Palo Alto Adopts Bold Upzoning

rezoning

Palo Alto recently reached a new housing milestone. On November 13, Palo Alto’s City Council adopted a legislative package implementing rezonings originally proposed in the City’s still uncertified sixth cycle Housing Element. In addition to increasing density and height limits on specific parcels across Palo Alto, this rezoning effort will unlock multi-family residential development on certain properties zoned for industrial or commercial uses.

The City Council’s action comes after a year marked by Palo Alto’s inability to adopt a compliant Housing Element. After missing its state mandated January 2023 deadline, Palo Alto adopted a Housing Element in March. But HCD, the state agency tasked with ensuring local compliance with Housing Element Law, rejected the City’s March Housing Element forcing City planners to go back to the drawing board. A second round of Housing Element legislation passed in May but to little avail. During its review process, HCD again refused to certify Palo Alto’s Housing Element. In a letter sent to the City’s Planning Department in early August, HCD requested Palo Alto make various modifications before it would certify the City’s Housing Element, citing concerns that the City’s site inventory was insufficient. Consequently, as of the time of this publication, Palo Alto’s Housing Element is out of compliance with state law and the City may be vulnerable to further Builder’s Remedy projects. With the adoption of this legislative package, the Palo Alto City Council seeks to appease HCD in the hope that the agency will finally certify the City’s Housing Element.

In addition to modest upzoning across the city, the enacted legislation focuses on rezoning parcels identified as housing opportunity sites in the City’s Housing Element. These identified opportunity sites are primarily clustered around a handful of the City’s major transit corridors, including properties along the west side of El Camino Real between Page Mill and Matadero Avenue (the “El Camino Real Focus Area”), commercial and industrial properties near San Antonio Road and Fabian Way (the “GM/ROLM Focus Area”), and certain sites owned by Stanford University along El Camino Real and Pasteur Drive. These changes come as affected property owners and lessees along El Camino Real have expressed increasing interest in redeveloping their properties to accommodate new housing.

Under the adopted rezoning package, opportunity sites identified in the City’s Housing Element will be rezoned to allow multi-family housing as a permitted use and will enjoy higher density and height limits compared to base zoning. The upshot is that industrially zoned properties located in the GM/ROLM Focus Area will allow multi-family housing as a permitted use, maximum height increases, and FAR maximum increases from 0.5 to 2.5 within the focus area and 1.5 on other opportunity sites. Because these densities would represent the “base” density, developers could leverage the rezoning and use the State Density Bonus Law to construct even taller and denser buildings. Properties located in the GM/ROLM Focus Area will also enjoy modified development standards, including a relaxed landscape coverage standard, reduced parking requirements, and taller height limits further easing constraints on development and leading to more housing in Palo Alto.

Sites identified as part of the City’s El Camino Real Focus Area will also enjoy higher densities, height limits, and lot coverage maximums. But, in response to local concerns, these projects will also face new headwinds. Residential development on these properties will be subject to architectural review to meet either objective design standards or context-based design criteria and would be required to provide 20% below-market rate housing at 80% AMI, an increase from the City’s typical requirement of 15%.

Finally, responding to demands from Stanford University, Palo Alto’s City Council also adopted higher density zoning regulations for university owned properties along El Camino Real and Sand Hill Road. Even though Palo Alto will count housing built on Stanford campus toward its RHNA, the university intends to develop these parcels with subsidized housing for graduate students, faculty, and other Stanford employees.

Beyond the focus areas identified as part of the Housing Element update, however, the rezoning also relaxes design and development standards for certain exclusively residential projects intended to accommodate lower income households across the City. Palo Alto’s recent rezoning legislation presents opportunities across Palo Alto to develop more residential housing in one of the most expensive communities in the Bay Area.

 

Authored by Reuben, Junius & Rose, LLP Attorney Alex Klein.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

COPA is Here – Now What?

COPA

The Community Opportunity to Purchase Act (COPA) was approved unanimously earlier this year.  COPA legislation became effective on June 3, 2019, however, the COPA program rules were not published until September 3, 2019 by the Mayor’s Office of Housing and Community Development (MOHCD).  The COPA program applies to the sale of all San Francisco multi-family rental housing developments with three (3) or more units, and all vacant lots that could be constructed with three (3) or more residential units by right.  COPA essentially changes the way in which multi-family rental projects (and certain vacant lots) can be sold by providing certain nonprofit organizations a right of first offer and in some instances a right of first refusal.

Before a multi-family residential building (or vacant lot) with three (3) or more units can be offered for sale, the owner is required to notify certain nonprofit organizations that are on a “Qualified Nonprofit” list maintained by the City.  The Qualified Nonprofit list at this time contains six (6) nonprofits.  The initial “Notice of Sale” must be made via email, and should be sent to all Qualified Nonprofits at the same time.  The Notice of Sale must include statements indicating: (a) seller’s intent to sell the building, (b) the number of residential rental units, (c) the address for each rental unit, and (d) the rental rate for each unit.  Qualified Nonprofits then have five (5) days to notify the owner if they are interested in making an offer.  If a Qualified Nonprofit expresses interest in buying the building, the owner must provide further disclosures to the interested nonprofit, including the name and contact info for each tenant, which triggers an additional 25-day period during which the Qualified Nonprofit may submit an actual offer.  If none of the Qualified Nonprofits expresses an interest in making an offer within the initial 5-day period, the owner may proceed in offering the building for sale and may solicit officers for purchase.

If a Qualified Nonprofit expresses interest during the initial 5-day period, and thereafter during the 25-day period makes an offer, an owner is not required to accept an offer, however, any Qualified Nonprofit that made an offer that was rejected maintains a Right of First Refusal.  Under the Right of First Refusal, the owner is required to provide notice to the Qualified Nonprofit(s) that includes the same terms and conditions that were received from the 3rd party purchase offer.

Similarly, in the event the owner fails to provide the initial 5-day Notice of Sale before offering the building for sale, the Qualified Nonprofits are entitled to receive notification of their Right of First Refusal, followed by a 30-day offer submittal period.

If a building is purchased by a Qualified Nonprofit, the existing tenants are entitled to displacement protection and the building would be restricted as rent-restricted affordable housing in perpetuity, at 80% AMI level.  A sale to a Qualified Nonprofit is also subject to a partial transfer-tax exemption.

Under COPA, all multi-family building (and vacant lot) sellers are required to provide a signed declaration to the City, under penalty of perjury, within 15 days after the sale, affirming that the seller complied with the COPA requirements.  Seller’s failure to comply with COPA could result in damages in an amount sufficient to remedy the harm to the Qualified Nonprofits and e.g. in penalties in the amount of 10% of the sales price for the first willful or knowing violation, 20% for the second willful or knowing violation, and 30% for any subsequent willful or knowing violation.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tuija Catalano.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.