In a dramatic about-face, the Palo Alto City Council agreed on Tuesday night to approve the conversion of the iconic President Hotel on University Avenue from an apartment complex to a boutique hotel.
By a 6-1 vote, with Councilwoman Lydia Kou dissenting, the council gave the green light to Chicago-based developer Adventurous Journeys Capital Partners to convert the building's 75 apartments into 100 hotel rooms. The vote concludes a high-profile, two-year legal battle and clears the way for a hotel conversion that over the past two years has galvanized intense community opposition and prompted the eviction of the building's tenants.
But even as they handed AJ Capital a colossal and long-awaited victory, council members generally acknowledged that a new hotel wouldn't have been their preferred use for the prominent building at 488 University Ave., particularly given the city's housing shortage. For years, council members and residents had stressed the importance of preserving housing, particularly in the transit-friendly downtown area.
To underscore this point, the council passed last year a law specifically forbidding "grandfathered" residential buildings like President Hotel, which were built before the current development standards were adopted, from converting to non-residential use. As part of its vote on Tuesday, the council approved a waiver allowing AJ Capital to get around this law and complete its switch from a housing development to its original use as a hotel.
The city's Planning Director Jonathan Lait also maintained last year that the proposal violates numerous city's laws pertaining to parking, zoning and the prohibition on converting grandfathered buildings from residential to non-residential use.
In agreeing this week to reverse course, the council followed the lead of two attorneys: AJ Capital's lawyer David Lanferman, who argued in numerous letters that rejecting the company's hotel conversion would violate the Ellis Act and lead to a lawsuit, and City Attorney Molly Stump, who concluded that the courts would likely affirm Lanferman's position. Numerous council members also said that they believe the city is legally boxed in because of a combination of laws that collectively place an "undue burden" on AJ Capital in its effort to leave the rental business.
Because the Birge Clark-designed building was constructed in 1930 and is considered historical (it functioned as a hotel until 1968, before becoming an apartment building), the developer does not have the option of demolishing the building and constructing one that complies with code. Because it is a grandfathered non-complying building, it cannot switch from residential to non-residential use without a waiver (thanks to the 2018 law). Nor can the building be converted from a rental property to a condominium complex because a local law bars such conversions unless the city's vacancy rate goes above 3%, Stump said.
Lanferman argued in a letter that applying the new law to preclude the conversion of President Hotel would impose an "extreme and prohibitive price on the Owner's exercise of Ellis Act rights as to the Hotel President." Stump agreed and cited the case Javidzad v. City of Santa Monica, in which a court ruled against the city's effort to prevent a conversion of a rental property.
"There are many types of regulations that cities have adopted to preserve rental housing, which is a valuable asset and that many communities over many years have been seeing as something to support and try protect," Stump said. "We've seen various efforts by cities struck down as imposing an undue burden on property owners under the Ellis Act."
She and City Manager Ed Shikada both emphasized that the city is functioning in its quasi-judicial capacity, more as a judge than as a legislative body. As such, it is "much more limited in the choices it can make," Stump said.
"Council is not free to simply select the best outcome that it believes is in the interest of the community," Stump said.
Faced with limited options, the council accepted Stump's guidance and approved, with some reluctance, the proposed hotel conversion. Councilman Eric Filseth spoke for most of his colleagues when he noted that the AJ Capital project "takes us in the wrong direction" when it comes to housing, but suggested that Ellis Act makes it hard for him to oppose the project.
"That said, I do like seeing this building get restored and I do believe AJ Capital will do a proper job of it and I appreciate that," Filseth said. "And while the hotel environment in Palo Alto is very competitive, for what it's worth, I think this one has a legitimate shot of one day being the best hotel in town. But I would've kept the housing."
Not everyone was convinced by the legal arguments. Palo Alto Neighborhoods, an umbrella group with representatives from different neighborhood organizations, submitted a letter challenging staff's conclusions about the project and its recommendation to approve it. The developer voluntarily opted to withdraw the building from the residential market, despite being told by the city that a hotel project might not be legal, the letter states.
"The City has no burden whatsoever to then allow it a new use that's profitable, including that of a hotel, if such a hotel isn't legal," the PAN letter states.
Angela Dellaporta, who serves on the North Ventura Coordinated Area Plan Working Group, which is trying to craft a new vision for a 60-acre portion of the Ventura neighborhood, was one of many residents who pointed out that the hotel project directly contradicts the city's housing goals.
"If you actually do care about housing as you said, then please do not grant waivers that will actually reduce housing in Palo Alto," Dellaporta told the council Tuesday.
Frank Flynn, was one of more than 50 residents who submitted letters protesting the conversion. He wrote that if the council grants President Hotel's request it would be sending a strong and clear message to any developer that "all you need to do is threaten a lawsuit and you will get what you want and that our laws and our zoning mean nothing."
"You should not feel the pressure to capitulate here and you should stand for your principles and the principles of the city you represent," Flynn wrote. "We do not need another luxury hotel we need housing."
Councilwoman Lydia Kou suggested that AJ Capital should have known that the hotel conversion may not be legal when they purchased the building in June 2018. She noted that its advisers included two former Palo Alto employees, former city Planning Director Steve Emslie and Richard Hackmann, a management analyst who worked in the City Manager's Office.
Kou also questioned the city's ability to enforce the hotel's proposed "transportation-demand management" plan, which has a goal of reducing solo commuting by 45%.
Most council members, however, accepted Stump's guidance and concluded that it has no choice but to approve the project. Mayor Adrian Fine called the city's predicament "a sticky situation" and Vice Mayor Tom DuBois concluded: "Legally, we seem to be in a tough spot."
Councilwoman Liz Kniss was more enthusiastic about the hotel project, which includes seismic rehabilitation and restoration of the historic building. She said she hopes the council will be able to celebrate the project on the building's rooftop deck in 2022, when the project is set to be completed.
"I'd like us to not only think about all the nuts and bolts of what we're dealing with today, but that we're dealing with a historic building in Palo Alto, a Birge Clark, and one that I think can look absolutely amazing again," Kniss said, "It does not look amazing now."
Acknowledging the high level of public concern about the project, the council also took the unusual step of directing Stump to prepare a public memo explaining the various legal rules that applied to the council's decision. The memo, which was proposed by Fine, will be published on the city's website.
Fine stressed that the council has been "extraordinarily constrained in this decision."
"This has been a really sad and trying process for Palo Alto," Fine said.