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Downtown development moves ahead despite criticism

Original post made on Nov 17, 2022

A proposal to construct a mixed-use building with 65 apartments on University Avenue eked out an early win, despite criticism from residents and planning commissioners about parking and density.

Read the full story here Web Link posted Thursday, November 17, 2022, 9:20 AM

Comments (28)

Posted by Ed Lauing
a resident of Professorville
on Nov 17, 2022 at 10:47 am

Ed Lauing is a registered user.

You note, "The commission voted 5-1, with Chair Ed Lauing absent. . ."

I was absent because the City Attorney asked me to recuse from this matter on PTC so that I could fairly evaluate the issue and debate it as a council member next year.

Posted by NeilsonBuchanan
a resident of Downtown North
on Nov 17, 2022 at 11:04 am

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I invite City Manager Ed Shikada and Philip Kamhi (Office of Transportation) to correct me if I am wrong.

The residents in this buidling have almost unlimited access to resident permits to parking on ALL adjacent residential streets during the working day. However, they will need a very low-cost residential parking permit to park on residential street faces. They also have liberal access to guest parking permits within the neighborhoods. There is no neighborhood restriction for weekday parking 6pm to 8am. Similarly there is no parking restriction weekends or holidays.

However, these residents have almost no parking access within the commercial core except time-limited 2 and 3-hr parking during the working day. At night, weekend and holidays all public parking is unrestricted within the commercial core. This includes street faces, parking lots and garages.

Office tenants probably do not have access to parking permits in the public parking lots and garages in the University Ave commercial core. Office tenants will have options. #1 Park on site OR #2 Access to over 1000 commercial parking permits to park in adjacent residential neighborhoods.

Bottom line: The new residents and office tenants/guests will have an option to park onsite at whatever costs the market will bear. All residents, tenants and guests with very low-cost residential parking permits have unlimited access to park anywhere within the adjacent residential neighborhoods. Who knows which parking option residents, office tenants and guests will select?

Posted by JonnyK
a resident of Ventura
on Nov 17, 2022 at 11:06 am

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This town is broken.

This would be perfect if the apartments were strictly a mix of low income and affordable apartments, so that people who work middle-class jobs in town can live in town.

Posted by MyFeelz
a resident of JLS Middle School
on Nov 17, 2022 at 12:34 pm

MyFeelz is a registered user.

F the community, say the Commission. Developers win again, not surprising. "It's a good place for density" -- that's the same thing they told the Lenape tribe, while Manhattan was stolen out from under them.

Posted by Andy
a resident of Stanford
on Nov 17, 2022 at 1:00 pm

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If they allowed for a taller building, they could have more parking AND setback.

45 feet is tiny, especially for a "downtown."

This is an example of a missed opportunity to solve the housing crisis.

Make the building at least 2x taller and force more underground parking.

Win-win for all...IF we want to solve real problems.

Posted by W. Reller
a resident of Crescent Park
on Nov 17, 2022 at 1:49 pm

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The issue re parking is bogus.
Do a survey of all downtown parking provided by private development-it is far less than 100% utilized.

Posted by Jake Turner
a resident of Mountain View
on Nov 17, 2022 at 1:50 pm

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For those who are vehementally opposed to this future residential development, rather than merely blaming the developers shouldn't some of the outrage also be directed towards the former landlord/owners (Palo Alto Dental Research) who opted to sell this property to the developers?

Posted by Allen Akin
a resident of Professorville
on Nov 17, 2022 at 1:51 pm

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For lowest cost-per-square-foot of housing the ideal height is around 50 feet. That means for a taller project to pencil out the units would have to be either small micro-studios (so you can put more of them into the building) or more expensive to rent (so the revenue stream is high enough to offset the higher costs). It's not clear to me that either of those outcomes helps solve the real problems.

Here's an insightful report explaining why dense multifamily housing is financially infeasible in most of San José right now: Web Link On page 5 you can see that increasing the number of stories beyond about 5 increases the cost per unit.

Posted by Evergreen Park Observer
a resident of Evergreen Park
on Nov 17, 2022 at 2:43 pm

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Thank you, Allen Akin. Too many of us have opinions that are not well informed by data and solid analysis. I appreciate the link to this report.

Posted by resident3
a resident of Another Palo Alto neighborhood
on Nov 17, 2022 at 3:30 pm

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"The mixed-use project at 660 University Ave. is the first "planned home zoning" project to move ahead with a formal application. "

re the Photo, Is this strip mall chic?
At the risk of offending newly elect JLH's who just won because she doesn't like any objections to buildings based on taste, and I get that, but why do all new developments have to look like the eyesores in Redwood City and Mt View?

Don't visuals matter anywhere (not just in Palo Alto)? Thank you Palo Alto Weekly/ Real Estate and Building Daily, for ushering a new building era and where nothing matters as long as it goes up.

Posted by NeilsonBuchanan
a resident of Downtown North
on Nov 17, 2022 at 9:09 pm

NeilsonBuchanan is a registered user.

reply to W. Reller who stated
"The issue re parking is bogus.
Do a survey of all downtown parking provided by private development-it is far less than 100% utilized."

Dear Bill, As I understand the parking rules, tenants in this new building will not be eligible to park in most of the long-term parking facilities within the University Avenue commercial core. The property did not participate in the Parking Assessment District.

Furthermore, the parking shortages within the commercial core were so severe before COVID that the residential neighborhoods have been forced to provide over 1000 annual parking permits for non-residents (ie, tenants within the University Avenue commerical core). Call me if I am misinformed.

By the way, City Staff have continue to sell comercial parking permits in the residential neighborhoods while there is vast surplus of parking in the city garages.

A lot of office space is temporarily vacant . A lot of private and public commercial core parking is vacant. Current parking conditions is NOT the issue for this one development.. When we return to normal business conditions, where will office workers, guests and residents in this new building park their vehicles during their varied needs 24 x7? Call me if I am misinformed.

Respectfully, NB

Posted by Larry
a resident of Downtown North
on Nov 18, 2022 at 7:18 pm

Larry is a registered user.

Since this thread has so many supremely well-informed contributors, maybe one of you could please help us understand why this University Avenue project “pencils out,” unlike the projects in the San Jose report that Allen and Neilson linked that do not. Are the rents simply higher? Does the additional office space make all the difference? Or is it the parking? It would be most interesting for us to see the financial details of a feasible project instead of a bunch of ones that aren’t feasible. Did Smith Development make a pro forma analysis public?

Posted by Amie
a resident of Downtown North
on Nov 19, 2022 at 8:50 am

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So may questions (and I live two blocks away).

Why so small, four tiny stories and 65 units? Why not eight stories and 150 units to get more folks downtown to support our local businesses? At this rate we need 101 of these exact projects to even get near meeting our housing goals for the next 10 years.

Why an expensive, silly EIR? And What a waste of staff time and resources when there are so many statutory and categorical housing exemptions. I sincerely hope the state is watching this ridiculous process unfold: EPC, ARB, ARB (no one gets through the ARB in one meeting), ARB, EPC, CC - what a horrible insult to public involvement and planning process. We need fewer meetings, not more. Folks in PA have jobs, lives, and kids.

This is an infill project, it has environmental benefits in terms of lessening GHGs, lessening traffic (employees of all the medical and dental offices could actually live nearby instead of commuting in), and supporting local businesses and schools (the specter of declining enrollment, school closures, and associated property value losses as a result should weigh on all our minds).

I will say it till I am blue in the face, the public ROW is not your private parking space - even if it is right in front of your house. If that is the reason for blocking housing projects, we should all be ashamed.

Posted by Allen Akin
a resident of Professorville
on Nov 19, 2022 at 10:12 am

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@Larry: I read the project documents but didn't see a financial analysis, so I assume it's proprietary (as it usually is). My guess is that it works for two reasons.

One, they're pulling a *lot* of levers to get special concessions: Reducing setbacks by 60% (violating the Downtown Urban Design Guidelines), increasing max height by 50%, encroaching on the daylight-plane, increasing max site coverage by 65%, increasing max density by a factor of 6 (!), providing 20% fewer than the minimum required parking spaces, and converting medical offices to general-use offices (violating the Comprehensive Plan).

Two, the studio units are fairly large, so the rental rate is probably higher than normal. The 47 studios for this project are about 400 sq ft, the 12 1BRs are about 500 sq ft, the 6 2BRs are about 750 sq ft. The two usual paths to profitability are (1) make expensive units, and (2) make lots of small units. It looks like this is going to be an example of the "expensive" approach. The market will support a certain amount of this, it's just not intended to be middle-class housing. Warning: I'm no expert on this. I did do a few searches to sanity-check comparables and census data.

Posted by Larry
a resident of Downtown North
on Nov 19, 2022 at 1:03 pm

Larry is a registered user.

@Allen: Thanks for the detailed response. Maybe we can reverse engineer this project’s pro forma using construction cost info from the San Jose project. For the income side, any ideas what comparable rents would be for similar residential units in the area? Also, the article didn’t mention the office space square footage or expected office occupancy load. Do you happen to know those? In addition to the office rent revenue, it would be interesting to calculate how many office jobs this project is likely to generate and how that will affect our overall jobs/housing imbalance. Some of the mixed-use projects I’ve seen are way above 1:1 workers per resident, making the housing shortage even more acute even though the projects do add housing. The Meta/FB village in Menlo Park comes to mind.

Posted by Allen Akin
a resident of Professorville
on Nov 19, 2022 at 2:11 pm

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@Larry: I checked a bunch of listings, and it looks like the rental rates for comparably-sized studios in Palo Alto average about $3100/month, with a standard deviation of about $750.

The office space is 9115 sq ft and residential space is 43664 sq ft, so this project is about 20% office space. I didn't see information in the application about expected occupancy, which isn't surprising because the conversion from medical to general-use is one of the not-yet-approved requests by the developer. Planning assumes 250 sq ft per worker, but surveys a few years ago showed a range of 70 to 250 sq ft per worker in Palo Alto. I normally assume the median, which was about 150.

At 150 sq ft per worker, that's 61 workers. At 65 housing units, some of which will have multiple residents, this project improves the jobs/housing imbalance, but negligibly.

CommercialCafe says the average lease rate in Palo Alto in 2021 was about $90/sq ft/year.

Posted by MyFeelz
a resident of JLS Middle School
on Nov 19, 2022 at 3:30 pm

MyFeelz is a registered user.

@Allen Akin I'm certainly not an engineer or developer, nor on any planning commissions, etc. With 61 workers living at the site, is the presumption that workers there will have additional family members living in the residence area? I have another question regarding the size of the units. Is 400 sq ft acceptable for an expensive apartment? Or any apartment? Will they have central heating/air? I realize you're not the developer but you do seem to have your finger on the pulse of the proposal.

Posted by Allen Akin
a resident of Professorville
on Nov 19, 2022 at 4:15 pm

Allen Akin is a registered user.

@MyFeelz: I don't see any presumption in the plans that workers or their families would be living in the housing. That seems right to me; people change jobs pretty frequently around here, and move for lots of reasons, so even if there's a connection in the beginning it's unlikely to last.

About unit size, I'm not sure how to answer. People are renting 400 sq ft studios (and even smaller), so there's definitely a market for it. I just don't know how large that market is. I suspect we're talking mostly single tech workers and people on extended stays here (visiting researchers at Stanford, for example; my wife and I have hosted a few of those).

There's a heat pump system on the roof, so that's likely to provide both heating and cooling throughout the building.

I'm getting my information from two places. The PTC meeting packet has all the information about zoning and plan conformance; that's here: Web Link . The full application with architectural drawings is available on the Planning Applications website here: Web Link . You have to click on the "Record Info" pulldown and then on the "Attachments" menu item and THEN on the individual plan file (like "C4_660 University Ave_PLAN1.pdf") to get them. I haven't found any way to copy a direct link for other people to use.

Posted by Larry
a resident of Downtown North
on Nov 20, 2022 at 3:43 pm

Larry is a registered user.

Thanks for the great data, Allen.

At $3100/month for the 400 sq. ft. (net) studios, it works out to $93/sq ft/year. However with a likely 80% building efficiency (per San Jose report, page 23), it drops to $74.40/sq ft/year. So unless I've made a mistake, office space is indeed more profitable than housing per square foot of new construction.

Re: housing imbalance, I wonder how many proponents of this project even realize that this project would supply so very little *net* housing. And given the wide range of the occupancy ratio, it could easily end up providing *negative* net housing.

So I have one final question before launching Excel. In the detailed cost rollups of the San Jose report (Exhibit B, PDF page 36 for example), there is an all-important number called the Total Supportable Cost. It represents the income side of the income/expense comparison that ultimately determines the project's viability. However I can't find any indication of where this number comes from. As far as I can tell, it is nineteen times the Net Operating Income per Year, a ratio that is consistent across all projects. It is as if the one of the model's embedded assumptions is for a nineteen year payback on investments.

Do you have any knowledge of the origin of this number? And is nineteen years a typical payback period in the industry? Anyone?

Posted by resident3
a resident of Another Palo Alto neighborhood
on Nov 20, 2022 at 7:08 pm

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“is nineteen years a typical payback period in the industry? Anyone?”

this is just random, but 20 years may have to do with the time period for a loan to finance some or all of the property.

Posted by Allen Akin
a resident of Professorville
on Nov 21, 2022 at 9:31 am

Allen Akin is a registered user.

@Larry: The best explanation of housing development financing that I've ever found is this one from the Terner Center: Web Link

I haven't read it in a couple of years, so I just skimmed it to see if it answers your question about payback period. The only such period I found was a 10-year investment horizon used to calculate the internal rate of return (on page 9). Maybe the SJ analysis uses 20 years, or you'll spot something I missed.

In general the Terner analysis confirms that only high-end projects pencil out, and that hard costs (labor, materials) are the primary reason. I'd forgotten how thorough this report is; it should be required reading.

Posted by Consider Your Options.
a resident of Another Palo Alto neighborhood
on Nov 21, 2022 at 4:45 pm

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It looks a lot like the developments that were just approved on Charleston and San Antonio roads. Why is our ARB not commenting on the visual homogeneity of these cookie cutter projects all over town?

Posted by Larry
a resident of Downtown North
on Nov 21, 2022 at 6:37 pm

Larry is a registered user.

@Allen: Thank you for the link to the Terner report. I will study it.

I built a spreadsheet that matches the San Jose report's rental exhibit B on page 36 of the PDF. I ignored the office space entirely and modeled it as sixty five 400SF studio apartments each renting for $3100/month as you suggest. The project penciled out in the black with a budget of about $10 million to acquire the land.

Only one thing became clear from the exercise, and it is of course the most obvious thing: the per square foot rent on the University project works out to be more than *double* ($7.75 per SF per month) any of the San Jose projects ($3.05 - $3.35).

So I guess the moral of the story is that we can probably build as much housing in Palo Alto as we want as long as renters are willing to pay an arm and a leg for it. And since this University Ave. project provides near-zero net units, building it won't likely bring rents down a bit.

Posted by Allen Akin
a resident of Professorville
on Nov 22, 2022 at 9:26 am

Allen Akin is a registered user.

@Larry: $3100/mo does seem high, but these are pretty large as studios go around here, so maybe it's competitive. I saw a price of $4100 nearby. RentCafe says the average across all apartments in Palo Alto is $3700.

I think your "moral of the story" is probably right. The flip-side is that renters have to be willing to pay an arm and a leg in order to make construction possible.

Posted by resident3
a resident of Another Palo Alto neighborhood
on Nov 22, 2022 at 10:46 am

resident3 is a registered user.

@Allen Aiken,

“The flip-side is that renters have to be willing to pay an arm and a leg in order to make construction possible.”

For low quality studios that aren’t meant for families in cookie cutter buildings, there are other nearby options which will charge less than Palo Alto. Cookie cutter buildings will eventually degrade the attractiveness of Palo Alto. Maybe this is part of the pleasure with the state mandates, to punish attractive places to live. The market always wins though and eventually the yield on cookie cutter depots will go down.

Posted by Jerry
a resident of Duveneck/St. Francis
on Nov 22, 2022 at 4:39 pm

Jerry is a registered user.

Four notable deaths in 2022: Queen Elizabeth II, Kanye's career, Twitter, and Palo Alto zoning laws.

Posted by Allen Akin
a resident of Professorville
on Nov 22, 2022 at 5:30 pm

Allen Akin is a registered user.

@resident3: "Maybe this is part of the pleasure with the state mandates, to punish attractive places to live."

I think of it a little differently. Desirable places to live have value; the purpose of the state mandates is to extract it.

Posted by Resident 1-Adobe Meadows
a resident of Adobe-Meadow
on Nov 23, 2022 at 11:43 am

Resident 1-Adobe Meadows is a registered user.

Driving on University coming in from the 101 you will see apartment buildings in the blocks just before you get down town. And the you have the senior center on Middlefield and University. There are already residential buildings in that location. So why the big issue here? I don't get why one corner has a senior center and the other corner cannot have a large building. You have two hotesl at that end of the town ao why an issue.

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