completely disrespectful attitude to landlords and rejection of all rights of property ownership by apartment owners.
The Hotel President was after all built as a hotel. Hotels are also very profitable for the city with multiple huge taxes. It may take a few years for hotels to recover, but I suspect a hotel is the best use for the building.
I suspect that the city is hungry enough for more revenues now.
rsmithjr
> I suspect a hotel is the best use for the building.
Why?
Best in what respect?
Why does a hotel need to be located in central downtown Palo Alto for people
who are visiting Palo Alto? Would that location not be much more valuable as
living spaces ( for people who can afford it anyway ) for people who need to be
downtown.
If I am visiting Palo Alto how important and how frequent would it be for people
who are staying there to be located right in downtown, as opposed to the
residential desirability to be able to live right downtown where there are
services and destinations.
Unless you are just speculating that a hotel will bring in more money at some
vague time in the future?
@CrescentParkAnon,
I understand that you think an apartment building is the correct solution. Can you suggest a path for achieving that goal? In particular, who is going to pay for the purchase, renovation, and ongoing operation of an apartment building on that location?
Almost time to forget and move on. Now the burden is on the hotel market with the assumption that Downtown continues to be destination for so many high spending patrons. AJ Capital’s timing may be fortunate. It will not miss this Stanford football season….assuming full attendance will evolve in coming years. 2020 Football season seems to be a bummer.
Besides people having to move, I’m concerned for another reason. We have property, like the old Fry’s site, that was supposed to become housing, but, has already been turned into office space instead. Presumably the owner, Sobrato, would be willing to discuss some combination of high-end housing and high-end office space. No thanks. In the meantime, the city is falling further behind its low-end housing goals, which no commercial developer is interested in. Developers have zero interest in projects that would help the city with either jobs/housing imbalance or affordable housing. That is why the hotel was of concern.
We are stuck in hyper-gentrification right now. We need to stop making the hyper-gentrification worse.
If you want developers to build apartments, you have to make it attractive for them. Community, city and state actions have increasingly made apartment a risky investment with, at best, break-even ROI.
rsmithjr
> I understand that you think an apartment building is the correct solution.
Not really, I was asking you for what you meant by “best” solution and your
logic behind it, which you dishonestly ignored to talk about what you think
I think.
I also made an argument as to why it seemed to me that residential or
apartment ( I actually prefer condos ) makes more sense, which you also
ignored.
I specifically ignored the “who is going to pay” question in favor of
looking at location and function. There may not be a path to apartments
or condos, but that doesn’t mean that that location would not be better
as apartments or condos, in terms of function.
Can you answer my question please and qualify your use of the term
best?
By “best solution” I was not trying to provide an abstract analysis of what might be really best in my ethical/aesthetic framework.
I was looking for a practical solution that might be realized without too much difficulty given the situation we are in today. By “best” I probably mean a practical solution that preserves the physical building with some real use and makes most people somewhat happy.
[Personally, I might prefer a movie theatre, a museum, a bookstore or something similar. All unlikely and impractical.]
The reasons I think a hotel might be a workable solution follow:
1. The owner, AJ, wants to use it for a hotel. Obviously, the owner has the most influence over what will happen, even in Palo Alto.
2. AJ has already rejected the idea of an apartment building. You seem to think that the city should try to enforce that choice on AJ. I do not think that further efforts to give AJ a hard time are going to help us.
3. The building was built as a hotel. I have a desire to retain the building and to see it brought back to life. A hotel will do. I think most of the community would hate to see it torn down, which is unfortunately on the table if we don’t handle this reasonably.
4. The city loves hotels because of the taxes they generate. It should therefore be an easy choice for city if we can get beyond the ideological discussion and bad feelings of the eviction process.
5. The funding exists for the hotel solution. I do think that the “who is going to pay” question matters a lot. For example, the city has been trying to foster a museum about the city using the old PAMF building. Assembling the funds has been difficult.
Please let me know if this satisfies you. If you would like, I would continue this discussion with you offline.
> Obviously, the owner has the most influence over what will happen, even in Palo Alto.
Since this is something that affects everyone in the city for a long time as I pointed out
earlier, there is no mechanism for influencing or overriding the “right” of ownership.
The ownership in the middle of a city, or in the middle of a complex development has
to be, and is to a certain extent, different from using land way out in the boonies.
Not to be too dramatic, but I think that is a “killing” defect in the way we do business in
the context of a city. So, I respect and appreciate your answer, but I disagree. Here
are some reasons why.
> 2. AJ has already rejected the idea of an apartment building. You seem to think that
the city should try to enforce that choice on AJ.
Not seem to, I do think that. Not if there is not reason, but my point is that residents
are stakeholders in the city and should have influence and weight in how the city
develops. That is problematic, but not as problematic as this laissez-faire development
we have been having that is not really making people happy or the community any
better.
> 3. The building was built as a hotel.
To me, that has little relevance. It was roughly 100 years ago when getting around in
Palo Alto by car was a big deal, and most destinations at that time were downtown or
close by. Today you can get a hotel room in Mountain View or Menlo Park and not be
too much farther away in time from any destination in Palo Alto. There is no functional
reason to put a hotel downtown. I do agree with you that the hotel industry is probably
not going to go away or be permanently reduced, but it could be over time as travel
becomes less important and more expensive.
The Palo Alto Post Office was built as a Post Office. When they sell it off that doesn’t
have much influence over whatever use it might be put to next, eh?
@CrescentParkAnon,
1. We have a lot of control over what gets built actually, and not always to the ultimate good. Residents influenced how Buena Vista and Hotel President played out. I heard many people say “We’ll show these developers that they can’t do this sort of thing.” The developers got a message all right, but it was “Stay away from Palo
Alto.” We may never see another middle-class housing project here done by for-profit developers.
2. You say you think that residents should be stakeholders. There certainly are ways this can be done. For example, residents could band together in a non-profit context and buy the property. Or the residents could convince the city to buy it out. [Again, you see my interest in practicality and finances.]
3. As to the value of a hotel to a city, I think it remains huge under the right conditions. I always get friends and relatives accommodations at the Garden Court when they come here. It makes a very nice experience rather than sitting in a parking lot on some expressway. It’s not just about “functionality” to use your word.
4. From a practical view, your approach just continues this entire process with an uncertain ending point and a lot of hassle. I think we have two outcomes that are plausible: a hotel or a demolition. I am sure you don’t intend that.
5. In the city’s current financial situation, I think they want to get rid of this issue quickly and profitably.
Thanks for the great conversation.
I am confused.
An historic building originally built as a hotel and currently in potentially unsafe condition of disrepair is positioned to be renovated, brought up to current code and contribute to a thriving downtown environment is a bad thing?
Yes, displaced residents is not anyones wish but with continued decline in condition the building would eventually become unsafe for habitation creating a hazard for the occupants. Certainly the protestors issue of affordable housing is understandable.
By virtue of condition the previous tenants would need to relocate and continued disrepair would most likely result in demolition as the better option. Additionally, a building not compliant with housing codes provides the risk of injury or worse for it’s residents.
Investment in the rehab of this building and it’s repurposed use provides for the preservation of the building and an investment in downtown Palo Alto.
The solutions to the very real issue of affordable housing deserves greater attention and more serious consideration than a protest over one specific building. Hopefully, the Hotel President project will generate actionable progress addressing the housing issue while improving the scene on University Avenue. It is OK to have both!
Posted by Confused, a resident of Greenmeadow
>> I am confused.
>> The solutions to the very real issue of affordable housing deserves greater attention and more serious consideration
The firestorm of controversy was due to the imperious way in which the former city manager finessed the “approval”. But, sure, the real issue is elsewhere. The city needs to stop adding office space and find a way to provide more affordable housing. Unfortunately, what a lot of people don’t understand, or, at least pretend that they don’t, is that because the city allows overbuilding of *high-end* office space and apartments, land values have risen proportionately, freezing out more affordable spaces. As long as the city allows, in various guises, upzoning of real estate, such as, on the basis of alleged “public benefits”, or whatever, affordable housing will recede ever further on the horizon.
For example, years ago the city could have afforded to, and, bought the Fry’s property, and, worked with nonprofit agencies to develop affordable housing. But, since the city allowed that property and that neighborhood to evolve as it has, there is no way the city could afford to purchase it now.
The bottom line is, keep in mind that all those folks who say they want “housing” but who don’t reign in office development are “lying through omission”. What they really want is hyper-gentrification.
Ugly building. But still, the last thing we need is another hotel. The city council should have done everything and anything in its power to preserve these as residential units… or have it torn down and replaced with other residential units.
Once again our coin operated city govt embraces developer interests over all others. No surprise here. I’m just wondering when they will resume whining and blubbering abut the poor housing stock in Palo Alto, and wonder what to do?
I cannot imagine that allowing the President Hotel to convert from housing would be anything other than a terrible idea. Given how the City is hundreds of units behind in the new housing goal it set for itself in the Comprehensive Plan, pulling 75 residences from the market is virtually criminal.
Our city government also should be mindful that it still is far below the threshold mandated by the State in SB 35. This means that if Palo Alto does not make huge gains in adding to — not subtracting from — the housing supply, then we invite the State to impose laws expediting applications for housing, taking control out of our City’s hands and moving it to state control. Should this happen, our city leaders will have no one to blame but themselves. The SB 35 Act housing requirements are reasonable, and actually are lower than the commitments made in the Comprehensive Plan — only SB 35, unlike the Comprehensive Plan, has built-in consequences for communities that break their promises.
And I don’t really understand the arguments made by the developer here. AJ Capital has a portfolio of hotels, it seems, and no residential-use buildings. Purchasing a residential-use building (even one called “Hotel”) expecting that it would have carte blanche to convert the use seems a risky strategy. Even if their attorney is right about the Ellis Act — and I disagree with their arguments as repeated (given that Ellis Act rarely if ever trumps local zoning codes) — I don’t understand the sympathy for the huge out-of-state company that buys our land, then sues us to use that land for purposes that conflict with local law. And I wonder how much we are required to cave to litigious bullies, rather than stand up to them.
Some people have opined that no developer in their right minds would choose to build residential instead of commercial properties. That is true in Palo Alto, but only because of our very specific commercial-developer-friendly public policies. In all similar cities in California, commercial developers face concessions that are absent here. For example, usually commercial developers are required to building housing in order to be granted to build office space. Or, commercial developers are required to pay into funds that go towards the provision of affordable housing. In almost all cases, commercial developers are given far more requirements and limits than they are given here. Our city policies are literally giving incentives to commercial developers to build more office space, as if we need more office space. Then we don’t understand why we have so much office space and so little housing.
It’s very true that residential construction projects are usually more expensive than commercial-use projects. That is largely because there are a lot more codes and safety requirements that a building has to observe when a building is being used for people to live.
This difference in economics, however, is factored into the price when a building changes hands. Because residential-use buildings tend to be more expensive to renovate, they sell for lower price tags. So, it can be assumed that when this building changed hands, it was priced as a residential-use building.
Palo Alto would be giving AJ Capital a potentially huge windfall if it makes exceptions to its existing rules and converts the residential-use building that AJ Capital paid for into a commercial-use building that AJ Capital wants it to be. Figuring, as a wild guess, a 30% price premium on commercial-use buildings over residential-use buildings, the value of that windfall could be 30 million dollars.
I do not understand how it is in Palo Alto’s interest even to contemplate such an expensive exception from its own rules.
This is one reason that so many residents are distrustful of the city government and the planning department. It often appears that there are two systems of planning in Palo Alto: one for wealthy developers and private interests that threaten lawsuits and claim benefit of “prestige” or “proximity” (those are benefits almost always for the builder or special interest rather than the community) in order to extract huge deviations from zoning codes and public policies. Their plans often sit for years under consideration, generating many versions of EIRs and clogging up the time of city staff in the context of budget cuts and layoffs.
Meanwhile, in many cases, the analysis is clear to the community. Our existing laws make clear that a variance from zoning *cannot* be granted unless the applicant can show that the variance serves the public good. Additionally, the variance *cannot* be granted if the variance harms *or inconveniences* the public. There almost always is a clear solution for the applicant: instead of conducting a not-allowed purposes in the place they want to conduct it, they simply should find a location zoned for their activity, like everyone else.
That is why most developers in the hotel businesses buy *hotels* to renovate, most restaurant-developers choose locations already zoned for restaurants, retails developers choose retail-zoned locations, private schools opt for locations zoned for private schools, and so on. But to acquire a plot of land zoned for one purpose and insist on using it for a different one — especially when the purpose you don’t want to do is *housing* — seems like a risky move.
Palo Alto is operating in triage right now. Our local government is considering all sorts of layoffs and cuts to public services. We don’t need more of these drawn-out battles monopolizing limit city service time.
Dragging these matters on without deciding either way is the one action certain to harm our community. Our city is great at turning down small requests from single residential homeowners. Now Palo Alto needs to learn how to say NO to the big demands from commercial developers and wealthy interests also.
@RebeccaEisenberg,
Thanks for posting, glad to get a sense of your positions.
Here are a few relevant points, similar to some of my other posts.
1. I would like to see the Hotel President building restored and saved. To do that, any developer needs to know that he can make a profit on the project. A dependable profit over time.
2. Economists have studied rent control and tenant projection measures. These measures almost always discourage developers from building residential construction. The way AJ Capital has been treated likely scares away potential developers. It is very unlikely that we will see further residential housing projects by for-profit developers in Palo Alto.
3. You cannot force property owners too strongly and get any traction on what you want to accomplish. For years, the city talked about using the old Fry’s site for housing. The owner, Sorbato, is not interested and it probably in a position to make that stick.
So, here are my questions for you, if you could comment:
1. What exactly would you, as a city council member, do about AJ’s requests to convert the President back to a hotel?
2. In general, how do you go about getting capital and energy into building low and middle income housing in Palo?
Best of luck.
Dear rsmithjr – Thank you for asking these questions and I apologize for the long delay! I did not see your post. I hope you accept and see my responses now, because I know your questions were asked in good faith and I seek to do the same in answering.
And BTW I love these questions.
1. What exactly would you, as a city council member, do about AJ’s requests to convert the President back to a hotel?
** As I mentioned above, AJ purchased a residential-use building, knowing it was zoned for residential use, and its surrounding capacity (parking etc) is sufficient to comply only with residential rather than commercial use.
** Knowing that as the context, we need to see this as it is: AJ’s purchased a building at a residential-use price, and wants the city to grant an extremely valuable variance permit (as I mentioned, a variance that could increase its value by $30 million, more or less).
** Although many people would think that the only approach is to turn down the request for the variance outright, I believe in negotiation.
** Let’s be honest: AJ’s made a (crazy, IMHO, but I’m a risk-averse lawyer) risk in purchasing a residential-use building for $80million (or however much) expecting that it could force the City to change its designation. Their actions using threats of lawsuits and slick propaganda make it clear that AJ’s knows well who calls the shots: the City, not them.
** If AJ’s is willing to deliver $30 million of value to Palo Alto, in exchange for the $30 million variance they are demanding from us, I could think of a lot of ways we could make this work.
** In exchange for the variance, AJ’s could offer: $30 million in affordable housing in a different part of town. Perhaps they could be the builders of the teacher housing our public schools deserve and badly need. (This might be hard because AJ’s only has commercial projects rather than residential projects, but shouldn’t they have thought of that before buying a residential-use building?). AJ’s could invest $30 million in infrastructure projects: bike bridges, protected bike lanes, shuttles, and countless other ways to remove single-use cars from our streets, especially in light of the tragic death of a Greene 6th grade student, who was killed by a truck while riding his bike in a residential neighborhood. $30 million could go a long way to protect our young bicyclists.
** If and only if AJ’s proposes a plan where they give to our community at least the amount of value that we would be giving them with the extraordinary measure of changing our zoning requirements to trade badly-needed residences for utterly unnecessary hotel units — a prospect of which I have little hope — do we grant the variance and amend the codes for them.
** But we need to stop wasting valuable city staff time spinning wheels on this situation. AJ’s took a risk. lt is likely that that risk will not pay off. They have a large portfolio. If they sell the building, they may actually recoup a profit given the irrationality of our real estate market. Their decisions are not our problem. Our job is to protect our RESIDENTS, not to save out-of-state commercial developers from potential (yet unknown) losses from their bad decisions.
Your 2nd question segues perfectly into my thoughts about the huge time sink Palo Alto government is creating by continuing to spin wheels with an out of state developer to whom we own no favors and whose bad investment was its own fault.
To wit: 2. In general, how do you go about getting capital and energy into building low and middle income housing in Palo?
Short answer: we do not give commercial and city projects to developers without demanding that they give us residential development as well. And if they don’t want to do that, a different developer will. We put on our grownup hat and learn to negotiate like professionals, because you bet that the developers are doing so. This is how every other city similar to ours gets it done. It is so common that Palo Alto stands out for its utter lack of interest in extracting any value in return for what it gives. Why do we put up with this? We should NOT.
More on that in a bit, but first, the Hotel President. YES, I agree with you. This lovely historic building absolutely should be restored. And I’m highly confident that we will find developers to get that done as a residential building when they see that Palo Alto is NO LONGER awarding commercial building contracts.
As long we we keep welcoming commercial projects – like this proposed hotel – we will increase the demand for other unpleasant commercial projects to support the new commercial project — like more ugly parking garages.
And the more commercial projects we approve over residential projects — like granting the AJ’s an unearned windfall by allowing them to convert residential space to commercial space — we will need to supply city services to accommodate the 1000 people who are occupying that building as a commercial space rather than the 100 people that would be occupying it as a residential space. Which means that we need to supply ten times as much police protection, fire fighters, street cleaners, utilities pickup, and other local services than we would be if the building were used for residential uses.
And we would have to build all those ugly things and supply all those critical services that are the same services our city government thinks are optional and worth reducing in the name of “budget cuts” — all while these commercial tenants are delivering virtually ZERO revenue back to the city, as Palo Alto remains possibly the only city in the US that is overrun by huge employers (like HP, Tesla, Varian, and Palantir) yet does not have ANY local business tax.
In all those ways, commercial development might be much cheaper for the developer, but it is infinitely more expensive for our community!!
That is why literally every other comparable city requires mitigation and community-benefit services in exchange for the right to make a huge profit operating an office building on our residential taxpayer dime. Why don’t we? Why don’t we?
Those who have little experience with the business world may expect developers to turn around and build housing developments out of the kindness of their hearts — I heard Mayor Fine say something almost exactly like that not too long ago, when he asserted that “office building and residential building is the same! It’s all great building!” — but I am sure I don’t need to explain the countless reasons that such a hope or expectation is lunacy.
Developers are beholden to their own interests – it is part of their business model and we should not fault them for it. They are obligated to construct and operate the most profitable projects that deliver the biggest return on investment to their limited partners, shareholders or other stakeholders. That is their DUTY. So obviously they choose office space — and avoid residential building like the plague.
But here’s the thing! Every other city knows what to do in these situations! The answer is not to look at the negotiation between the city and the developer as some sort of fixed pie all-or-nothing opportunity. If you look at the best run cities — communities Seattle offer some nice examples — you see the many ways that the local government crafts contracts with developers so that developers get some of what they want, but the city gets even more. As a reminder, it is the CITY that holds the cards.
As I mentioned above, what Palo Alto should have been doing all along (in addition to having a reasonably structured progressive business tax comparable to all of our peer cities, natch) is negotiating these contracts with residents’ interests in mind. It’s not complicated.
For example: developers want to maximize profit. Palo Alto wants to maximize sustainability and quality of life! Developers want to maximize revenue per square foot; Palo Alto wants to protect, preserve, and restore our beautiful historic buildings, and honor them as they deserve!
Developers want to populate our city with more and more office space. Palo Alto has more than enough. We want our office space converted to residential use — which will cost a LOT A LOT of money. But guess who has as lot a lot of money? Commercial developers! If they want to renovate one office building, they need to convert two others that they own and/or manage to residential. If they walk away from that deal, do we care? 94% of our population works here rather than lives here. That is too much. It would be fantastic if they leave on their own accord. Let’s reclaim their buildings for residential use. Or green space! Or community centers.
We don’t need to cave to the first big developer that wants to make a profit off our city. We don’t have to cave to any of them. And if we need something built, we have a fantastic option putting the projects up for bid. I never understood why so much of our planning department is responsive to developer demands rather than our demanding that developers accomplish *our* projects.
The projects should be led by the City. We should decide what we need — whether that’s yet another business hotel to serve our too much office space (no) — or a tax-exempt gated private school occupying 52 lots in our most valuable neighborhood (why) — or, maybe, a mixed use retail and residential development in Ventura. WE should decide what we want — and I can’t stress enough that we do not want more office space or hotels to serve them — and then we should bid out the developers and let them compete against each other to see who will offer the best price, and the most benefits to our community of residents.
Doesn’t that sound so sensible? We should do that!
To get there, we need to stand up and say NO to the numerous projects that are the dreams of the developers and the special interests to serve THEIR stakeholders, rather than the dreams of our city representatives to serve OUR communities.
That means saying NO to the AJ Capital. They took a risk when they purchased a residential-use building expecting to convince us to let them convert it to a business hotel. A business hotel would cost our community a lot and deliver it little. No, thank you AJs. I bet you will sell that building at a profit, or if not, it was your job to keep a diverse portfolio and make better decisions.
That means saying NO to Castilleja’s demand to increase its size by 50% and build an underground garage with entry and exit on the bike boulevard most traveled by our community’s elementary school students. We already experienced the tragic death of an 11 year old earlier this year when he was hit and killed by a truck while biking through a neighborhood that is supposed to be residential. 8 year olds on bikes and 16 year olds driving Range Rovers cannot safely share a bike boulevard. Why are we considering this? Castilleja is occupying 52 residential lots. It has been in violation of its conditional use permit for 20 years. It signed a settlement agreement with the city in 2013 promising that if it either failed to come into compliance with its student cap, or if it filed for an amended CUP prior to complying with the original CUP — both promises which it immediately breached — that Castilleja agreed that Palo Alto would revoke its permit. Yet Castilleja’s unauthorized demand for an amended CUP continues to waste our city government’s time. Castilleja can comply with its CUP or it can find a new campus that is zoned for a school. It won’t do either until our city government requires it to follow the same zoning codes that the rest of us follow. And BTW Castilleja pays no taxes at all, despite being located on 52 RH-1 lots.
It also means choosing the development plan for Cubberly and Ventura that best serves our residents. These projects should not be led by developers. To an outside observer, many of the meetings over these CITY projects are extremely hard to follow because it takes some time to adapt to the backwards power dynamics where the developers make demands, and the City is forced to concede.
NO. That is not how it works. The City makes the plans, and the developer works for us. In exchange for the right to work for us, the developers have to give us housing and infrastructure and other things we need from them. If that developer does not want to give us those things, we will find a developer who does.
We need to negotiate better. We need to stand up for our residents. We need to plan our community and choose developers to fulfill our needs. We need to say no to developers and special interests that want to do their thing, if their thing costs more to Palo Alto than benefits Palo Alto. Those developers and special interests may have nice projects and they may be awesome people. Their projects are not in our community’s interests, so we must politely decline, and invite them to do their lovely projects somewhere where they can be more appreciated for what they are.
None of this involves rent control, or the state telling us where to put our housing, or any other unhealthy artificial constraint on economic incentives. Those types of approaches have mixed records. Rather, I am calling for a healthy negotiation where the customer decides what the customer wants, and hires the contractor or vendor to get it, rather than a backwards world where companies demand that we give them money for goods we do not want. We are the check writers. We call the shots. The developers are not the boss of us. We are the boss of them.
Our job is to serve our residents. That will be my job, and I am confident I will succeed, if you trust me to work on your behalf — for all of us who live here in Palo Alto.
Best,
Rebecca