News

Palo Alto in no hurry to recoup Maybell loan

City Council agrees not to terminate its agreement with Palo Alto Housing Corporation

Palo Alto's plan to bring an affordable-housing complex to a Maybell Avenue orchard may have dissolved on Election Day, but the city is in no rush to recoup the money it loaned to the developer.

The City Council on Monday voted unanimously not to terminate its $5.8 million loan to the Palo Alto Housing Corporation, a nonprofit developer that builds and manages affordable-housing complexes throughout the city. The developer used the funds to purchase a 2.4-acre site at 567 Maybell Ave., where it had planned to build a 60-unit complex for low-income seniors and 12 single-family homes that would be sold at market rate. The development received the council's unanimous approval but was shot down by the citizens in a referendum on Nov. 5.

With the election fresh on their minds, council members considered on Monday what to do about the loans it made to the Housing Corporation. Their decision? Do nothing.

That was the recommendation from City Manager James Keene, who argued that affordable housing is still a critical need and that the Housing Corporation is the party best suited for addressing the issue. He dismissed alternative proposals from members of the public, some of whom argued that the city should buy the orchard site and develop it on its own. Keene said staff doesn't think the Housing Corporation "should be punished or lose money as a result of this project coming to an end."

Keene also argued against the idea that the city should purchase the site and use it for senior housing, a soccer field or some other public amenity. The city has many other priorities for spending, including a shrinking but still sizable infrastructure backlog, he said, and staff has little expertise or desire to get into the development business.

"The city doesn't, in my view, have the money to buy this property and it has had years of public process in exploring infrastructure investments and other needs under way that really should not be derailed by really a kind of an ad hoc request to make a public investment," Keene said.

Council members agreed wholeheartedly. Several characterized the Monday discussion as one they had never wanted to have. While they maintained that affordable housing remains a critical need in the community, they agreed that buying the property would not be in the city's best interests.

"The City of Palo Alto has many strengths and lots of expertise, but we are not an affordable-housing agency," Councilwoman Gail Price said. "The experts in that area are the Palo Alto Housing Corporation and I think for us or for community members to assume that we can get involved in a protracted discussion and yield a development that really addressed affordable housing or senior affordable housing is, I believe, unrealistic."

By doing nothing, the council effectively agreed to stand by while the Housing Corporation looks for a market-rate developer who would buy the property. The Housing Corporation had bought the site for $15.6 million, outbidding at least five other would-be buyers. The agency ultimately benefited from its nonprofit status, which enabled the family selling the orchard to receive a tax write-off.

Though the Housing Corporation's proposal was ultimately rebuffed by the voters, its loss may not be total. With Palo Alto's home values rising fast – by about 20 percent in the past year alone, according to staff – the city believes the property can now be sold for about $18.7 million. Once the property is sold, the city would be third in line to collect its loans (two other lenders, Low Income Investment Fund and the Local Initiative Support Corporation would be the first to collect), while the county would be last. Any proceeds that remain could be applied to a different affordable housing project.

Several Barron Park residents addressed the council and urged the council to work with the Housing Corporation to come up with a senior-housing project that would be acceptable to the surrounding neighborhood. Leaders of the "No on Measure D" campaign had repeatedly stressed that while they support senior housing, they oppose the site's densification and the market-rate component of the Maybell project. Joe Hirsch, who opposed Measure D, said he and his neighbors had reached out to the Housing Corporation in hopes of getting a compromise on a development, but the agency did not respond to its requests for a meeting.

"We would be willing to talk and hope a mutually satisfactory plan could be developed," Hirsch said.

Such a compromise now seems extremely unlikely. Candice Gonzalez, executive director of the Housing Corporation, said Monday that the agency was already at the edge of what was financially feasible. The project's density was necessary, she said, to secure state tax credits. Even if the City Council agreed to kick in a few million dollars to compensate for a loss of market-rate homes, the agency would have trouble sustaining the cost of running the facility.

"The last thing we wanted to do is to be here under these unfortunate circumstances," Gonzalez said. "We did not have a scaled-back alternative. There's just a lack of funds at the city, state and federal level."

The agency supported a staff proposal not to terminate the loan but to let the Housing Corporation proceed at its own pace in selling the property, which under the existing zoning could accommodate 34 to 46 housing units, depending on how many units the developer chooses to devote to affordable housing.

Had the council chosen to terminate the loan, it would have forced the Housing Corporation to immediately sell the property and pay the city back. No one on the council wanted to go that route.

Price and Councilwoman Liz Kniss both said lamented the fact that the Maybell project was struck down and spoke in favor of allowing the Housing Corporation to explore other options. Councilman Marc Berman wished the Housing Corporation good luck in finding another site for affordable housing.

"The sooner you can find affordable housing somewhere else, the better off we all will be," Berman said.

Comments

 +   Like this comment
Posted by Judd
a resident of Juana Briones School
on Dec 17, 2013 at 10:35 am

The flip flopping by the 'no on D' camp is never ending and now emboldened they filibuster every development item in town. This is the group that lead voters to believe PAHC is a major, for-profit developer. This is the group that confused voters that the Maybell site was zoned R-1. Now they are backpedaling that a development in excess of existing zoning 'might' be acceptable. That was never said. The mantra was 'build within existing zoning. So, hagwash! Can't have it both ways. While it is healthy and appropriate to oppose and debate, an honest approach would perhaps help gain some credibility for this group.

I wish PAHC good fortune in exiting the situation with an expeditious sale. Perhaps PAHC can find a new opportunity to provide senior housing but looking at how complex the financing and feasibility that such a project requires, this seems unlikely and a HUGE missed opportunity for the Palo Alto community.


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Posted by Eric F
a resident of Downtown North
on Dec 17, 2013 at 11:35 am

I believe PAHC when say they needed to basically sell off 60% of the parcel for high-density market-rate homes, in the process shafting the neighbors, in order to make their finances work.

In other words, PAHC invested in a real-estate project they couldn't actually afford, leaving somebody else to pick up the tab. That is SO 2007.

I'm glad PAHC will make money on their real-estate investment -- many people didn't in recent years. I believe PAHC will put that gain to good use. And I hope this voodoo-finance stuff will go away.


 +   Like this comment
Posted by Reality check
a resident of Barron Park
on Dec 17, 2013 at 11:47 am

Another reminder of the fact that the Weekly and no-on-D proponents were fundamentally disconnected from reality.

The Weekly editorialized falsely that the project could survive a rejection of the referendum. Not true, and now no affordable housing will be built. Completely predictably, the site is being sold to a for-profit developer, and the highest density housing possible will be built.

No-on-D proponents peddled the Weekly's fantasies, and added some of their own (anyone remember the "heritage orchard"?)

The real outcome here -- no more low income neighbors. Is it unreasonable to suspect that's what the Weekly and the anti-affordable housing activists wanted all along?


 +   Like this comment
Posted by Wondering?
a resident of Another Palo Alto neighborhood
on Dec 17, 2013 at 12:57 pm

> That was the recommendation from City Manager James Keene,
> who argued that affordable housing is still a critical need

Got to wonder why the City Manager believes that low-income housing, paid for in large part with money from the public domain, is crucial to Palo Alto? It's a shame the City Manager didn't actually complete this thought, and explain his thinking to us.

Wonder how many issues in his purview are actually crucial, as evidenced by his saying so on the public record?


 +   Like this comment
Posted by Jane
a resident of Barron Park
on Dec 17, 2013 at 1:07 pm

The people who organized the no on D now must explain to the people of the neighborhood why approximately 40 homes give or take five units (depending on the affordability factor) is less traffic and congestion for both the streets and the schools. In compared to 10 homes and 60 low income apartments for seniors. Isn't there a way to vote again?


 +   Like this comment
Posted by Thanks Weekly
a resident of Adobe-Meadows
on Dec 17, 2013 at 1:28 pm

" Leaders of the "No on Measure N" campaign had repeatedly stressed that while they support senior housing"

Measure N for Nimby -- Freudian slip by the Weekly. Well said, Reality check. Between this and the ban on the homeless I think the Weekly is very regressive toward the poor. So Thanks Weekly for encouraging the darkest political instincts and forces in the city. That is going to be a gift that keeps giving in local politics I am sure. [Portion removed.] It's pitiful and execrable that the so-called liberal paper endorsed extreme NIMBYism is both instances. Weekly retract your editorials and admit you were wrong both as a factual and a moral matter.

Make it up to the city by vigorously promoting affordable housing that can actually be feasibly developed rather than your own fantasies. And apologize to PAHC.


 +   Like this comment
Posted by wondering
a resident of Another Palo Alto neighborhood
on Dec 17, 2013 at 1:34 pm

Would the Maybell site work for a new police station?


 +   Like this comment
Posted by Craig Laughton
a resident of College Terrace
on Dec 17, 2013 at 1:39 pm

The fundamental issue is the desire of our city council to support welfare housing. Take that variable out of the equation, then the entire PAHC shakedown disappears. Palo Alto would be much better off with no more PAHC, period.

We do NOT need more welfare housing in Palo Alto. If the current city council members want to continue to support welfare housing, they should volunteer to have it in their own neighborhoods.


 +   Like this comment
Posted by Thanks Weekly
a resident of Adobe-Meadows
on Dec 17, 2013 at 1:43 pm

[Post removed.]


 +   Like this comment
Posted by Solon
a resident of Old Palo Alto
on Dec 17, 2013 at 2:09 pm

Could someone post or cut and past the ACtuAL loan agreement between the. City the big developer PaHCorporation?

What interst rate a cures? What is total senior encumbrances? What are their terms? What are the default issues? If property sells below estimate acted value! is PaHCorporation still on the hook, or is it a non recourse loan?

Please post real loan documents.


 +   Like this comment
Posted by Jana
a resident of Old Palo Alto
on Dec 17, 2013 at 2:11 pm

If the current city council wants more welfare housing, I suggest that Liz Kniss ask developer John Arrillaga, who owns the land across the street from her home, if he will develop the property into low income housing. Let's see if Liz would vote "yes" for that idea. Fat chance!


 +   Like this comment
Posted by Even if
a resident of Another Palo Alto neighborhood
on Dec 17, 2013 at 4:48 pm

Judd,

Caught part of of the meeting online last night, the part where Pat Burt asked PAHC about how there was absolutely no other way to finance this deal.

Even if this...

Even if that....

Even if we....

Even if you....

You would STILL be under $10 million?

So, the answer was to spot zone a residential area for cash.

Why not just have a bouncer knock on neighbor's houses and collect cash that way?

The only thing this proves is that a developer can make up that kid of money from zoning gifts.


 +   Like this comment
Posted by Neighbor
a resident of Green Acres
on Dec 17, 2013 at 5:30 pm

[Post removed.]


 +   Like this comment
Posted by common sense
a resident of Midtown
on Dec 17, 2013 at 5:33 pm

The city manager says "The city doesn't, in my view, have the money to buy this property and it has had years of public process in exploring infrastructure investments and other needs under way that really should not be derailed by really a kind of an ad hoc request to make a public investment," Keene said. Council members agreed wholeheartedly.

But it does have the money to bid on the Downtown Post Office that is on the market, and it does have the money to partially fund a bike bridge over 101, and it does have the money to go over budget to "beautify" California Ave, and it does millions of dollars to refurbish City Hall, and it does have money to hire a Chief PR Hack, a Chief Sustainability person, etc, etc.

How about some transparency and showing the public the priority list of projects? For example where on the priority list is the new public safety building? and where on the priority list is buying the Downtown post office?

Since PAHC determined that 15 Large Single Family Houses on substandard lots using 55% of the site, would have yielded the highest profit for funding the senior BMR housing, it doesn't make sense that a for profit developer would/could build 46 smaller homes and get as much profit.


 +   Like this comment
Posted by Fed up with stalkers and hypocrites
a resident of Green Acres
on Dec 17, 2013 at 6:24 pm

[Portion removed.]

No on D was the most broad-based citizen effort I have ever seen in my life, and there are many, many key players and leaders. I have been so impressed with my fellow citizens. The adherents in the community pushing this plan have been so vitriolic and rigid, they are the ones standing in the way of affordable housing by making it impossible to work for a compromise. Joe Hirsch, among others, offered along the way for a working group like the one he participated in himself that saved the Terman school site from development while resulting in the 92-unit low-income Terman Apartments.

This was a good deal for the City and for PAHC and a bad deal for the neighborhood. If PAHC needed to violate the zoning laws so severely to make any plan work, they should have reached out before even considering the purchase. The charge of NIMBYism used too indiscriminately or for political leverage as it was here becomes a self-fulfilling prophesy. Continuing the ad hominem tactics of the Yes side now that the election is over only paints PAHC with an even more negative brush by association. Is that what all of you want?

I personally would rather the City TEMPORARILY took over the site and either placed deed restrictions on it for safety before reselling (which they have absolute discretion to do) or allowed citizens to find an alternative through a working group -- work with rather than against people -- and make the money immediately available to save Buena Vista Mobile Home Park. Why is the City preferencing PAHC over the affordable housing of existing Palo Alto residents?

At this point, all you are doing by attacking people is making any chance of hammering something out through a working group impossible. Maybell could never have housed any of the vehicle dwellers. [Portion removed.] Maybell was designated for seniors, and PAHC has claimed they have existing waiting lists that would fill the slots. There also is the little matter of construction taking time and them not even yet having a building permit. No one homeless would have been served at that location even after it was built.

You claim to care about the poor and the vehicle dwellers. Why not join me in asking the City to immediately assess the most critical need among our seniors and provide subsidies as needed to fill the remaining empty BMR units - not just the ones at Moldaw? There is unmet need, and there are empty units, and all that's standing in the way of providing for it is the commitment to look at the problem urgently and for the City to come up with a reasonable subsidy plan.

How many vehicle dwellers have you opened your home to? Could you get together with other like-minded people, the Yes on D folks, and as a group open your homes during this weather? My family was involved for years through our church to provide shared shelter at night for the homeless, could you do something like that where you give people a place to sleep and rotate? If you got together as a group, no one person would be overburdened. And you could provide for people who need help when they need it.


 +   Like this comment
Posted by anonymous
a resident of Green Acres
on Dec 17, 2013 at 6:35 pm

[Post removed.]


 +   Like this comment
Posted by Coming home to roost
a resident of Barron Park
on Dec 17, 2013 at 8:03 pm

@Fed up, the truth is that you are about to get a lesson in reality, when the Maybell site gets built to the limit and you start seeing traffic and stack and pack housing. [Portion removed.]


 +   Like this comment
Posted by Time to close this thread.
a resident of South of Midtown
on Dec 17, 2013 at 8:10 pm

[Portion removed.]

Let's all take a deep breath and try to have a more productive and civil discussion if this must go on. Thanks.


 +   Like this comment
Posted by SWE
a resident of Green Acres
on Dec 17, 2013 at 11:16 pm

SWE is a registered user.

@Coming home to roost,
Your neighbors fought a plan they deemed bad for the neighborhood. They did not feel the same way as you about a land use decision. The vote went 80% against in the areas nearest to the property where people are most familiar with it. If YOU keep making this about NIMBYism and rolling out your revenge fantasies, you're only going to continue to taint PAHC by association. Twenty years ago, some of these same people leading against D were part of a working group that saved the Terman School site from development and resulted in the 92-unit Terman Apartments. When have you ever done anything like that? Do you care about affordable housing, or is this about your ego? You're sending the message that it's the latter, bigtime. Who is that helping, except your own spleen?

On the neighborhood side, they've been calling for a working group, just like at Terman, in order to problem-solve in the same way. Unfortunately, the City and PAHC were chasing a very specific plan at Maybell and weren't going to easily give up on getting it at fire sale prices. They overshot, didn't understand their opposition because they dismissed their opponents as NIMBYs rather than understanding their real motives, and thus themselves cost any opportunity for a win-win. They tore the community apart by promoting conflict to get what they want. The cold, hard fact is that they never left open the possibility of collaboration, the plan was too rigid and they just assumed they would win because they had the City on their side. Unfortunately, because they framed the whole debate that way, they now exist in a paradigm where they must feel everyone is against them — and I have to admit, their spiteful adherents make it very hard not to be — they have shut out collaboration altogether. This is just sad for affordable housing, and the advocates don't even see their responsibility in it.

In San Francisco where they have an impartial ballot committee and a nearly identical measure, Measure C, their ballot question reflected the nature of the ordinance as a land use variance, so even though there was $12 million in affordable housing in the ordinance, the overturning of it via referendum (67% against, even larger than Measure D) was seen as the land use issue it was, not a rejection of affordable housing. Their question literally asked whether the developer should be able to violate the zoning by 80 feet or whatever it was.

Here, where the City did everything in its power to win, the City Attorney's biased ballot even left off the official "low-density" part of the existing zoning name and basically asked residents if they were for seniors. I'll bet most people who voted don't have a clear idea of which of the many zoning restrictions were violated in the ordinance, except for maybe the height going from 30 to 50 feet, because our City Attorney tried to rig the game by making it about seniors. Unfortunately, when the election is over, that's how outsiders interpret it, think people in Palo Alto hate the poor, and it becomes a self-fulfilling prophecy. I heard a Forum program with SF housing advocates in which they interpreted Palo Alto's election as rejecting senior housing, but didn't talk about their own that way because their ballot was about what it was really about.

roost, your revenge fantasy is very unlikely to happen, and you're hurting PAHC to push it. The City's failure to properly address the safety issues at that location has made developers and banks consider the site risky. The only City Councilmember who visited the site enough to know is on record saying it's not a safe route to school, even though it is a city-designated safe route to school, and the rest are on record saying they think a market-rate development under existing zoning would be less safe.

Neighbors have a range of options to fight the development you envision, because City Council, just as they overshot the mark with PC zoning, is doing the same when it comes to what could go there under market conditions. City Council continues to plan for allowing the most slanted interpretation of the Comprehensive Plan possible, but neighbors already planned to fight that, in court if necessary, in the subdivision process, for one. There are other possible actions, though I am not exactly going to say in a public forum. The point is, if you were a developer and just witnessed the populace handing the City Council their own @sses on a platter, despite lots of money on the developer side and the LWV shilling for them, too, even a ballot so slanted the election was practically rigged — for one, you'd want them to stop stirring up the populace to make the development environment so hostile — and two, if the neighborhood announced they'd go for a 20-house development you could still make a killing from, without fighting you, what would you choose?

If the City or PAHC tries to make a developer overlook what was really driving the neighborhood, safety and neighborhood character, and represent things as just NIMBYism (therefore easier for a market-rate project), they will be mirepresenting the property and potentially facing legal action down the road. And potentially incurring liability for the City.

If PAHC wants to hang onto the property, they should consider a working group with neighbors. It won't be easy, especially if their attitude is anything like their adherents who post on these forums. But if they are willing to accept that neighbors want to find a win-win, they will open themselves up to doing things differently but achieving a win for affordable housing (just like at Terman).

What about extending APAC with some single-story, regular family homes with full accessibility/universal design, with preferance for low-income children in wheelchairs, and/or their disabled veteran parents? After all, the site is across from the OH. Why were we arguing about putting seniors there, when we should be putting seniors where they can walk to what they need, and putting disabled children where they can motor (wheelchair) themselves to school independently from elementary to middle to high schools. If anything, the disabled are the more under-served group, and the fact that our planning essentially ignores them shuts the disabled out of the prosperity of Silicon Valley. This suggestion involves a whole other pot of available money for building, quite probably a bigger pot of money. Such a plan could be magical if it involved saving some of the orchard, integrated with the park across the street. Since universal design favors single-story, the whole thing inherently favors neighborhood acceptance from the start. The beauty of a working group is that the plan is hashed out first with everyone's requirements in mind, so the ultimate plan has buy in from the public. I don't know why PAHC doesn't seem to understand the opportunity they have if all these accomplished people in this community want to figure out how to get something they work on together paid for. I've been floored by these smart, ultra-capable people. (Some extra on-site parking for APAC would also be a boon for everyone.)

I'm not advocating for one action, I'm suggesting PAHC consider what's best for its own future and residents, reorient their thinking, and consider how to rebuild the bridges THEY burned. The alternative is possibly losing money on the sale of the property as developers shy away from such a risky site where they would be guaranteed to walk into conflict, or getting sued for failure to properly disclose, for one.

But just realize, by choosing to continue spinning all these revenge fantasies, you destroy that option for PAHC. The neighborhood will be okay if you do. PAHC may not.

And Buena Vista may not either. The other reason to form a working group is to see if the $5.8million can be made available for saving BV.


 +   Like this comment
Posted by Jerry Underdal
a resident of Barron Park
on Dec 18, 2013 at 11:36 am

Jerry Underdal is a registered user.

As a Maybell area resident who lives one block from the property at issue in the Measure D campaign I hope for an outcome that is attractive, low density, not disruptive to neighborhood traffic and safe for student cyclists.

The voters have spoken: undo the rezoning for the affordable housing project. And the city council has spoken: the city will not assume an ownership stake in the property and PAHC is free to sell the property, pay off its debts and move on.

As for what happens next, I can have my hopes, but it's the market that will determine what goes in there. Competing real estate developers will run the numbers, make their calculations about how they could make the most off this valuable property and bid accordingly.

I'm interested but not anxious. No one is going to build something truly awful there. This is a great neighborhood where there's lots of money to be made yet in residential real estate.

I can't imagine a developer wasting this opportunity to build high-end housing, whether it be condos, townhouses or single family homes. Unless, of course, a particular vision of what could be done with the property leads one to outbid the field.


 +   Like this comment
Posted by Margaret Fruth
a resident of Ventura
on Dec 21, 2013 at 9:50 pm

Margaret Fruth is a registered user.

I support reprogramming the $5.8 million City loan on the Maybell property to help the residents of the Buena Vista Mobile Home Park to purchase the property and become homeowners in the City we all love. This would show a good faith effort to preserve and maintain the current level of low income housing stock, by saving the largest low income housing project in the City.

My second choice would be housing for families with disabled children.


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