Builders vie to construct housing on downtown Palo Alto lot

Palo Alto’s effort to transform downtown parking lots into affordable housing sites could reach a milestone later this month, when the City Council considers a new plan from the nonprofit Alta Housing to build more than 50 apartments on a Lytton Avenue lot.

Alta, which three years ago completed construction of the Wilton Court, a 59-unit project for low-income residents and adults with disabilities, has emerged over the past two months as the leading contender to participate in the city’s new parking lot program. It was one of two developers, alongside MidPen Housing, to respond to the city’s solicitation of housing proposals on downtown lots in 2023.

The project would be focused on Lot T, a 20,000-square-foot parking lot at the intersection of Lytton and Kipling Street. The lot currently has space for 52 vehicles, though, according to the city’s Office of Transportation, it is only 40% occupied over the course of the day.

Both developers were asked to present three development scenarios: one, known as Scenario A, which combines housing with on-site parking for the residents; another one called Scenario B that includes parking for both residents and for the public; and Scenario C, which includes no on-site parking and relies on having residents park in other downtown lots and garages.

After receiving the proposals and discussing them with both Alta and MidPen, planning staff gave the edge to the former. A report from the Department of Planning and Development Services states that Alta Housing demonstrated “greater due diligence and attention to detail during the post-submittal discussion with staff and an overall focus on project feasibility, financing and success.”

Under Alta’s proposal, the new housing development would be 50 feet tall, if there’s no on-site parking and 75 feet tall if it includes parking for both residents and the broader community. Under Scenario A, which includes parking only for residents, the 54-apartment building would have a height of 60 feet and include a teen room, a community room, a laundry room, podium parking and bike parking on the ground floor. Scenario B and Scenario C would feature 57 and 47 units, respectively, under Alta’s proposal.

Alta also proposed to set aside 25% of its units for homeless individuals and households. These units would be set aside for those below 30% of area medium income. The remaining would be dedicated to those making under 50% or 60% of area median income.

MidPen is proposing a larger project as part of Scenario A: a seven-story building with 73 apartments. The units would range from studios to three-bedroom apartments, and they would all be designated for families earning up to 60 percent of the area median income. Its Scenario B proposal is also seven stories high but includes 61 apartments, while Scenario C calls for 77.

Both developers are proposing to provide half a parking space per unit. While this is below the city’s standard regulations, Lot T is located within half a mile of the downtown Caltrain station and, as such, falls under Assembly Bill 2097, which allows developments to provide no parking at all.

The larger project comes with greater costs, according to the financial analysis provided by the two developers. It would also likely entail larger contributions from the city, a factor that staff considered when it gave the edge to Alta. The Alta Housing project anticipates a gap of about $4 million that the city would have to fill for a project, which would cost between $46 and $70 million to develop, depending on which scenario is chosen. For the MidPen project, the city gap funding would be between $9.4 million and $10.2 million.

“Notably, the Alta Housing proposal has the added benefit of requiring less gap funding from the City; making this project more feasible for the City as well,” the report states.

City staff were also swayed by Alta’s local knowledge and its sensitivity to adjacent properties. The city’s report noted that Alta’s designs were “more contextually appropriate relative to the historic homes on Kipling Street, in all scenarios.” Yet city planners also acknowledged that the MidPen proposal has one advantage: additional units.

“MidPen Housing’s proposals included more units in each scenario and had a lower per unit cost compared to Alta Housing’s proposals, and if pursued at the contemplated heights, could inform other policy directions related to future downtown housing development,” the report states.

Even if the council chooses to advance Alta’s plan, the decision will not necessarily preclude MidPen from continuing to work with the city on parking lot proposals. The Lot T development is intended to be the first of several such efforts and city planners note MidPen can be considered for future housing projects of this sort.

In presenting his proposal, Randy Tsuda, president and CEO of Alta Housing, touted the nonprofit group’s local presence. Alta administers the city’s below-market-rate program and 23 or its 28 properties are based in Palo Alto. Formerly known as the Palo Alto Housing Corporation, the developer briefly stopped working in Palo Alto after voters overturned in a 2013 referendum a zoning change that would have enabled it to build 60 units for low-income seniors and 12 single-family homes on Maybell Avenue. The developer returned to build Wilton Court, which became Palo Alto’s first affordable-housing project in over a decade when it welcomed new residents in 2022.

“For over 50 years, we have been committed to serving this community, and our staff and Board members are deeply connected to the area. As a result, we are particularly invested in the success of projects that enhance the well-being of Palo Alto’s residents,” Tsuda wrote in his proposal.

Its proposal includes a C-shaped building with a podium courtyard that includes playground equipment and seating areas. Upper floors would include laundry lounges with views of the downtown skyline, the proposal states.

“This design balances history and modernity, functionality, and beauty,” Alta’s proposal states.

MidPen’s plan calls for between 71 and 77 dwellings, all of which would be affordable to households making between 30% and 60% of area median income. The units would range from studios to three-bedroom apartments, with at least 50% either two- or three-bedroom apartments for families.

To support its candidacy, MidPen touted its 24 new construction development projects, including the Kiku Crossing project in San Mateo that combined 225 apartments with a public garage. The project required the developer to “innovate and push the boundaries of conventional approaches to designing and financing affordable housing,” wrote Abby Goldware Potluri, MidPen’s senior vice president.

“Our proposed project for Lot T, like Kiku Crossing, will be bold and responsible to the City’s goals,” Potluri wrote. “It will provide robust resident services programming for families, including our academically based, literacy focused after school program.”

Palo Alto’s effort to construct housing on public parking lots is among the initiatives that the city included in its Housing Element, its blueprint for building 6,086 dwellings by 2031. The document identified six parking lots – four in the downtown area and two near California Avenue – that can collectively accommodate about 212 new apartments, according to the document.

While the City Council strongly supports this program, not everyone is thrilled about the prospect of parking lots getting converted to housing. Attorney David Lanferman, who has represented downtown developers, argued in an August letter to the state Department of Housing and Community Development that because the lots were created through fees contributed by developers, the city does not have the “unfettered right or legal authority to convert any of the existing Downtown parking lots.”

To appease developers’ concerns about disappearing parking spots, the council is concurrently pursuing a construction of a new parking garage on Lot D, on Hamilton Avenue and Waverley Street.

While any potential project would still be years away from final design and construction, the council’s Jan. 21 vote could determine what the developments will ultimately look like. Planning staff are recommending that the council direct it to enter into exclusive negotiations with Alta Housing. The council will also consider how much parking to require on site, the bedroom mix and the height of the proposed building.

Planning staff also noted in the new report that both developers made a strong case for why the city should pick them.

“Both Alta Housing and MidPen Housing are experienced and respected affordable housing providers in the Bay Area. Alta Housing’s portfolio stands out for its numerous projects in Palo Alto while MidPen Housing’s portfolio stands out for its overall size and impact,” the report states.

This story originally appeared in Palo Alto Weekly. Gennady Sheyner covers local and regional politics, housing, transportation and other topics for the Palo Alto Weekly, Palo Alto Online and their sister publications.