Agenda, first session — East Palo Alto City Council, September 2, 2025

EAST PALO ALTO CITY COUNCIL

REGULAR SESSION AGENDA
Tuesday, September 2, 2025, 6:30 PM
EPA Government Center
2415 University Avenue, First Floor
East Palo Alto, CA 94303
NOTICE
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International numbers available: https://zoom.us/u/aMWYF4KT East Palo Alto City Council September 2, 2025 Agenda
1 1. APPROVAL OF THE AGENDA

2. PUBLIC COMMENT

3. SPECIAL PRESENTATIONS

3.1 San Francisquito Creek Reach 2 Update

4. POLICY AND ACTION

4.1 YMCA 2025 Grant Agreement for Community Access to Facility

5. PUBLIC HEARINGS

5.1 Inclusionary Housing Alternative Compliance Option for Four Corners Mixed-Use Project at 2400 University Avenue, Portion of APN 063-111-250

CALL TO ORDER AND ROLL CALL
Recommendation: Receive informational update from SFCJPA on the status of the San Francisquito Creek Reach 2 Project.

Recommendation: Adopt a resolution:

1. Awarding to, and authorizing the City Manager to execute, a $175,000 agreement, in a form approved by the City Attorney, with the YMCA for providing full facility access on all weekends, safety around water lessons, group swim lessons, a youth basketball league, and youth basketball clinics, all for free to East Palo Alto residents, through June 30, 2026; and

2. Finding that the action being considered by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a “project” pursuant to 15378(b)(4) because it is a fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant impact on the environment.

Recommendation:

Staff recommends that the City Council conduct a public hearing, and adopt a resolution finding:
a. Finding that the proposed alternative for the Four Corners mixed-use development project at 2400 University Avenue (portion of APN 063-111-250, “Project”), to provide 25 rental units, deed-restricted at 80% of Area Median Income (“AMI”) does not meet the City’s Inclusionary Housing Ordinance (“IHO”) requirements under Section 18.37.080 of the East Palo Alto Municipal Code (“EPAMC”). Specifically, staff finds:

The proposed 25 rental units at 80% of AMI do not meet the required distribution of affordability levels as outlined in the IHO. The City’s IHO requires the deed-restricted units to be allocated among households at East Palo Alto City Council September 2, 2025 Agenda
2 5.2 Inclusionary Housing Alternative Compliance Option for Four Corners Townhome Project at 2400 University Avenue, Portion of APN 063-11-250

5.3 PG&E Rule 20A - Demeter Street Underground Di strict Establishment 35% AMI, very low-income, and low-income levels, but the proposal fails to meet these criteria; and
The proposal does not provide additional units or deeper levels of affordability, instead the proposal falls short of meeting both the number of units required and also does not achieve the AMI levels required. As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit.
b. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b) (5).

Recommendation: Adopt a resolution:
a. Finding that the proposed alternative for the Four Corners townhome development project at 2400 University Ave (portion of APN 063-111-250, “Project”), to provide 11 townhome units, deed-restricted at 120% of Area Median Income (“AMI”) does not meet the City’s Inclusionary Housing Ordinance (“IHO”) requirements under Section 18.37.080 of the East Palo Alto Municipal Code (“EPAMC”), including that:

The 11 deed-restricted townhome units only represent 10% of the total 106 units, and do not meet the required 20% as outlined in the IHO; and The 11 units at 120% of the Area Median Income do not satisfy the affordability levels required by the City. The City’s IHO requires these units to be allocated among households at median and moderate-income levels, but the proposal fails to meet these criteria; and The proposal does not provide greater public benefit (i.e., additional units or deeper levels of affordability), instead the proposal falls short of meeting both the baseline number of units required and also does not achieve the baseline AMI levels required. As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit.
b. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b) (5).

East Palo Alto City Council September 2, 2025 Agenda
3 6. COUNCIL REPORTS

7. ADJOURNMENT
Recommendation: Adopt a resolution:

1. Designating Demeter Street as an underground Utility District; and

2. Finding that the project is categorically exempt from the California Environmental Quality Act (CEQA) Guidelines pursuant to California Code of Regulations, Title 14, Chapter 3 (“Guidelines for Implementation of the CEQA”), Section 15302 (d) Conversion of overhead electric utility distribution system facilities to underground including connection to existing overhead electric utility distribution lines where the surface is restored to the condition existing prior to the undergrounding.

Upcoming meetings:

Regular Meeting September 16, 2025 6:30 PM
Study Session September 23, 2025 6:00 PM
Regular Meeting October 7, 2025 6:30 PM
This AGENDA is posted in accordance with Government Code Section 54954.2(a) This Notice of Availability of Public Records: All public records relating to an open session item which are not exempt from disclosure pursuant to the Public Records Act, that are distributed to the majority of the City Council will be available for public inspection at the City Clerk’s Office, 2415 University Avenue, East Palo Alto, CA at the same time that the public records are distributed or made available to the City Council. Such documents may also be available on the East Palo Alto website www.cityofepa.org subject to staff’s ability to post the documents prior to the meeting. Information may be obtained by calling (650) 853-3100.

The City Council meeting packet may be reviewed by the public in the Library or the City Clerk's Office. Any writings or documents pertaining to an open session item provided to a majority of the City Council less than 72 hours prior to the meeting, shall be made available for public inspection at the front counter at the City Clerk's Office, 2ND Floor, City Hall, 2415 University Avenue, East Palo Alto, California 94303 during normal business hours. Information distributed to the Council at the Council meeting becomes part of the public record. A copy of written material, pictures, etc. should be provided for this purpose.

East Palo Alto City Council Chambers is ADA compliant. Requests for disability related modifications or accommodations, aids or services may be made by a person with a disability to the City Clerk's office at (650) 853-3127 no less than 72 hours prior to the meeting as required by Section 202 of the Americans with Disabilities Act of 1990 and the federal rules and regulations adopted in implementation thereof.

DECLARATION OF POSTING
This Notice is posted in accordance with Government Code §54954.2(a) or §54956. Members of the public can view electronic agendas and staff reports by accessing the City website. Under penalty of perjury, this Agenda was posted to the public at least 72 hours prior to the meeting.

POSTED: August 26th, 2025
ATTEST:

Lucero Avila-Garcia
Lucero Avila-Garcia
Executive Assistant to the City
Manager
East Palo Alto City Council September 2, 2025 Agenda
4 E
astPaloAltoCityCouncil September2, 2025Agenda
5 POLICY AND ACTION ITEM 4.1

EAST PALO ALTO

CITY COUNCIL

STAFF REPORT
DATE: September 2, 2025
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Shiri Klima, Assistant City Manager
Maurice Baker, Community Services Manager
SUBJECT: YMCA 2025 Grant Agreement for Community Access to Facility Recommendation
Adopt a resolution:

1. Authorizing the City Manager to award and execute, a $175,000 agreement, in a form approved by the City Attorney, with the YMCA for providing full facility access on all weekends, safety around water lessons, group swim lessons, a youth basketball league, and youth basketball clinics, all for free to East Palo Alto residents, through June 30, 2026; and

Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:

Priority: Parks, Recreation, and Community Facilities
6 POLICY AND ACTION ITEM 4.1
Background
Chapter 3.68 of the Municipal Code, the uniform transient occupancy tax (TOT ordinance), establishes the imposition of a 12 percent tax on “hotel” stays.  Hotels are broadly defined and include hotels, motels, lodging houses, apartment houses, dormitory and other similar structures occupied by transients for dwelling, lodging or sleeping purposes.  Transient stays are defined as stays for 30 or fewer consecutive days.  This tax was originally imposed by the voters in 1998. In 2002, East Palo Alto voters modified the TOT ordinance to require the dedication of 10 percent of TOT revenue to affordable housing and 10 percent to children, youth and family services, including senior citizens (CYFS).

According to the Municipal Code Section 3.68.150, CYFS revenues can only be used to:

1. Support comprehensive, integrated, and community-based systems of services and support systems for children, youth, and their families and seniors to promote individual and community health, recreation, and cultural arts, and;

2. Fund grants or loans to nonprofit service providers headquartered in East Palo Alto or for which a majority of clients served are East Palo Alto residents.

During the Fiscal Year (FY) 2025-29 Strategic Priorities and FY 2025-27 Work Plan process, Council had an interest in supporting this organization further considering its mission and track record. In the FY 2025-26 Budget, Council added $175,000 from the CYFS TOT fund balance to YMCA for this programming.

Analysis
The YMCA is a nonprofit organization dedicated to building healthy, confident, connected children, adults, and families. The Lewis and Joan Platt East Palo Alto Family YMCA offers swim lessons to both children and adults; hundreds of free group exercise classes including pilates, yoga, water exercise, cycling and Zumba; personal training and coaching to help individuals set and meet specific health goals; and many other offerings.

Because the YMCA is a nonprofit organization located in East Palo Alto, and a majority of its clients served are East Palo Alto residents, this TOT grant comports with the Municipal Code.

To create a dynamic experience for the largest possible number of people, the YMCA proposes the following:

1. Weekend Wellness: Every Saturday and Sunday, the facility will be open to EPA residents. This access includes unrestricted usage of all on-site group exercises classes, the wellness area, child watch services, pool, and other recreational activities.

2. Safety around Water: Week-Long Swim Safety Program – 2 Sessions, 24 Youth Each Session

3. Group Swim Lessons: 6-Month Long Session – 4 Classes Per Month, 24 Youth

4. Youth Basketball League: 10-Week Long Session – 50 Youth 7 POLICY AND ACTION ITEM 4.1

5. Youth Basketball Clinics: 2 Week-Long ‘Skills And Drills’ Clinics Prepares Kids For League Play – 50 Youth
Such programming efforts would extend this fall through June 30, 2026, and would aim to assist 300 residents. The YMCA promises bilingual staff available to assist each resident to assure complete integration and utilization of services.

All residents registering for membership through this initiative will have to provide a valid proof of residence such as utility bills or tax forms.

The marketing and promotion plan includes a bi-weekly email newsletter, tapping into the YMCA’s database of previous and current members who are EPA residents, requesting the City also distribute marketing material through its means of communication, a dedicated section of the YMCA’s website for the newsletter archive and other resources, social media, and direct mailings to local community-based organizations, schools, faith based groups, and local businesses. Communication will be in both English and Spanish. More details can be found in the attached proposal.

Fiscal Impact
The City Council appropriated $175,000 in CYFS funds toward the YMCA during the FY 2025- 26 budget adoption. CYSF TOT fund reserve is projected to be $599,500 at June 30, 2026.

Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto.

Environmental
The action being considered by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a “project” pursuant to 15378(b)(4) because it is a fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant impact on the environment.

Government Code § 84308
Applicability of Levine Act: Yes.

Analysis of Levine Act Compliance: YMCA, Delayzio Amerson, Senior Executive Director.

Apart from him, staff are unaware of any other parties, participants, or contributions relevant to the Council’s consideration of this item.

Attachments

1. Resolution.

2. YMCA proposal
8 Resolution No. XX-2025 1 of 2
RESOLUTION NO. XX – 2025

A RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF EAST PALO ALTO
AUTHORIZING THE CITY MANAGER TO AWARD AND EXECUTE, A $175,000 AGREEMENT, IN

A FORM APPROVED BY THE CITY ATTORNEY, WITH THE LEWIS AND JOAN PLATT EAST

PALO ALTO FAMILY YMCA FOR PROVIDING THE WEEKEND WELLNESS PROGRAM, SAFETY

AROUND WATER LESSONS, GROUP SWIM LESSONS, A YOUTH BASKETBALL LEAGUE AND

YOUTH BASKETBALL CLINICS AT ITS LOCATION FOR NO COST TO THE COMMUNITY THROUGH JUNE 30, 2026; AND AUTHORIZING THE FINANCE DIRECTOR TO DISBURSE

GRANT FUNDING TO THE YMCA ACCORDING TO THE CADENCE LISTED IN SUCH

AGREEMENT
WHEREAS, The YMCA is a nonprofit organization dedicated to building healthy, confident, connected children, adults, and families; and
WHEREAS, the Lewis and Joan Platt East Palo Alto Family YMCA offers swim lessons to both children and adults; hundreds of free group exercise classes including pilates, yoga, water exercise, cycling and Zumba; personal training and coaching to help individuals set and meet specific health goals; and many other offerings; and
WHEREAS, during the FY25-29 Strategic Priorities and FY25-27 Work Plan process, the City Council determined to support East Palo Alto’s YMCA from the children, youth and family services (CYFS) Transient Occupancy Tax (TOT) fund; and
WHEREAS, in the FY 2025-26 Budget, Council added $175,000 from the CYFS TOT fund balance to YMCA for this programming; and
WHEREAS, the YMCA proposes the following in FY25-26:
- Weekend Wellness: Every Saturday and Sunday, the facility will be open to EPA residents, including unrestricted usage of all on-site group exercises classes, the wellness area, child watch services, pool, and other recreational activities; and - Safety around Water: Week-Long Swim Safety Program – 2 Sessions, 24 Youth Each Session; and
- Group Swim Lessons: 6-Month Long Session – 4 Classes Per Month, 24 Youth; and - Youth Basketball League: 10-Week Long Session – 50 Youth; and - Youth Basketball Clinics: 2 Week-Long ‘Skills And Drills’ Clinics Prepares Kids For League Play – 50 Youth.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY:

1. Finds the foregoing recitals are true and correct and are incorporated by this reference into this action;

2. Awards, and authorizes the City Manager to execute, a $175,000 agreement, in a form approved by the City Attorney, with the YMCA for providing the aforementioned services at its location for 9 Resolution No. XX-2025 2 of 2
no cost to the community through June 30, 2026;

3. Authorizing the Finance Director to disburse grant funding to the YMCA in accordance with the agreement;and

4. Finds that the proposed action by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a “project” pursuant to 15378(b)(4) because it is a fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant impact on the environment.

PASSED AND ADOPTED this 2
nd day of September, 2025, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

Martha Barragan, Mayor
ATTEST: APPROVED AS TO FORM:

James Colin, City Clerk John D. Lê, City Attorney
10 PUBLIC HEARING ITEM 5.1

EAST PALO ALTO

CITY COUNCIL

STAFF REPORT
DATE: September 2, 2025
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Yajaira Morales, Housing Project Manager
Alex Waggoner, Program Manager, HEART Housing Consultant Services SUBJECT: Inclusionary Housing Alternative Compliance Option for Four Corners Mixed-Use Project at 2400 University Avenue, Portion of APN 063-111-250 Recommendation
Adopt a resolution:
a. Finding that the proposed alternative for the Four Corners mixed-use development project at 2400 University Avenue (portion of APN 063-111-250, “Project”), to provide 25 rental units, deed-restricted at 80% of Area Median Income (“AMI”) does not meet the City’s Inclusionary Housing Ordinance (“IHO”) requirements under Section 18.37.080 of the East Palo Alto Municipal Code (“EPAMC”). Specifically, staff finds:
 The proposed 25 rental units at 80% of AMI do not meet the required distribution of affordability levels as outlined in the IHO. The City’s IHO requires the deed-restricted units to be allocated among households at 35% AMI, very low-income, and lowincome levels, but the proposal fails to meet these criteria; and  The proposal does not provide additional units or deeper levels of affordability, instead the proposal falls short of meeting both the number of units required and also does not achieve the AMI levels required. As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit. b. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b)(5).
11 PUBLIC HEARING ITEM 5.1
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
 Comprehensive Housing
 Land Use, Economic and Workforce Development
 Public Health, Safety, and Quality of Life
Background
The Four Corners mixed-use project located at 2400 University, APN 063-111-250 (“Project”), is a proposed mixed-use development on a currently vacant 327,622 square feet (7.52 acre) lot.

The Project applicant is Four Corners EPA Property Owner, LLC c/o Sand Hill Property Company (“Applicant”). The Project area is zoned as Urban Residential (“UR”). The Applicant is proposing an Alternative Compliance Plan for the Inclusionary Housing Ordinance (“IHO”) requirements, with 15% of the rental units restricted at only 80% of Area Median Income (“Inclusionary Units”).
1 Prior Project and Proposed Changes
On November 19, 2020 the Planning Division received a formal application for a 180-unit rental mixed-income development at 2400 University/1675 Bay Road, including 40,000 square feet of retail, restaurants, and community space, and 500,000 square feet of life science/laboratory space. The 180 proposed residential units were comprised of 125 base units and 55 units resulting from the Applicant using State Density Bonus Law (“SDBL”). The City’s IHO required the Applicant to provide 20% of the 125 base units as on-site deed-restricted affordable units, that is 25 on-site Inclusionary Units. At the time, the Applicant stated they would be able to meet this IHO requirement; however, later decided not to pursue the project.

On December 2, 2024, Applicant submitted a new Preliminary Application (PRE) 24-004 to initiate the preliminary review process and gather community feedback on a new project at the site: the University and Bay at Four Corners Mixed Use Project, and vested rights under Government Code Section 65589.5(o)(1). PRE-24-004 included a total of 200 residential units with ground floor retail and community spaces. Again, the Applicant presented that the project would meet all requirements of the IHO including the 20% baseline requirement, by providing 40 affordable units: 10 at the extremely-low-income level, 20 at the very-low-income level, and 10 at the low-income level, and the remaining 160 at market rate. Additionally, the Applicant pledged to meet all other requirements of the IHO, including concurrent construction of inclusionary units and market rate units, even distribution of inclusionary units throughout the project site, and like finishes and access to amenities.

1 State income limits define “median income” as 80% area median income (“AMI”). The City’s Inclusionary Housing Ordinance defines “median income” as 70% AMI. “Median income” and “80% AMI” are therefore sometimes used interchangeably, but for the City’s inclusionary housing purposes, it means 70% AMI. 12 PUBLIC HEARING ITEM 5.1
The Planning Commission considered the preliminary application at its March 24, 2025 meeting2. Commissioners expressed concern regarding the limited amount of retail space within the proposed project and recommended that additional retail space be provided in more prominent, street-facing locations to better activate the corridor. Commissioners noted that housing units priced at 80 percent of the Area Median Income (AMI) may not be considered affordable in East Palo Alto and recommended including tables that illustrate the income levels associated with each AMI threshold.

The Current Proposed Project
On May 27, 2025, the Applicant returned to the Planning Division and proposed a lower density, primarily residential, 168-unit proposal with 5,554 square feet of ground-floor retail space. The Applicant cited higher than anticipated construction costs, interest rate increases, and decreased demand for employment uses as reasons for the modification. The Applicant also cited delays related to the update of the area’s Specific Plan “affected the original vision” for the plan thereby purportedly making the original plan infeasible. The Specific Plan included a thorough Community Benefits Framework that not only encouraged more affordable housing, but also would provided more square footage and density to projects that qualify as an Exemplary Project; the Specific Plan analyzed several pending applications from 2020, including original Four Corners development proposal, to develop the framework. However, the Applicant has requested that this revised application be processed under the previous 2013 RBD Specific Plan, as required by State Bill 330.

Inclusionary Housing Requirement

All residential development projects are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code (“EPAMC”) Inclusionary Housing Ordinance (“IHO”), adopted by City Council on November 19, 2019.3 An applicant for development of a rental residential project with five or more units must provide twenty percent (20%) of the dwelling units in the residential development as Inclusionary Units upon the same site as the residential development, with 25 percent of the Inclusionary Units available at an affordable rent to households at 35% of the Area Median Income, 50 percent of the Inclusionary Units available at an affordable rent to households at 50% of the Area Median Income (“Very Low-Income”), and 25 percent of the Inclusionary Units available at an affordable rent to households at 60% of Area Median Income (“Low-Income”).

2 March 24, 2025 Planning Commission Meeting (item 6.1):
https://d3n9y02raazwpg.cloudfront.net/cityofepa/6109f8e6-d2d3-11ef-a9e2-005056a89546-29a637e7-42e3-4737- b76d-b5307e52bbc0-1742585947.pdf
3 November 19, 2019 City Council meeting (item 9B):
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1271 13 PUBLIC HEARING ITEM 5.1
Fractions of an Inclusionary Unit shall be provided by the payment of an In-Lieu fee as established in Section 18.37.050.A. The In-Lieu Fee for rental residential units for Fiscal Year 2025-26 is $299,200 per unit.4 The fee is applicable upon issuance of a building permit or final map because this is a residential development project. Therefore, this project would be liable to pay the In-Lieu Fee.

The IHO requires an Inclusionary Housing Plan to be approved by the Housing Division prior to scheduling the project for Planning Commission action. The content of the Inclusionary Housing Plan is incorporated into the Housing Division conditions of approval.

In the Inclusionary Housing Plan, applicants must select from the listed “Inclusionary Housing Compliance Options” to show how their project will meet the inclusionary requirement.

Developers may request alternative compliance options subject to City Council approval.

Developers must identify the proposed alternative compliance option in the Inclusionary Housing Plan submitted with the Planning application and must pay all costs needed to demonstrate compliance. Providing such evidence does not guarantee approval. If a developer proposes an alternative compliance option, the inclusionary requirement for the Residential Development increases from 20% to 25% of applicable units at specific affordability levels. a. Off-Site Construction: Developers may build the required Inclusionary Units (25%) at an off-site location if the City Council approves. The Developer, an affiliated entity, or another entity under agreement with the Developer may complete the construction, subject to City approval. Please see Chapter 5 (Off-Site Construction) for details of the off-site construction option.
b. In-Lieu Fee Payment: With City Council approval, Developers may pay an In-Lieu Fee to fulfill the 25% inclusionary requirement. The City deposits all In-Lieu Fees into an affordable housing fund. See Chapter 2, 2A, 2B, and 2C for details on the In-Lieu Fee compliance option.
c. Other Alternative Compliance Options: Developers may propose other compliance options. The City Council may approve them if the Developer provides substantial evidence that the option will provide as many or more Inclusionary Units at the same or lower income levels, or that it will otherwise provide greater public benefit than building on-site.

Please see the Inclusionary Housing webpage for more details and the updated chapters of the IHO Guidelines as referenced: https://www.cityofepa.org/housing/page/inclusionary-housing.

IHO Requirement for the Current Proposed Project
The current proposed Four Corners mixed-use development project at 2400 University Avenue includes 168 residential units – 125 base units and 43 units resulting from the Applicant using State Density Bonus Law (“SDBL”). The City’s IHO requires the Applicant to provide 20% of the 125 base units as on-site deed-restricted affordable units, that is 25 on-site Inclusionary Units –

4 For In-Lieu Fee updates, see: https://www.cityofepa.org/housing/page/inclusionary-housing. 14 PUBLIC HEARING ITEM 5.1
6 at or below 35% of AMI, 13 at or below 50% of AMI, and 6 units at or below 65% of AMI. The Applicant proposes an alternative compliance option under option C, above, Other Alternative Compliance Options. The Applicant’s proposal is included in Attachment 2.

This staff report evaluates the merits of the proposed alternative and ultimately recommends that the City Council deny the proposed alternative because it does not fulfill the IHO on-site affordability requirements or the alternative compliance plan requirements. If the Inclusionary Housing Plan is approved by City Council, the project’s entitlements, which include a Design Review and Tentative Map, would be scheduled for Planning Commission consideration once the project is ready for a decision. The timeline for the project is:

Table 1. Project Timeline
December 2, 2024 Applicant Submitted Preliminary Application Project Packet March 24, 2025 Preliminary Application Planning Commission Review April 1, 2025 Preliminary Application City Council Review May 27, 2025 Applicant Submitted Project Packet
July 21, 2025 Applicant Submitted Complete Inclusionary Housing Plan Pending Planning Commission Hearing
Pending Final Map
Analysis
The IHO is intended to ensure that new developments contribute meaningfully to meet the City’s affordable housing goals exacerbated by their projects, especially on high priority sites, which are identified for their potential to deliver more public benefit, not less. Allowing reduced affordability requirements on such sites undermines the ordinance’s purpose and sets a precedent that could lead to weakened standards across other key parcels.

The City’s IHO requires residential rental project developers to provide 20% of total eligible units on-site as affordable units at specific affordability levels. Because the Applicant’s proposed alternative does not include 20% of total units on-site at the IHO’s stated affordability levels, the IHO requires the Developer to provide an alternative that is equivalent to or exceeds the public benefit that would result from 25% of total eligible units being affordable at specific affordability levels.

Developer’s Proposed Alternative Compliance
The proposed Project consists of 125 units in the base allowed density, and 43 SDBL units, for a total of 168 rental units. As the number of Inclusionary Units is calculated on the base units, the Project is required to provide, under Original Compliance, 25 on-site Inclusionary Units, at the Area Median Income (“AMI”) levels outlined in Table 2, below. Under Alternative Compliance, the Project is required to provide 31 on-site or off-site Inclusionary Units at AMI levels approved by City Council, and an In-Lieu Fee payment for a 0.25 partial unit ($74,800 in FY 25-26). 5 The

5 EPAMC 18.37.050.A states: “In the event only one inclusionary unit is required, or the inclusionary requirement results in a fraction that does not evenly divide by the percentages required above, inclusionary units shall first be 15 PUBLIC HEARING ITEM 5.1
calculation is as follows:
125 Base Units x .25 = 31.25 Inclusionary Units Alternative Compliance Requirement = 31 Inclusionary Units and 0.25 In-Lieu Fee Payment
The Applicant may meet this requirement through providing the units on and off-site, paying the appropriate In-lieu fees, or a combination of unit provision and fee payment; however, the IHO requires the proposed alternative to provide a public benefit equivalent to or beyond that resulting from 31.25 units at specific affordability levels.

Applicant’s Proposed Alternative
On May 27, 2025, the Applicant proposed to provide 20% of the base units (25 units) as on-site Inclusionary Units to be rented at 80% of AMI, which is Median Income according to the IHO.

The Applicant met several times with City Staff between June 25 and July 21 to discuss the Alternative Compliance Options. The Applicant submitted a complete Inclusionary Housing Plan application on July 21, 2025.

The proposed 25 on-site Inclusionary Units to be rented at an affordable rent for Median IncomeHouseholds (80% of AMI) is considered an alternative compliance due to the proposed affordability level. Had the Applicant proposed affordability levels of 35% AMI, Very Low-Income, and Low-Income as shown in Table 2, the application would have been considered Original Compliance. This proposed alternative does not meet the IHO Original Compliance or the IHO Alternative Compliance requirements.

Table 2: Project’s Inclusionary Housing Income Requirements Maximum Income
Percent of
Inclusionary
Units
Original
Compliance
Number of Units
Required
Alternative
Compliance
Number of
Units
Required
Developer’s
Proposed
Number of
Units
35% of AMI 25% 6 units 8 units 0 units
Very Low-Income (50%
of AMI)
50% 13 units 16 units 0 units
Low-Income (60% of
AMI)
25% 6 units 7 units 0 units
80% of AMI 0% 0 0 units 25 units
Total Inclusionary Units 100% 25 units 31 units +

0.25 In-Lieu
Fee Payment
25 units

provided at the lower required affordability level.” EPAMC 18.37.050.C.2 states: “In computing the total number of inclusionary units required in a residential development, fractions of an inclusionary unit shall be provided by the payment of an in-lieu fee as established in Section 18.37.050.B.” 16 PUBLIC HEARING ITEM 5.1
Applicant’s Explanation of Proposed Alternative
The Applicant provides several arguments for City Council to make its findings in favor of their Alternative Compliance Plan, which are listed in detail in Attachment 2. The Applicant cited higher than anticipated construction costs, interest rate increases, and decreased demand for employment uses as reasons for the modification. The Applicant also stated that the delays related to the update of the area’s Specific Plan affected the original vision for the plan and made the original plan infeasible.

This development is proposed on a “high priority site” for development in the City’s Housing Element. The Applicant has stated this as a reason to waive the IHO requirements and approve their Alternate Compliance Option. However, this argument is not a sufficient limiting principle to justify approving an alternative compliance option that is well below the requirements of the Original Compliance and would open up other “priority sites” to similar proposals that would cost the city significant public benefit in high priority areas of the city.

The Applicant wishes to use State Density Bonus Law (“SDBL”) to waive the development standard requiring the City Council approval of any alternative compliance method and proposes in their application a “Preferred Inclusionary Housing Plan – Alternative Compliance” outlined in Attachment 2 and described herein. Staff does not believe that the SDBL can be used to wrest away the Council’s authority to conduct a hearing to consider the Applicant’s alternative compliance option, as the Applicant has contended. That is because the SDBL provides relief from development standards, and as such a procedural requirement (e.g., a hearing before the Council) is not such a standard. In sum, it cannot be the law that SDBL can stop a city council from conducting a public hearing well within its subject matter authority.

Argument of Infeasibility and Comparison to Other Jurisdictions The Applicant argues that building in compliance with the City’s IHO is financially infeasible and providing any affordable housing is preferable to providing zero housing units (both market rate and affordable); the proposal helps meet the City’s 2023-2031 Regional Housing Needs Allocation (“RHNA”) obligations; the Four Corners site, as a vacant parcel, is a top priority in the City’s 2016 General Plan Update; the units will provide a positive fiscal impact on the City’s General Fund from property taxes, special taxes, development impact fees, and more; and other cities such as San Jose have approved projects with fewer inclusionary units than required they found “will provide greater public benefit” than the project not being constructed due to infeasibility. Yet, the Applicant has not provided project-specific substantial evidence demonstrating that proving that building at the required 20-25% threshold (or even more than 10% for that matter) is not financially feasible.

San Jose’s Siting Policy serves as a sufficient limiting principle for the City of San Jose to avoid undercutting their Inclusionary Housing Ordinance entirely. If the Applicant’s current Alternative Compliance Option were approved, any applicant could propose an alternative compliance option at levels lower than required by the IHO and make this same argument (that some units are better than no units, and other cities have approved similar), leaving the IHO effectively defunct.

Staff cautions the City Council from making findings outside of the scope of the IHO. Should Council choose to make such findings, any applicant may use similar arguments to propose lower levels of compliance with the IHO at whatever level they deem to be “financially feasible,” thereby eviscerating the IHO’s requirements.

City Council has prioritized updating the IHO to address feasibility concerns to establish objective housing requirements that all applicants can meet. The Applicant may choose to wait until the City updates its IHO, but depending on timing of the IHO updates, waiting may impact which version of the specific plan the Project is processed under.

The Developer proposes to provide 25 on-site Inclusionary Units at the 80% AMI level. While this results in the same number of on-site affordable units as is required by the IHO under Original Compliance; it will not produce any units at the IHO’s required income levels. According to the American Community Survey (2023) the average household size in East Palo Alto is 3.49 persons. Simultaneously, East Palo Alto’s median household income is $104,832. The current San Mateo County 80% Area Median Income for a 3-person household is $117,565. Thus, the Developer’s proposed 25 units at the 80% AMI affordability level would be too expensive for more than 50 percent of East Palo Alto households as the median East Palo Alto household income is $104,832 and the 80% AMI income is $117,565.

Public Benefit Analysis
To put concrete numbers on the affordability level proposed by the Applicant, Table 3 below demonstrates the income limits for different household sizes based on the City’s 2025 household income limits.
6 6 East Palo Alto’s 2025 Income Limits calculated using Chapters 3 and 4 of the Inclusionary Housing Ordinance guidelines, available at https://www.cityofepa.org/housing/page/inclusionary-housing, and the 2025 State Income Limits, available athttps://www.hcd.ca.gov/sites/default/files/docs/grants-and-funding/income-limits-2025.pdf.

Rounded to the nearest 50th.
18 PUBLIC HEARING ITEM 5.1
Table 3. San Mateo County Income Limits
Household Size 1 2 3 4
35% of AMI $45,710 $52,255 $58,783 $65,310
Very Low-Income
(50% of AMI)
$65,300 $74,650 $83,975 $93,300
Low-Income
(60% of AMI)
$78,360 $89,580 $100,770 $111,960
80% of AMI $91,420 $104,510 $117,565 $130,620
Moderate Income
(120% of AMI)
$143,660 $164,230 $184,745 $205,260

Based on the City’s 2025 household income limits and January 2025 market data, the FY 2025- 2026 affordable monthly rental prices for a Median-Income Household (80% of AMI) would range from $2,612 to $3,359 depending on unit size. The 25 proposed Inclusionary Units at the 80% AMI level would produce an estimated $850,908 in annual rent. The monthly rental prices for the 25 Inclusionary Units at the affordability rates required by the IHO would result in $516,417 annual rent. Table 4, below shows the monthly rents at different affordability levels and unit sizes.

Table 4. Monthly Rents at Different Affordability Levels and Unit Sizes Unit Type
Proposed
Alternative
Affordability Level
IHO Required Affordability Levels
AMI Level 80% 65% 50% 35%
Studio $2,612 $1,959 $1,633 $1,143
One-Bedroom $2,986 $2,240 $1,866 $1,306
Two Bedroom $3,359 $2,519 $2,099 $1,470
In summary, as to the Council’s consideration of whether the proposed alternative compliance option provides a greater public benefit (or not), the foregoing quantitative analysis seems to suggest is that because the IHO requirements provide a deeper level of affordable, the proposed option does not provide a greater public benefit than what’s required by the IHO.

Evaluation of the Alternative Compliance Option

Section 18.37.080 of the East Palo Alto Municipal Code describes that an “Other” Alternative Compliance Option can be approved by the City Council based on findings that the alternative will provide as many or more Inclusionary Units at the same or lower income levels or will otherwise provide greater public benefit than would provision of the Inclusionary Units on-site.

Also, Inclusionary Units shall meet the City’s Inclusionary Housing Standards under Section

18.37.060 of the EPAMC, including:
 Comparability in exterior appearance and overall quality of construction (to the marketrate unit)  Comparability in average bedroom mix and unit size
 Dispersion of Inclusionary Units throughout the project, rather than a single location  Same amenities (access to common open space, parking, storage, etc.) 19 PUBLIC HEARING ITEM 5.1

The purpose of alternative compliance is to provide flexibility from the onsite requirement, but in exchange for the same or greater public benefit as compared to the baseline requirements (unit count, affordability level, onsite construction, etc.). Further, the purpose of the foregoing units standards is to ensure that the Inclusionary Units are indistinguishable from the market-rate units and well-integrated into the project.

For the purposes of comparison, the market-rate units and Inclusionary Units are shown sideby-side in Table 5. Note that according to the Applicant, the Unit Mix may be subject to change.

Note that the Applicant is seeking a concession/incentive under the SDBL to waive the comparability requirements of the IHO (e.g. that the Inclusionary Units have the same proportion of unit types as the market rate units and that they have comparable square footage, bedroom counts, and bedroom count ratios in the housing development). Assuming such concession/incentive is permitted under SDBL, City Council will only be deciding on the affordability and public benefit requirement of the IHO requirement, and this aspect of their argument will be addressed by staff’s presentation this evening. Analysis of this request for a SDBL concession/incentive will occur with further review and processing of the Project application and is not before the City Council for decision today.

Table 5. Inclusionary and Market-Rate Unit Overview*
Proposed
Inclusionary
Units
Original
Compliance
Requirement
Alternative
Compliance
Requirement
Proposed
Market-Rate
Units
Units (#)
Studio 11 2 3 5
1-bedroom 13 15 19 87
2-bedroom 1 8 10 51
Total 25 25 31** 143 (125
base)***
Size
(sq ft)
Studio 448 avg 462 avg 462 avg 405-520
1-bedroom 611 avg 600 avg 600 avg 500-700
2-bedroom 931 avg 999 avg 999 avg 880-1,117
Affordability
35% AMI 0% 25% - 6 units 25% - 8 units 0%
Very-Low
Income (50%
AMI)
0% 50% - 13 units 50% - 16 units 0%
Low-Income
(60% AMI)
0% 25% - 6 units 25% - 7 units 0%
Median-Income
(80% AMI)
100% 0% 0% 0%
Market Rate 0% 0% 0% 100% - 125
units
*Estimates provided by the Applicant are subject to change. Alternative compliance requirements are subject to City Council approval, and estimates are provided for comparison purposes only.
20 PUBLIC HEARING ITEM 5.1
**Total is 31.3 units; fractional units are rounded to nearest tenth and in-lieu fee payment is required for fractional units. The IHO states that in the event the inclusionary requirement results in a fraction that does not evenly divide by the percentages required in the IHO, inclusionary units shall first be provided at the lower required affordability level. ***125 base units and 143 total units with State Density Bonus Law units. The Applicant is proposing 16 studios, 100 1-bedroom and junior 1-bedrooms, and 52 2-bedrooms, for a total of 168 units, per the Site Plan dated May 20, 2025.

Table 6. Rent Level Required by IHO for Original Compliance IHO Requirement
Monthly Rent
AMI Level Studio 1 Bedroom 2 Bedroom
35% $1,142.75 $1,306.38 $1,469.56
50% $1,632.50 $1,866.25 $2,099.38
60% $1,959.00 $2,239.50 $2,519.25
# of Units*
AMI Level Studio 1 Bedroom 2 Bedroom
35% 1 4 2
50% 1 8 4
60% 0 3 2
Annual Rent Total, All Units
AMI Level Studio 1 Bedroom 2 Bedroom
35% $13,713.00 $58,787.10 $35,269.44
50% $19,590.00 $167,962.50 $100,770.24
60% $0.00 $80,622.00 $60,462.00
Total Annual
Rent: $537,176.28
Table 7: Rent Level Proposed by Applicant as Alternative Compliance Applicant’s Proposal
Monthly Rent
AMI Level Studio 1 Bedroom 2 Bedroom
80% $2,612.00 $2,986.00 $3,359.00
# of Units
AMI Level Studio 1 Bedroom 2 Bedroom
80% 11 13 1
Annual Rent Total, All Units
AMI Level Studio 1 Bedroom 2 Bedroom
80% $344,784.00 $465,816.00 $40,308.00
Total Annual
Rent $850,908.00
21 PUBLIC HEARING ITEM 5.1
Code Required Number of Units. The number of Inclusionary Units required for this Project are twenty-five on-site Inclusionary Units at the required affordability levels, or thirty-one Inclusionary Units at alternate affordability levels approved by City Council. The proposed Alternative Compliance Option of twenty-five Inclusionary Units at significantly higher incomes does not meet the requirements of the IHO.

Bedroom Count: The IHO requires that the affordable bedroom types should be proportional to the bedroom types in the project as a whole. Table 8 outlines what is required, versus what was proposed.

Table 8. Bedroom Count Proposed by Applicant as Alternative Compliance Option* Bedroom Type
Alternative
Compliance
Units Required
Alternative
Compliance
Units Proposed
Alternative
Compliance
Beds Required
Alternative
Compliance
Beds Proposed
Studio 3 11 3 11
One-Bedroom 19 13 19 13
Two-Bedroom 10 1 20 2
Total 31 25 42 26
*Note that the bedroom mix requirements are based on the preliminary bedroom mix the developer provided for the market-rate units.

The proposal is to provide 26 beds, less than the 42 beds that would be required by the policy, a loss of sixteen beds.

Unit Size. The IHO requires that inclusionary units be comparable in size to the market rate units. The Inclusionary Units proposed would be 11 studio units at an average of 448 square feet, 13 1-bedroom units at an average of 611 square feet, and one 2-bedroom unit of 931 square feet. The developer has not provided the exact square footage of the market rate units, however the proposal states that the Inclusionary Units will not be comparable to the market rate units.

Comparability. The Inclusionary Units would not contain identical or comparable exterior and interior finishes and amenities but would have equal access to common areas and comparable private open space.

Affordability - AMI. As noted in Tables 2 and 3 above, all 25 of the Inclusionary Units would be restricted at affordability for Median-Income (80% of AMI) households.

Staff has concluded that building twenty-five Inclusionary Units for “Median-Income Households” on-site, as an Alternative Compliance Option, does not provide more affordable units or affordability at the same or lower income than required by the IHO and does not provide a greater public benefit as is required for an alternative compliance option.

The previous tables demonstrate the loss of public benefit if the Applicant’s proposed Alternative Compliance Option is approved. The annual rental income for the required level of affordability as per the IHO would be somewhere between $540,000 (rounded), based on projections. The current rent levels as proposed by the Applicant for the Alternative Compliance Option total 22 PUBLIC HEARING ITEM 5.1
approximately $850,000 (rounded) in annual rent, which is a difference of around $310,000 (rounded) in annual rental public benefit that the City would lose if the council approves the proposed Alternative Compliance Option.

According to the American Community Survey (2023) the average household size in East Palo Alto is 3.49 persons. East Palo Alto’s median household income is $104,832. The current San Mateo County 80% Area Median Income for a 3-person household is $117,565. Thus, the Developer’s proposed 25 units at the 80% AMI affordability level would be too expensive for more than 50 percent of East Palo Alto households as the median East Palo Alto household income is $104,832 and the 80% AMI income is $117,565. Thus, the proposed alternative is a lesser public value than the Original Compliance Option, due to the higher income levels of affordability provided. The options made available based on the proposed option from the Applicant would not be affordable to the average household in East Palo Alto.

Staff finds this Alternative Compliance Option to be insufficient, due to both the smaller percentage of affordable units that are required for the alternative compliance level and affordability levels at higher income levels provided, leading to a significant loss in public benefit.

Further, the Applicant is also seeking to waive the requirements that the Inclusionary Units have comparable square footage, proportions, or be dispersed throughout the building. While the Applicant states that the benefit of any level of affordable housing and the development itself is a “superior public good”, this Alternative Compliance proposal is significantly below the requirements of the IHO, and without some sort of limiting principle, could allow other applicants to propose a similar argument to circumnavigate the IHO with any level of alternative compliance plan.

Construction of Units in Alternative Compliance Option

If the City Council approves the provision of the twenty-five Inclusionary Units as an Alternative Compliance Option for the Project, the standard requirements of the IHO will still apply. Prior to the issuance of a Building Permit, the City would execute an Inclusionary Housing Agreement that holds the Applicant responsible for constructing the Inclusionary Units concurrently with the market-rate units in the project and for selecting a qualified buyer.11 This Inclusionary Housing Agreement is recorded against the entire Project.

Prior to issuance of a certificate of occupancy, a deed restriction would be recorded against the Inclusionary Unit to ensure that it remains affordable in perpetuity, in accordance with the requirements of the IHO for ownership units.

Other Key Points for City Council Consideration
City staff would like to include two other important points for consideration:
23 PUBLIC HEARING ITEM 5.1
Inclusionary Ordinance Update – The City plans to amend the Inclusionary Housing Ordinance, in line with the 2023-2031 Housing Element and City Council Priorities. As per the City of East Palo Alto Council Priorities, 2024-2028 Affordable Housing Strategy, and the 2023- 2031 City of East Palo Alto Housing Element, the City will be conducting an update of its IHO to reflect the current market conditions and financial feasibility of its inclusionary requirements. The Applicant could withhold its application until that update is completed, until the IHO is amended, allowing for the development to move forward within the requirements of the IHO and to address the financial feasibility concerns of the Applicant. This update will be done in conjunction with the countywide Grand Nexus Study, which is currently selecting a vendor to conduct the study and should be moving forward in 2026, with initial feasibility study results by mid-2026 with review and recommendations in the last half of 2026. This option would be the most fair to all applicants and avoid creating a preferential solution for the Applicant.

Development Agreement – The City could create a separate Development Agreement with the Applicant; however the Ravenswood Specific Plan recommends against separate Development Agreements. The City could create and approve a Development Agreement with the Applicant to satisfy their concerns and find an alternative solution, while also creating a limiting principle that would avoid undermining the Inclusionary Housing Ordinance. However, the Ravenswood Business District Specific Plan did recommend separate Development Agreements with the applicants to avoid uneven standards and to standardize the development process.

Furthermore, the Applicant has not submitted an application for a Development Agreement.

If the City and Applicant choose to move forward with this option, City staff would work with the Applicant to create a Development Agreement, subject to be reviewed by both parties before returning to the City Council for approval of the Development Agreement.

In discussions with the Applicant, Sandhill is not interested in a Development Agreement and would rather propose another alternative compliance option or just entitle the project with the IHO baseline requirements (20%) and then figure out how to fulfill the requirements further into the project timeline. City staff also recommend against negotiating Development Agreement and would stand behind the IHO at this time and await the potential IHO update mentioned prior.

Staff Recommendation

Based on the above considerations, staff believes the Applicant's proposal to provide twentyfive deed-restricted units for Median Income Households does not fulfill the requirements of Section 18.37.080 and recommends the City Council deny this Alternative Compliance Option.

Next Steps
Inclusionary Housing Process
If the City Council determines that the proposed Alternative Compliance Option is sufficient to fulfill the Project’s inclusionary obligation, City staff will incorporate the Inclusionary Housing Plan into the permit issuance process.
24 PUBLIC HEARING ITEM 5.1

Staff will also prepare the required documents and work with the Applicant to execute and record an Inclusionary Housing Agreement on the Project. As noted above, the Project, including the Inclusionary Units, will be subject to the planning entitlement process, including the approval of a Design Review and Tentative Map. A Final Map would be required afterwards to complete the subdivision process.

The Inclusionary Housing Agreement will ensure the Project complies with EPAMC Section

18.37.070, which requires concurrent construction and issuance of final inspection or certificates of occupancy for the Inclusionary Units and market-rate units.7 In accordance with Chapter 3 of the IHO Guidelines, the Affordable Rental Price will be calculated within 90 days before the date of the final signing of the rental agreement for an Inclusionary Unit and the values of the Affordable Rental Price, as defined in the IHO, will be updated every 90 days thereafter.

As mentioned, during recent meetings with the Applicant, they expressed that if the City Council does not approve the proposed Alternative Compliance Option that they will come back and provide a different alternative compliance option to City Council for review and approval.

Construction of Units in Alternative Compliance Option

If the City Council approves the provision of the eleven Inclusionary Units as an Alternative Compliance Option for the Project, the standard requirements of the IHO will still apply. Prior to the issuance of a Building Permit, the City would execute an Inclusionary Housing Agreement that holds the Applicant responsible for constructing the Inclusionary Units concurrently with the market-rate units in the project and for selecting a qualified buyer.11 This Inclusionary Housing Agreement is recorded against the entire Project.

7 Section 18.37.070 provides that Building permits for more than 50% of the market-rate units shall not be issued until all Building permits have been issued for all (100%) of the Inclusionary Units. Final inspections or certificates of occupancy shall not be approved for more than 50% of the market-rate units until final inspections or certificates of occupancy have been issued for all (100%) of the Inclusionary Units. 25 PUBLIC HEARING ITEM 5.1
Fiscal Impact
There is no fiscal impact on the General Fund for this item.

Note if Council wishes to accept the Applicant’s proposal, the City will lose out on the public benefit and will not have the financial means to build the units in place of the Applicant leaving the housing impacts of this development only partially mitigated.

Public Notice
The public was provided notice by making the agenda, and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto. Public notice was also provided in the August 22, 2025 San Mateo Daily Journal Newspaper.

Environmental
The action being considered does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment. In the alternative, a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b)(5).

Government Code § 84308
Applicability of Levine Act: Yes
Analysis of Levine Act Compliance: The signatory for the application is Mike Kramer, Sand Hill Property Company Staff is unaware of any other parties or participants relevant to the Commission’s consideration of this item.

Attachments

1. Resolution

2. Affordable Compliance Plan
26 Resolution No. XX-2025 1 of 2
RESOLUTION NO. ____-2025

A RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF EAST PALO ALTO

REJECTING AN INCLUSIONARY HOUSING ALTERNATIVE COMPLIANCE OPTION FOR A ONE HUNDRED SIXTY EIGHTY-UNIT MIXED-USE DEVELOPMENT PROJECT (“FOUR CORNERS MIXED-USE") AT 2400 UNIVERSITY AVENUE, PORTION OF APN 063-111-250 WHEREAS, on November 19, 2020, the City Council of the City of East Palo Alto (“City Council”) adopted Ordinance No. 425, adding Chapter 18.37 – Inclusionary Housing (“IHO”) to the City of East Palo Alto Municipal Code; and
WHEREAS, a preliminary application for a 180-unit rental mixed-income development at 2400 University/1675 Bay Road with APN 063-111-250 (“Project”), was submitted by Four Corners EPA Property Owner, LLC d/b/a Sand Hill Property Company (“Applicant”) on December 2, 2024; and WHEREAS, on May 27, 2025, the Applicant returned to the Planning Division with a primarily residential 168-unit proposal with 5,554 square feet of ground-floor retail space; and WHEREAS, on July 21, 2025, the Applicant submitted to the Housing Division a complete Inclusionary Housing application for alternative compliance (“Alternative Compliance Plan”); and WHEREAS, the Project’s baseline inclusionary obligation (“Original Compliance”) under Section

18.37.050 of the IHO is to provide 25 on-site inclusionary units (“Inclusionary Units”), with 25% of the Inclusionary Units for 35% Area Median Income (“AMI”) Households, 50% for Very Low-Income Households, and 25% for Low-Income Households, as defined in Section 18.37.020 of the IHO; and WHEREAS, Section 18.37.080 of the IHO provides that an applicant of a residential development may choose from a list of alternative compliance options to meet the inclusionary obligation if the inclusionary requirement for the project is increased by 5% over the inclusionary housing requirement for projects with five or more units, and this option must be approved by the City Council; and
WHEREAS, Subsection (D) of section 18.37.080 of the East Palo Alto Municipal Code allows the Council to grant a residential development applicant “Other alternative compliance methods” but “only if the approval body determines, based on substantial evidence, that such alternative compliance will provide as many or more inclusionary units at the same or lower income levels or will otherwise provide greater public benefit than would provision of the inclusionary units on-site”; and WHEREAS, in lieu of the inclusionary obligation, the Applicant proposed an Alternative Compliance Plan to provide 25 on-site Inclusionary Units, to be rented at an affordable rent for Median Income-Households (80% of AMI); and
WHEREAS, as an initial matter, the Applicant contends it can use State Density Bonus Law (“SDBL”) to waive the development standard requiring the City Council approval of any alternative compliance method and proposes in their application a “Preferred Inclusionary Housing Plan – Alternative Compliance” outlined in Attachment 2 and described in the staff report. The Council considered and noted that the SDBL cannot be used to wrest away its authority to conduct a hearing 27 Resolution No. XX-2025 2 of 2
to consider the Applicant’s alternative compliance option, as the Applicant has contended because the SDBL provides relief from development standards, and as such a procedural requirement (e.g., a hearing before the Council) is not such a standard. In sum, the Council finds that SDBL does not allow a developer to stop a city council from conducting a public hearing well within its subject matter authority; and
WHEREAS, the Applicant asks City Council to approve the proposed Alternative Compliance Plan with the following findings:
1) Building at the affordability levels and percentage of inclusionary units is financially infeasible and providing any affordable housing is preferable to providing zero housing units (both market rate and affordable);
2) The proposal helps meet the City’s 2023-2031 Regional Housing Needs Allocation (“RHNA”) obligations;
3) The Four Corners site, as a vacant parcel, is a top priority in the City’s 2016 General Plan Update;
4) The units will provide a positive fiscal impact on the City’s General Fund from property taxes, special taxes, development impact fees, and more; and
5) Other cities such as San Jose have approved projects with fewer inclusionary units than required they found “will provide greater public benefit” than the project not being constructed due to infeasibility; and
WHEREAS, the Applicant’s findings are outside of the scope of the IHO or fail to identify substantial evidence supporting the Alternative Compliance Option, including, for example, the failure to identify project-specific financial feasibility data; and WHEREAS, the Applicant’s assertion that “anything more than zero is better than nothing at all” is not, in itself, a justifiable basis for approving an alternative compliance request that does not meet the intent or standards of the IHO; and
WHEREAS, as compared to the City of San Jose, the City of East Palo Alto does not have a Siting Policy that would encourage affordability in “high opportunity area” neighborhoods, which provided the City of San Jose with a sufficient limiting principle to approve a project with fewer inclusionary units than required; and
WHEREAS, the proposed Alternative Compliance Plan does not sufficiently align with the City’s broader housing policy objectives, including equitable distribution, depth of affordability, and consistency with long-term planning goals; and
WHEREAS, the Applicant’s proposal is significantly below the requirements for an alternative compliance plan (“Alternative Compliance”) and below what would be required for the original compliance plan (“Original Compliance”) as outlined in the IHO; and WHEREAS, an Original Compliance Plan for the Project to provide 25 deed-restricted Inclusionary Units on-site at the affordability levels prescribed in the IHO (distributed among 35% AMI, Very Low-Income, and Low-Income households) would satisfy the IHO requirements; and WHEREAS, an Alternative Compliance Plan for the Project to provide 31 deed-restricted Inclusionary Units on-site at the proposed affordability level of 80% of AMI and an In-Lieu Fee payment 28 Resolution No. XX-2025 3 of 2
equivalent to .25 Inclusionary Units, if approved by City Council, might also satisfy the IHO requirements; and
WHEREAS, no Planning approvals or clearances may be issued for a residential project unless the inclusionary housing requirements are first met.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY:

1. Finds the foregoing recitals are true and correct and are incorporated into this action by this reference;

2. That the proposed alternative for the Four Corners mixed-use development project at 2400 University Avenue (portion of APN 063-111-250, “Project”), to provide 25 rental units, deedrestricted at 80% of Area Median Income (“AMI”) does not meet the City’s Inclusionary Housing Ordinance (“IHO”) requirements under Section 18.37.080 of the East Palo Alto Municipal Code (“EPAMC”). Specifically, staff finds:
 The proposed 25 rental units at 80% of AMI do not meet the required distribution of affordability levels as outlined in the IHO. The City’s IHO requires the deed-restricted units to be allocated among households at 35% AMI, very low-income, and lowincome levels, but the proposal fails to meet these criteria; and  The proposal does not provide additional units or deeper levels of affordability, instead the proposal falls short of meeting both the number of units required and also does not achieve the AMI levels required. As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit.

3. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b)(5); and PASSED AND ADOPTED this 2nd day of September 2025, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
29 Resolution No. XX-2025 4 of 2
Martha Barragan, Mayor
ATTEST: APPROVED AS TO FORM:

James Colin, City Clerk John D. Lê, City Attorney
30 2600 El Camino Real, Suite 410 | Palo Alto, California 94306 2041 Euclid Avenue | East Palo Alto, California 94303
nodisplacement.com | universityandbay.com
July 21, 2025
Karen Camacho
Housing & Economic Development Manager
City of East Palo Alto
2415 University Ave.

East Palo Alto, CA 94303
Via Electronic Mail
RE: Four Corners Mixed-Use housing and retail –
Inclusionary Housing Ordinance Alternative Compliance Option Dear Ms. Camacho:

Thank you for your efforts to advance our applications for the Four Corners Mixed-Use project and to present our Inclusionary Housing Alternative Compliance Option to the City Council. The proposed project would construct 168 mixed-income apartments and over 5,000 square feet of retail space on the longvacant “Four Corners” site at University Avenue and Bay Road.

1. INCLUSIONARY HOUSING PLAN
The City’s Development Code requires that residential developments include contributions to affordable housing. Residential developments proposing five or more dwelling units must provide 20 percent of the dwelling units as inclusionary units. See Municipal Code section 18.37.050(A). In for-rent projects like the proposed project, one quarter of these must have a rent affordable to households at 35% of AMI, half must have a rent affordable to very-low income households, and one quarter must have a rent affordable to lowincome households. The City defines “low-income” as 60% AMI and “very-low income” as 50% AMI.

Alternatively, a developer may propose an “alternative compliance method” to be considered by the approval body to determine “based on substantial evidence, that such alternative compliance will provide as many or more inclusionary units at the same or lower income levels…” In this application, the Applicant is proposing an alternative compliance method as the “Preferred Inclusionary Housing Plan.” Applicant is further proposing to use a waiver under the SDBL of the development standard requiring City Council approval of any alternative compliance method. In the alternative, if the waiver is not used, the Applicant will comply with the “Fallback Inclusionary Housing Plan.”
Preferred Inclusionary Housing Plan—Alternative Compliance. Applicant proposes that 20 percent of the base density of the proposed project are rented at 80% of AMI, which is considered to be “low income” pursuant to the State Density Bonus Law (“SDBL”). In this project with 125 units of base density (86 du/acre * 1.45 acres), 25 of the dwelling units (125*20%) would be affordable at the 80% AMI level. As part of this 31 2
alternative compliance plan, the affordable units need not be dispersed, need not have the same proportion of unit types as the market rate units, and need not have comparable square footage or bedroom count as the market rate units. This Preferred Inclusionary Housing Plan makes the provision of affordable housing cost-effective, with actual and identifiable cost-savings that make the project feasible.

Although approval would be unnecessary with the use of the SDBL waiver, the approval body would be able to make the required findings for this Preferred Inclusionary Housing Plan. It will provide as many or more inclusionary units at the same or lower income levels as would strict compliance with the inclusionary housing ordinance. This is because it is infeasible to include 20% of the units as affordable units at the affordability levels specified by the City. The expense of a high inclusionary requirement makes it impossible to construct a project that includes so many affordable units, especially at deep affordability levels. If a strict compliance with the inclusionary housing ordinance were required, the project will not be built so there will be zero affordable units. Similarly, if a 25% requirement were imposed, the project would be even less feasible and no affordable units would be built. Twenty five affordable units at 80% AMI is more than zero affordable units at deeper affordability levels, so the Preferred Inclusionary Housing Plan would provide more inclusionary units.

Fallback Inclusionary Housing Plan. If the SDBL waiver is not used, Applicant offers the “Fallback Inclusionary Housing Plan” with the significant caveat that Applicant does not believe that the Fallback Inclusionary Housing Plan will be feasible to construct.

The Fallback Inclusionary Housing Plan is to provide 20% of the base dwelling units as affordable in full compliance with the East Palo Alto Inclusionary Housing Ordinance. One quarter of these (5%) would be affordable at the 35% AMI level, half (10%) would be affordable at up to 50% of AMI, and one quarter (5%) would be affordable at up to 60% of AMI. In this project with 125 base density units, 6 of the dwelling units would be affordable at 35% AMI, 13 dwelling units would be at the 50% AMI level, and 6 dwelling units would be at the 60% AMI level for a total of 25 affordable units.

Other inclusionary requirements. The City imposes several additional requirements on inclusionary units as follows:

Inclusionary Requirements
Inclusionary requirement Compliance
Preferred Inclusionary
Housing Plan—Alternative
Compliance
Fallback Inclusionary
Housing Plan
City Council approval of alternative compliance
method
Complies with waiver
under SDBL, as described
below.

Not applicable
Multiple-family affordable units shall be located
so as not to create a geographic concentration of
affordable units within the housing development.

Complies. Complies.

The quality of exterior design and overall quality
of construction of the affordable units shall be
consistent with the exterior design of all market
Complies. Complies.
32 3
Inclusionary requirement Compliance
rate units in the housing development and meet
all site, design, and construction standards of this
Code, including but not limited to, compliance
with all design guidelines included in applicable
specific plans or otherwise adopted, and the
affordable housing guidelines. Affordable units
shall have functionally equivalent parking.

Affordable units may have different interior
finishes and features than market rate units in the
same housing development, so long as the
finishes and features are functionally equivalent
to the market rate units and are durable and of
good quality and comply with the affordable
housing guidelines.

Complies Complies.

The affordable units shall have the same
amenities as the market rate units, including the
same access to and enjoyment of common open
space and facilities in the housing development.

Complies Complies.

The affordable units shall have the same
proportion of unit types as the market rate units
in the housing development except that singlefamily detached housing projects may include single-family attached affordable units and singlefamily detached affordable units may have smaller lots than single-family detached market
rate units.

Complies because
requirement modified by
alternative compliance
plan.

Complies with
concession/incentive
under SDBL, as
described below.

The affordable units shall have a comparable
square footage and the same or greater bedroom
count and bedroom count ratio as the market
rate units.

Complies because
requirement modified by
alternative compliance
plan.

Complies with
waiver under SDBL,
as described below.

All required affordable units shall be made
available for occupancy concurrently with the
market rate units.

Complies Complies.

Please see Exhibit A for the Inclusionary Housing Plan application requested by Housing staff.

2. EVIDENCE FOR ALTERNATIVE COMPLIANCE OPTION
Below and attached are evidence that would support a determination by the City Council pursuant to the Inclusionary Housing Ordinance to fulfill the requirement that “The approval body may approve or conditionally approve such an alternative only if the approval body determines… that such alternative compliance… will otherwise provide greater public benefit than would provision of the inclusionary units on-site.”
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• The Preferred Inclusionary Housing Plan will provide as many or more inclusionary units at the same or lower income levels as would strict compliance with the inclusionary housing ordinance.

This is because it is infeasible to include 20% of the units as affordable units at deep affordability.

The expense of a high inclusionary requirement with deep affordability makes it impossible to construct a project that includes so many affordable units, especially at deep affordability levels.

If a 20% requirement is imposed at the City’s depths of affordability, the project will not be built so there will be zero affordable units. Twenty-five affordable units at 80% AMI more than zero affordable units, so the Preferred Inclusionary Housing Plan would provide more inclusionary units. See Exhibit B.
• EPS Financial Analysis of EPA Inclusionary Housing Requirements – When the inclusionary housing ordinance was originally proposed, we commented in 2019 that the high percentage requirement, in combination with the deep affordability requirements, should be studied for feasibility. During the development of the City’s Inclusionary Housing Ordinance, we also made a request to the city to study the feasibility of the Inclusionary Housing Ordinance, and whether the Ordinance would reduce or eliminate the production of housing in East Palo Alto. This request was denied, and so we retained Economic & Planning Systems, Inc. (“EPS”) to conduct a financial feasibility assessment of new residential development in the City. The EPS study tiers off the financial feasibility study that the City conducted when considering development impact fees in 2019. EPS finds that using the City’s development prototype and assumptions, the current inclusionary housing requirements are infeasible. That is, compliance with the inclusionary housing ordinance will create no new housing. Therefore, allowing higher affordability levels and lower inclusionary percentage provides greater public benefit by allowing housing, including affordable housing, to be built instead of having no new housing. See Exhibit C. • East Palo Alto RHNA Obligations and Progress – Our proposals will include 25 units of low-income housing (mixed-use), 11 units of moderate-income housing (townhomes), 143 units of abovemoderate rental housing (mixed-use) and 95 units of above-moderate for-sale housing, helping to meet the City’s 2023-2031 Regional Housing Needs Allocation. According to HCD, East Palo Alto is required to create 95 units of low income housing, 159 units of moderate income housing, and 410 units of above-moderate income housing. So far in this RHNA cycle, the city has created only 7 units of low-income housing (7% of requirement), 6 units of moderate-income housing (4% of requirement), and 9 units above moderate income (2% of requirement). Providing more lowincome, moderate-income, and above-moderate income units provides greater public benefit since it helps the City better meet its RHNA obligations. See Exhibit D. • Fiscal Impact Analysis – Our previous fiscal impact analysis of the Woodland Park Euclid Improvements (attached) was prepared by EPS and peer-reviewed by Keyser Marston on behalf of the City. It shows a significant positive net fiscal impact of developing new housing. If you extrapolate the findings for the 389 net new units at the Euclid Improvements to the 274 net new units at Four Corners, you will have a net positive fiscal impact on the EPA General Fund of $18.8 million dollars over 20 years, including property taxes, special taxes, and development impact fees. This does not factor in that the Rental Business License Tax (Measure O/L/JJ) has significantly increased since then, or that there are other positive fiscal benefits beyond the EPA General Fund, such as school fees for the Ravenswood School District. Allowing a feasible project 34 5
provides greater public benefit by creating millions of dollars of positive fiscal impact for the City.

See Exhibit E.
• Other Cities Accept Similar Rationale – The City of San Jose has a similar inclusionary housing ordinance that allows for alternative compliance if “the alternative will provide as much or more affordable housing at the same or lower income levels… and will otherwise provide greater public benefit, than compliance with the express requirements of this Chapter and the Inclusionary Housing Guidelines.” A recent approval (staff report attached) cited the rationale that “Developer stated that full compliance of 15% of units on-site would not have been feasible, and their original proposal was to provide no affordable units at this site… [but then proposed a] mix of onsite units and payment of an adjusted in-lieu fee” (5% of units at 100% of AMI). City of San Jose staff found that approving the alternative compliance was better because the alternative would have created no affordable units at all. Please note that this required no third-party analysis, peer review, or disclosure of proprietary information. See Exhibit F. • EPA General Plan Goal to “Prioritize” Development – The 2016 General Plan Update, through years of community engagement and adopted with unanimous City Council approval, set a goal to:

Allowing a feasible project provides greater public benefit by prioritizing the development of the vacant parcel at University and Bay as directed in the General Plan. See Exhibit G.

3. STATE DENSITY BONUS LAW

Providing affordable units within the proposed project qualifies the project for a density bonus under SDBL.

Density bonus projects are eligible for a number of benefits, including: increased density (a higher number of dwelling units per acre); a fixed number of incentives or concessions from development standards; an unlimited number of waivers of development standards that would physically preclude the construction of a development at the densities or with the concessions/incentives; and certain other limits on the local agency’s discretion.

With the Preferred Inclusionary Housing Plan, the proposed project includes 20% of the units as affordable at the low-income level, so the project qualifies for a 35% density bonus. It is also entitled to use an unlimited number of waivers and two concessions/incentives for development standards that impede the project’s ability to utilize the density bonus or increase feasibility.

Applicant proposes to use a SDBL waiver of the development standard requiring City Council approval of any alternative compliance method. Waivers are available for standards that physically preclude the construction of a development. Because City Council denial of the alternative compliance plan would physically preclude development of the project, a waiver is appropriate.

In addition, the project will use a waiver and a concession to waive the follow requirements:
35 6
• The affordable units shall have the same proportion of unit types as the market rate units in the housing development except that single-family detached housing projects may include singlefamily attached affordable units and single-family detached affordable units may have smaller lots than single-family detached market rate units.
• The affordable units shall have a comparable square footage and the same or greater bedroom count and bedroom count ratio as the market rate units.

The Applicant reserves the right to amend the density bonus proposal, including the amount of the density bonus and the use of concessions/incentives and waivers, as may be appropriate during the application process.

Thank you for your consideration of our Inclusionary Housing Ordinance Alternative Compliance Option.

We look forward to discussing further with your team and the City Council.

Sincerely,
Michael Kramer
CC: Amy Chen, Assistant City Manager and Community and Economic Development Director Melvin Gaines, City Manager
John Le, City Attorney
Attachments
Exhibit A: Inclusionary Housing Plan form
Exhibit B: Memo from EPS Regarding Feasibility of Inclusionary Housing Ordinance Requirements Exhibit C: Prior EPS Financial Analysis of Inclusionary Housing Requirements Exhibit D: California Department of Housing and Community Development Report on East Palo Alto Regional Housing Needs Assessment (RHNA) Obligations and Progress Exhibit E: Fiscal Impact Analysis from analogous project Exhibit F: City of San Jose Inclusionary Housing Ordinance acceptance of Alternative Compliance Option Exhibit G: Excerpt from 2016 “Vista 2035” General Plan Update regarding prioritization of Four Corners site
36 4
City of East Palo Alto Inclusionary Housing Plan
Residential Developments in East Palo Alto (“Residential Developments”) are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code – Inclusionary Housing.

An application for First Approval of a Residential Development must include an Inclusionary Housing Plan. This will be processed concurrently with all other permits required for the Residential Development and must be approved prior to issuance of any permits or scheduling of an entitlement hearing.

Please fill out the application below and submit it together with the Unit Mix Table and Unit Mix Details to the Housing Project Manager at [email protected].

Application for Inclusionary Housing Plan
Developer Information
Company name
Address
Phone
Contact name
Email/Phone
Project Information
Project Name:

Project Address:

Project APNs:

Planning file number if assigned:

Number of residential buildings:

Total number of units:

For-sale housing project? Y N
For rent housing project? Y N
Is this project a mixed use (commercial/residential)? Y N Total square footage of non-residential space:

Is this a rehab project? Y N
If so, number of units to be added:
37 5
Will any residential units be demoed or converted? Y N
Does developer intend to obtain a parcel, or tentative, and final map for the project? Y N Does developer intend to create condos, coops, or similar housing requiring CA BRE report approval? Y N
Does Developer intend to request a Density Bonus (Section 18.37.060)? Y N Exemption (Section 18.37.040)
Does developer intend to seek an exemption for the project? Y N Additional documentation may be required.

1. Map Act Vesting: Project has subdivision map(s) which the Developer claims confer vesting rights under the Subdivision Map Act:

Tentative or parcel: Y N
Approval date:

Final: Y N
Approval date (if applicable):

Please indicate if any maps are phased or vesting.

2. Building permit issued Y N
Issue date:

3. Previously executed Development Agreement: Y N
Approval date:

Please attach an explanation to this application with supporting documentation, including any approved maps or permits needed to support your claim.

Compliance Methods (Section 18.37.050)
Check all that apply
In-Lieu Fee (for projects of < 5 units)
On-site (20% Inclusionary Units)
In-Lieu Fee for fraction of unit (for projects of 5+ units) Alternative Compliance Options (Section 18.37.080)
Developer must seek approval from City Council.

In-Lieu Fee (25% Inclusionary Units)
Off-Site (25% Inclusionary Units)
Other
By signing below, Developer acknowledges that most claims of exemption can only be conditionally approved at the time the Inclusionary Housing Plan Application is approved. The Developer will be required to record an Inclusionary Housing Agreement agreeing to satisfy the Obligation if conditions of exemption are not met.
38 6
Developer Signature
Date
Planning acceptance of application Date
Housing acceptance of application Date
39 7
Unit Mix Table
Please see Section 18.37.050 and Section 18.37.060.

1. Please provide the unit mix of market-rate vs. Inclusionary Units using a table like the ones shown below. Note that:
a) The inclusionary unit mix should reflect that of the market-rate units. The total number of bedrooms in the Inclusionary Units should reflect 20% of the total number of bedrooms in the project.
b) The square footage of the Inclusionary Units must be comparable to that of the market-rate units. The average square footage of the Inclusionary Units should be no less than 85% of the average square footage of the market rate units with the same number of bedrooms.

2. Please indicate the affordability levels of the Inclusionary Units in the table.3 a) For-Sale requirement: 10% of units affordable to households at or below 80% AMI and 10% of units affordable to households at or below 120% AMI. b) Rental requirement: 5% of units affordable to households at or below 35% AMI; 10% of units affordable to households at or below 50% AMI; and 5% of units affordable to households at or below 60% AMI.
40 8
Unit Mix Details
Please see Section 18.37.060.

1.) Please indicate in the project site plan the location and size of the Inclusionary Units.
a) The Inclusionary Units must not be geographically concentrated in the development and must meet standards intended to ensure Inclusionary Units are comparable to the market rate units. See Section 18.37.060.

2.) Please describe construction appearance and quality of the Inclusionary Units. a) The Inclusionary Units must be comparable in exterior appearance and overall quality of construction to the market-rate units.

3.) Please describe access to private open space and other amenities of the Inclusionary Units, including parking.
a) The Inclusionary Units must have the same access to amenities as the market-rate units. This includes common areas, parking, and storage.

4.) Please outline a Fair Housing and Marketing plan, which must comply with all applicable Fair Housing laws and not discriminate in the sale or rental of Inclusionary Units on the basis of race, national origin, color, religion, gender, disability, familial status, age, income source, or marital status. This includes application of the City’s Local Preference Policy.
41 Four Corners Mixed-Use
Applicant Statement - May 2025
8 5. FAIR HOUSING AND MARKETING PLAN
Project Information:

Address: 2400 University Avenue | APN: Portion of APN 063-11-125 | Census Tract: 6118 Applicant Information: Four Corners EPA Property Owner, LLC or successor entity Entity Responsible for Marketing: Four Corners EPA Property Owner, LLC, successor entity, or third-party administrator
Target Date of Initial Occupancy: Q3 2028
Estimated Advertising Start Date: Q1 2028
Acknowledgment of Local Preference: The Applicant acknowledges the City of East Palo Alto Local Preference Policy and intends to comply with it.

Description of Outreach and Marketing Activities to Community: The applicant will follow local requirements and best practices, including local advertising, outreach to community groups, and providing marketing materials in both English and Spanish.

Acknowledgment of Need to Partner with Housing Department and City Third-Party Administrator:

East Palo Alto, CA 94303
Subject: Mixed-Use Real Estate Development Feasibility in East Palo Alto; EPS #201102
Ms. Camacho:

Sand Hill Property Company retained Economic & Planning Systems, Inc. (EPS) to provide land use economics and real estate advisory services concerning their projects in East Palo Alto. Founded in 1983, EPS is a nationally known real estate economics consulting firm with core competencies in real estate development and land use policy. EPS commonly works for both cities and real estate developers. We provide unbiased real estate market research, financial feasibility assessments, fiscal and economic impact analysis, and public financing strategies for various types and scales of real estate development.

Mixed-use multifamily development is financially challenging throughout the San Francisco Bay Area, and current market conditions coupled with national and international economic uncertainty has resulted in reduced mixed-use multifamily development activity. Even at the peak of the pre-pandemic development market cycle, multifamily projects in East Palo Alto faced feasibility limitations. EPS is aware of multiple studies that illustrate the financial challenge associated with mixed-use multifamily development in East Palo Alto.

Enclosed here please find two technical financial feasibility analyses that indicate mixed-use multifamily development likely is financially infeasible for typical projects in East Palo Alto, now and in the foreseeable furture:

Attachment A: Financial Feasibility Analysis for Development Impact Update (Willdan Public Review Draft, 2024)
Attachment B : Financial Analysis of East Palo Alto Inclusionary Housing Requirements (Economic & Planning Systems, 2020) Sincerely,
ECONOMIC & PLANNING SYSTEMS, INC.

Benjamin C. Sigman
Managing Principal
43 Mixed-Use Real Estate Development Feasibility in East Palo Alto July 18, 2025
Attachment A
44 CITY OF EAST PALO ALTO

FINANCIAL FEASIBILITY ANALYSIS

FOR DEVELOPMENT IMPACT
UPDATE

PUBLIC REVIEW DRAFT
NOVEMBER 15, 2024
Oakland Office Corporate Office Other Regional Offices
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Fax: (888) 326-6864 Seattle, WA
Washington, DC
www.willdan.com
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46 i

TABLE OF CONTENTS
EXECUTIVE SUMMARY............................................................................2 Methodology Overview 3

1. INTRODUCTION .............................................................................5 Purpose 5
Assumptions 5

2. FEASIBILITY ANALYSIS...................................................................6 Feasibility Analysis Methods 6
Land Residual Analysis 6
Structure and Inputs 7
Development Prototype Maximum Impact Fees 9

3. IMPACT ON LAND VALUE..............................................................12 Factors Affecting Feasibility 12
Feasibility Results 13

4. APPENDIX ..................................................................................14 Appendix A: Impact Fees 14
Appendix B: Development Prototype Pro Formas 16
47 2
Executive Summary
The primary purpose of this report is to estimate the impact on development financial feasibility of the imposition of impact fees by the City of East Palo Alto. The City is updating the following impact fees: Parks and Trail Facilities, Public Facilities, Transportation Facilities, RBD Transportation Facilities, Water Capacity, and Storm Drainage Facilities. The analysis examines the economics of nine prototypes:

In a separate nexus study Willdan has calculated the maximum justified amount of each of the impact fees and included them in the pro forma analysis contained in this report.

These fees are detailed in the tables below. The table is broken down into two sets of fees, one for development outside the Ravenswood Business District/4 Corners Specific Plan Area (RBD) and one for development inside the RBD. This distinction is drawn because there are certain facilities and improvements specific to the RBD that primarily benefit development within the RBD and therefore are allocated solely or primarily to development there. Table E.2, below, summarizes the maximum justified new fees and existing unchanged fees for each development prototype, per square foot. For the purposes of this analysis Willdan has assumed that development pays the affordable housing in lieu fee rather than providing units on site. The general preference of the City is that residential projects provide onsite affordable housing, but this is difficult to model in a general pro forma.

Table E.1
Development Prototypes
East Palo Also DIF Feasibility Analysis
R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Ownership
Townhomes
Medium
Density
Residential
High
Density
Residential
Mixed Use
(medium
density)
Mixed Use
(high density)
Office/Life
Science
Office/Life
Science
Office/LS/
R&D
Industrial/
Warehouse
Density (FAR) 0.76 0.76 1.49 0.99 1.49 1.00 1.50 0.7 0.4 Density (Units/Acre) 22 33 74 Varies Varies
Parking Type Surface Surface Podium Pod/Str Pod/Str Pod/Str Pod/Str Surface Surface Form Factor 3 stories 3-5 stories <= 8 stories 3-5 stories <= 8 stories <= 4 stories <= 6 stories 2 stories 1 story Residential Units 22 33 74 80 165
Unit Size 1,500 1,000 875 1000 875
Residential SF 33,000 33,000 64,750 80,000 144,375
Commercial SF 50,000 50,000 87,120 130,680 60,984 34,848 parcel size (acres) 1 1 1 3 3 2 2 2 2
Willdan Financial Services, 2024
48 City of East Palo Alto Development Impact Fee Financial Feasibility Analysis 3 Methodology Overview
The financial feasibility analysis uses a pro forma approach to calculate the projected return that the nine development prototypes are likely to generate. Each prototype’s pro forma estimates the residual land value, a method of estimating the value of land for a project that calculates the total revenue generated by a project (either in the form of sales price or the present value of projected lease income) and subtracts the costs of developer and operations (as applicable) to arrive at a net amount that is attributable to the land under the project. The analysis assumes that all development prototypes are rental or lease property, with the exception of the R1 prototype (for-sale townhomes).

The analysis assumes that if a residual land value is negative, the project is not feasible.

A low land value means a project is challenging to develop and may not be feasible.

Willdan estimates that a value below $50 per square foot (psf), or $2.2 million per acre, indicates a low feasibility and low probability of completion for the prototype development in question. This estimate of $50 per square foot is based on historical land sale data and is meant to be a broad assessment of feasibility rather than the threshold for any particular projects. Willdan has estimated this number from an examination of historical transaction data; individual land transaction prices vary widely.

As shown in Table E.3 below, the analysis finds that most of the prototypes are infeasible and that the maximum justified fees make little difference to this overall conclusion. The prototypes that are feasible remain feasible (although less so), and the prototypes that are infeasible become more infeasible. The possible exception to this is the industrial category, which at approximately $534,000 per acre is below the general threshold and improves to $942,000 without impact fees. Industrial land typically has lower value than commercial or residential land so may be feasible at these levels.

It is important to note that the nexus study increases the fees by a relatively small proportion of their total value, while the analysis in Table E.3 examines the effect of removing impact fees in toto.

Table E.2
Total Impact Fees for Development prototypes (per building square foot) EPA DIF Feasibility Analysis
Fee Category R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Outside RBD
Existing Impact Fees $57 $88 $101 $65 $79 $14 $14 $14 $14 Proposed Impact Fees $17 $37 $35 $27 $30 $15 $14 $16 $12 Total $73 $125 $136 $93 $109 $29 $28 $30 $26
Inside RBD
Existing Impact Fees $57 $88 $101 $65 $79 $14 $14 $14 $14 Proposed Impact Fees $21 $43 $41 $34 $36 $24 $23 $25 $17 Total $78 $131 $141 $100 $115 $38 $37 $39 $31
Willdan, 2024
49 City of East Palo Alto Development Impact Fee Nexus Study Update 4 The residual land values are affected by each of the inputs and assumptions contained in the pro formas and are particularly sensitive to capitalization rates, parking requirements, construction costs, and lease rates. The analysis and stakeholder process identified reasonable ranges for these factors, given current market conditions, and tested the sensitivity to the factors to financial feasibility for each of the prototypes. The analysis concludes that the City’s impact fees do not significantly burden the financial feasibility of the nine representative prototypes.

Willdan believes it is important to consider that the impact fees are a cost recovery mechanism, not an assessment or tax. The impact fees are a calculation of the costs incurred by the City in connection with development. At the full calculated fee, the City “breaks even” on the revenue received versus the costs of new or expanded facilities needed to serve development (not including any funding required to address existing deficiencies). Any reduction of the fees results in the need to outside revenues to make up the difference or a reduction in level of service for the fee category in question. For this reason, Willdan looked at pro forma assumptions that reached beyond current market conditions to more typical rates over time. Willdan’s assessment of current market conditions generally is that construction costs have increased at historically high rates and that lease rates have not adjusted to current conditions. Willdan also believes that inflation and interest rates have increased cap rates above historical trends. Willdan has adjusted the assumptions in the pro forma to reflect this judgment.

Table E.3
Residual Value Summary
EPA DIF Feasibility Analysis
Item R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Residual Land Value Per Acre 2,303,424 (7,091,306) (13,645,847) (19,444,976) (36,756,665) (27,825,787) (60,325,445) (4,582,999) 534,685 Residual Land Value Per land SF $53 ($163) ($313) ($446) ($844) ($639) ($1,385) ($105) $12 Residual Land Value Per Acre (no impact fees) 4,726,545 (3,584,958) (6,181,033) (16,474,181) (30,869,349) (26,759,159) (58,771,827) (3,808,565) 942,354 Residual Land Value Per land SF (no impact fees) $109 ($82) ($142) ($378) ($709) ($614) ($1,349) ($87) $22 Willdan, 2024
50 City of East Palo Alto Development Impact Fee Nexus Study Update 5 1. Introduction
Purpose
The primary purpose of this report is to analyze the effect on financial feasibility of the maximum justified updated impact fees on nine residential and commercial prototypes.

These prototypes are summarized in Table 1, below:
• R1: For-Sale Townhomes/Single-Family Attached
• R2: Medium Density Residential/3-5 Story Building
• R3: High Density Residential/8 Story Building
• M1: Medium Density Mixed Commercial/Residential/3-5 Story Building • M2: High Density Mixed Commercial/Residential/8 Story Building • OL1: Medium Density Office/Life Science/3-5 Story Building • OL2: High Density Office/Life Science/8 Story Building • Flex: Low Density Flex Space/2 Story Building
• I1: Industrial (warehouse)/Single Story Building
The impact fees that the City East Palo Alto is currently in the process of updating are based on five categories of facilities: Of the five categories, transportation, storm drainage and water have fees for two zones, one for the RBD and one for the rest of the City. The existing impact fees included in this study are the Quimby fee, the Commercial Linkage Fee, and the Housing Impact Fee.

A separate nexus study calculates the maximum justified fee that will be considered by the City Council. The nexus study documents the necessary data and calculations to establish nexus and proportionality.

Assumptions
The financial feasibility analysis assumes all development prototypes are rentals or leases, except for R1 (for-sale townhomes). The analysis includes other assumptions about the development prototypes which are documented in Table 2-2 and individual pro formas in the Appendices. It is important to note that these assumptions reflect a rough assessment of conditions over the next 5 years, the time span of the current fee update, rather than current market conditions. Broadly, they assume a moderate improvement in market conditions. Willdan has received input from the development community on these assumptions and has made adjustments to the initial draft assumptions in some cases. 51 6

2. Feasibility Analysis
The feasibility analysis of East Palo Alto’s maximum justified development impact fees uses a pro forma approach to calculate the projected financial return that nine development prototypes are likely to generate for developers. The analysis assumes a standard set of assumptions and then estimate potential revenues, costs and a net financial return for the real estate developer.
.

Feasibility Analysis Methods
In classical real estate economics, development value is created when existing land or buildings can be improved by the investment of financial capital. Two main types of financial calculations are used by developers and policy makers to understand the financial feasibility of a particular development concept or project. The first and simplest type of financial feasibility analysis can be expressed by this basic equation:

Development Value – (Development Costs + Land) = Profit In this case profit can be expressed as total dollars or more typically as a percent return on money invested or costs. Assuming a positive return, this percent return is then compared to typical returns in the marketplace to assess the viability of a particular development versus other potential investment and development opportunities.

The second type of financial feasibility analysis is called a “land residual method” and can be expressed by the following simple equation:

Development Value – (Development Costs + Profit) = Land Residual This type of analysis is often preferred by urban economists as a means of clarifying the value generated by a proposed project under different planning and development scenarios and with validated cost and revenue assumptions. Assuming that the land residual is positive, the land value created by a development is compared to recent land sales for comparable parcels of land to further evaluate the relative feasibility of the development concept compared to other opportunities in the marketplace. Effectively, the land residual is the amount the developer can afford to pay for the land. If this amount is above prevailing land costs, the project is generally feasible.

This analysis uses the land residual method for determining financial feasibility. .

Land Residual Analysis
As a policy tool for helping to understand the potential for value capture related to new zoning and/or planning approvals in a given area, a land residual methodology is often a 52 City of East Palo Alto Development Impact Fee Nexus Study Update 7 preferable approach for illustrating the potential increase in underlying land values associated with different policy interventions. This report uses a land residual analysis to estimate the value of land for each of the nine development prototypes that relies on the net operating income and value of improvements.

Structure and Inputs
Table 2.1 details the key assumptions used as inputs into the pro forma model, as well as a summary of calculated residual land values.
53 8
Table 2.1
Feasibility Model Assumptions
EPA DIF Feasibility Analysis
R1 For Sale
Townhomes
R2 Medium
Residential
R3 High
Residential M1 Mixed Use M2 Mixed Use OL1 Office/Life Science OL2 Office/Life
Science
Flex
Office/LS/R&D
I1
Industrial/WH
Development/Construction Costs
Residential Construction Costs 300 450 500 450 500
Commercial Construction Costs 400 450 650 750 350 125
Commercial Tenant Improvements (PSF) Landlord Allowance 150 150 250 250 125 20 Residential Parking Standard (per unit) 2 1.5 1.25 1.5 1.25 Commercial Parking Standard (per 1,000 sf) 3.0 3.0 3.0 3.0 3.0 1.0 Surface Parking Space $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 Podium/Structured Parking Space $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 Subsurface Parking $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Fees and Taxes
Proposed Impact Fee - not in RBD (psf) 28.54 37.83 37.83 varies varies 8.2 8.2 8.2 3.54 Proposed Impact Fee - within RBD (psf) 26.11 34.58 34.58 varies varies 17.7 17.7 17.7 8.83 Existing Impact Fee - not in RBD
Existing Impact Fee - within RBD
TDM/TMA NA 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28
Measure HH (per building sf) 2.5 2.5 2.5 2.5 2.5
Measure LL (% gross receipts) 2.50% 2.50% 2.50% 2.50%
Soft Costs
Soft Costs (% of hard costs) 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% Developer Profit 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% Vacancy Rate
Residential Vacancy NA 5.00% 5.00% 5.00% 5.00%
Commercial Vacancy 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Operating Expenses
Residential Operating Expenses 25.00% 25.00% 25.00% 25.00% 25.00% Commercial Operating Expenses (rates are NNN) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Financing
% of Construction Cost 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Revenue
Residential Lease Rate (psf) $4.00 $4.25 $4.00 $4.25
Commercial Lease Rate (psf) $4.00 $4.00 $6.00 $6.00 $3.75 $1.75 For Sale Market Rate Residential Price Per Unit $1,050,000 Commercial Cap Rate 6.50% 6.50% 6.50% 6.50% 6.50% 6.00% Residential Cap Rate 4.50% 4.50% 4.50% 4.50%
Results: Residual Land Values (per acre)
Residual Land Values (not in RBD) $2,303,424 ($7,091,306) ($13,645,847) ($19,444,976) ($36,756,665) ($27,825,787) ($60,325,445) ($4,582,999) $534,685 Residual Land Values (in RBD) $2,849,038 ($6,397,281) ($12,089,550) ($18,862,249) ($35,530,625) ($26,963,092) ($59,058,326) ($3,962,958) $775,181 Residual Land Value (not in rbd) without Fees $4,726,545 ($3,584,958) ($6,181,033) ($16,474,181) ($30,869,349) ($26,759,159) ($58,771,827) ($3,808,565) $942,354 Willdan, 2024
54 9
.

Development Prototype Maximum Impact Fees
Table 2.2 contains the draft maximum justified impact fees as calculated in the Nexus Study applied to the development prototypes. Of the fee categories, transportation, storm drainage and water have fees for two zones, within and not within the RBD.

Table 2.3 contains the existing development impact fees calculated by applying the existing City fees to the development prototypes. These are fees currently in place that are not part of the current nexus study update. This analysis assumes that prototypes R2 and R3, and the residential portions of M1 and M2, are rental, as opposed to for-sale.

Table 2.2
Maximum Potential Impact Fees for Development prototypes EPA DIF Feasibility Analysis
Fee Category R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Parks and Trails (3) $0 $412,055 $808,501 $969,680 $1,898,363 $166,617 $249,926 $116,632 $28,227 Public Facilties $280,170 $330,990 $649,443 $779,025 $1,525,006 $134,034 $201,051 $93,824 $22,582 Citywide Transportation $19,140 $17,952 $35,224 $92,480 $132,940 $94,787 $142,180 $66,351 $25,091 RBD Transportation $70,620 $67,320 $132,090 $344,675 $496,400 $351,747 $527,621 $246,223 $92,835 Water (1) $153,120 $156,519 $307,109 $645,037 $997,797 $545,417 $818,126 $381,792 $104,568 RBD Water (1) $87,780 $90,041 $176,670 $370,900 $573,832 $313,467 $470,200 $219,427 $60,098 Storm Drain (2) $87,197 $111,176 $111,176 $286,492 $319,229 $185,293 $185,293 $185,293 $209,272 `
Admin $7,920 $9,257 $18,162 $21,760 $42,622 $3,703 $5,554 $2,592 $627 Total outside RBD $547,547 $1,037,948 $1,929,615 $2,794,473 $4,915,958 $1,129,851 $1,602,130 $846,484 $390,367 Total within RBD $705,947 $1,195,308 $2,238,375 $3,510,048 $5,986,190 $1,795,064 $2,599,950 $1,312,133 $543,300 (1) Commercial water fees estimated based on GPD from nexus study. (2) Storm drain fees based on impervious surface estimates for prototype projects from storm drain master plan and prototype FAR. (3) R1 assumed to pay Quimby Fees as a subdivision.

Willdan, 2024
55 City of East Palo Alto Development Impact Fee Nexus Study Update 10 Table 2.4 contains a summary of the total new and existing impact fees by development prototype.
.

In addition to impact fees, the pro forma analysis includes Measures L and HH. Measure HH imposes an annual parcel tax of $2.50 per building square foot on office developments of over 25,000 square feet. Measure L imposes tax of 2.5 percent of gross receipts on all residential rental units in the City.

The pro forma analyses for the development prototypes do not include estimates for TDM compliance, TMA membership, and a potential maintenance assessment district, which are not currently available. Additionally, the analyses do not include a potential Ravenswood Business Table 2.3
Existing Impact Fees for Development prototypes
EPA DIF Feasibility Analysis
Fee Category R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Quimby $371,875 NA NA NA NA NA NA NA NA
School Fees $170,610 $170,610 $334,758 $403,900 $788,419 $73,181 $109,771 $51,227 $29,272 Aff Hsg $1,503,700 $2,468,400 $5,535,200 $5,984,000 $12,342,000 NA NA NA NA Aff Hsg In Lieu NA NA NA $677,500 $677,500 $1,003,405 $1,505,107 $702,383 $424,971 Total outside RBD $1,875,575 $2,468,400 $5,535,200 $6,661,500 $13,019,500 $1,003,405 $1,505,107 $702,383 $424,971 Total within RBD $1,875,575 $2,468,400 $5,535,200 $6,661,500 $13,019,500 $1,003,405 $1,505,107 $702,383 $424,971 Willdan, 2024
Table 2.4
Total Impact Fees for Development prototypes
EPA DIF Feasibility Analysis
Fee Category R1 R2 R3 M1 M2 OL1 OL2 Flex I1
Outside RBD
Existing Impact Fees $1,875,575 $2,468,400 $5,535,200 $6,661,500 $13,019,500 $1,003,405 $1,505,107 $702,383 $424,971 Proposed Impact Fees $547,547 $1,037,948 $1,929,615 $2,794,473 $4,915,958 $1,129,851 $1,602,130 $846,484 $390,367 Total $2,423,122 $3,506,348 $7,464,815 $9,455,973 $17,935,458 $2,133,255 $3,107,237 $1,548,867 $815,338 Inside RBD
Existing Impact Fees $1,875,575 $2,468,400 $5,535,200 $6,661,500 $13,019,500 $1,003,405 $1,505,107 $702,383 $424,971 Proposed Impact Fees $705,947 $1,195,308 $2,238,375 $3,510,048 $5,986,190 $1,795,064 $2,599,950 $1,312,133 $543,300 Total $2,581,522 $3,663,708 $7,773,575 $10,171,548 $19,005,690 $2,798,469 $4,105,057 $2,014,516 $968,271 Willdan, 2024
56 City of East Palo Alto Development Impact Fee Nexus Study Update 11 District/4 Corners Specific Plan fee or a citywide sanitary sewer development impact fee, which have not been determined yet and is subject to a pending nexus study. 57 -12

3. Impact on Land Value
The residual land values are affected by each of the inputs and assumptions contained in the pro formas, and are particularly sensitive to capitalization rates, parking requirements, construction costs, and lease rates. However, in all cases the impact fees charged by the City do not have a major effect on project feasibility, and in no case do they transform a prototype project from feasible to infeasible.

Factors Affecting Feasibility
If a residual land value is negative, the project is not feasible. Alternatively, low land values indicate a low feasibility for a project. The analysis estimates that land values below $50 per square foot indicate a low feasibility and low probability of completion for the prototype developments.

In consideration of the potential consequences of the various fees on development, the City may consider lowering certain fees below their maximum justifiable level. This will increase the City’s responsibility to find additional resources for capital facilities.

A developer’s selection of real estate product type and location depends on various factors. The past, current, and projected future demand for a certain prototype in the area are weighed against the existing and projected future supply of these development types in the local and surrounding areas. East Palo Alto is currently in an unusual position of experiencing high regional demand for real estate but offering few local, recent development market comparisons to appraise assessed values of land.

Potential factors affecting financial feasibility include the following:
• Capitalization rate – lower capitalization rates increase financial feasibility. Based on current and anticipated market conditions and assessment of relative market risk associated East Paol Alto, this analysis assumes capitalization rates of 6.5 percent for office developments, 6.0 percent for industrial development, and 4.5 percent for residential developments.
• Construction costs – lower construction costs increase financial feasibility. Based on current market conditions, this analysis assumes base construction costs between $350 and $750 per square foot for office developments, $300 to $500 per square foot for residential developments, and $125 per square foot for industrial developments. • Operating expenses – operating costs include utilities, common area maintenance, security, and property taxes. The financial feasibility analysis uses 25 percent for all residential prototypes and includes these costs for commercial prototypes which are calculated on a NNN (triple net) basis. NNN rents assumes that all operating expenses are paid by the tenant, with a small 2% allowance for expenses during vacancy. • Parking construction – surface parking requires more land but costs one third as much as structuring parking, increasing financial feasibility (assuming similar land costs). A significant factor affecting the financial feasibility is the amount of parking required and the significant cost difference of surface parking versus structured parking. For commercial prototypes Willdan has assumed that all have some portion of surface parking, based on a review of similar projects in other jurisdictions. • Lease rates – higher lease rates and dependent on building features and market conditions but increase financial feasibility. Based on current and expected market conditions, this analysis assumes a lease rate of between $4.00 and $4.25 per square foot for residential development, $3.75 and $6.00 per square foot for office development, and $1.75 per square foot for industrial development. The study uses NNN lease rates for commercial development.
58 City of East Palo Alto Development Impact Fee Feasibility Study 13 • Tenant improvement costs – passing improvement costs to tenants or amortizing costs increase financial feasibility. This analysis assumes a commercial tenant improvement landlord allowance of between $150 and $250 psf for office and $20 psf for industrial developments.
• Profit margin – lower profit margins return less to developers but increase apparent financial feasibility of a project. This analysis assumes a developer profit of 12 percent (of costs) on each development project.
• Density – the floor area ratio (FAR) of a development project affords financial feasibility because it allows for a higher number of square feet of development on a given parcel.

There is a tradeoff, however, in that a higher FAR can result in a change in construction type which can lead to higher costs per square foot. The analysis assumes varying FARs to explore this dynamic.

Refer to Table 2.1 for a master list of pro forma inputs and assumptions.

Feasibility Results
Based on the inputs and assumptions in Table 2.2, initial results indicate that most of the development types are not feasible under current market conditions, with or without the impact fees. The development cost proportions and residual land values for the existing inputs and assumptions are shown below. Most impact fees are proportional to development costs.

The residual land values are affected by each of the inputs and assumptions contained in the pro forma and are particularly sensitive to capitalization rates, parking requirements, construction costs, and lease rates. The analysis identified reasonable ranges for these factors, given current and likely market conditions, and tested the sensitivity of the factors to financial feasibility for each of the nine development prototypes. The analysis concludes that, given current market conditions, the combination of existing and potential impact fees do not materially affect the financial feasibility of the nine prototype projects, except perhaps for Industrial. 59 City of East Palo Alto Development Impact Fee Feasibility Study 14 4. Appendix
The appendix provides detailed and supporting tables for the summary analysis described above.

Appendix A: Impact Fees
The following tables detail the maximum justified fees for the City calculated in the recent Nexus Study.
.

Table A.2 details the fees charged by the City for new development that are not being updated and therefore are not included in the current nexus study. These fees include a Quimby Fee, which is charged to resdiential subdivisions to fund new parks, and affordable housing fees applicable to residential and commercial development, respectively.

Table A.1
Maximum Justified Development Impact Fees
East Palo Alto DIF Feasibility Analysis
Item Parks and Trails Public Facilities Citywide Transp RBD Transp Water (1) Storm (2) Admin Total Non-RBD
Single Family Residential 10.57 8.49 0.58 4.64 2.00 0.24 26.52 Multifamily Residential 14.69 11.8 0.64 5.58 3.00 0.33 36.04 Retail 1.5 1.21 2.69 4.85 3.00 0.05 13.30
Office/R&D 2.25 1.81 1.28 7.37 2.50 0.05 15.26
Industrial 0.9 0.72 0.8 3.33 2.67 0.02 8.44
RBD
Single Family Residential 10.57 8.49 0.58 2.14 2.66 5.18 0.24 29.86 Multifamily Residential 14.69 11.8 0.64 2.40 3.21 7.77 0.33 40.84 Retail 1.50 1.21 2.69 10.00 2.79 7.77 0.15 26.11
Office/R&D 2.25 1.81 1.28 4.75 4.23 6.48 0.10 20.90
Industrial 0.90 0.72 0.8 2.96 1.92 6.91 0.05 14.26
Willdan, 2024
(1) commercial water calculated based on average GPD/1000sf (2) fees are per square foot of building space, except storm fee is cost per impervious sf 60 City of East Palo Alto Development Impact Fee Feasibility Study 15 Table A.2
Existing Development Impact Fees
East Palo Alto DIF Feasibility Analysis
Item Quimby Schools Linkage Fee AH Fee (1)
Non-RBD
Single Family Residential (per unit) Varies 5.17 NA 273,400 Multifamily Residential (per unit) NA 5.17 NA 299,200
Retail NA 0.84 13.55 NA
Office/R&D NA 0.84 13.55 NA
Industrial NA 0.84 13.55 NA
RBD
Single Family Residential Varies 5.17 NA 273,400
Multifamily Residential NA 5.17 NA 299,200
Retail NA 0.84 13.55 NA
Office/R&D NA 0.84 13.55 NA
Industrial NA 0.84 13.55 NA
Fees are per building sf except where noted
(1) Cost per unit to be provided offsite
61 City of East Palo Alto Development Impact Fee Feasibility Study 16 Appendix B: Development Prototype Pro Formas
62 City of East Palo Alto Development Impact Fee Feasibility Study 17 Residential Townhomes (R1)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 22 DU/Acre 22
Gross Building Area (Square Feet) 1,500 GBA/DU 33,000
Net Habitable Square Feet 100% 33,000
Total Parking Spaces 2 Space/DU 44
Surface Parking Spaces 100% of total parking 44
Stuctured Parking Spaces 0% of total parking 0

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Potential Rent $0.00 per SF/Month $0 $0
Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 0% of Gross Income $0 $0
Gross Residential Revenue $0
Basic Operating Expenses 0% of Gross Potential Rent $0 $0 Additional Operating Expenses (TDM) 0 Per Year 0 0
Total Operating Expenses $0
Net Operating Income (NOI) $0 $0
Project Market Value $1,050,000 per DU $700 $23,100,000 Project Sale Cost 7.0% Value 49 1,617,000
Net Project Value $651 $21,483,000

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $300 Cost/SF (GBA) $300 $9,900,000 Surface Parking Direct Cost $22,500 per Space $30 $990,000 Structured Parking Direct Cost $65,000 per Space $0 $0
Total Construction Cost $330 $10,890,000
Soft Costs
Existing Impact Fees $57 per habitable sf $57 $1,875,575 Proposed Impact Fees (non RBD) $17 per habitable sf $17 $547,547 Financing 10% of Construction Costs $33 $1,089,000
Other Soft Costs 25% of Construction Costs $83 $2,722,500 Total Soft Costs $189 $6,234,622
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $2,054,955 Residual Land Value Model Output/Supportable Land Cost $2,303,424 Total Other Costs $4,358,378
Total Project Cost (including land) $21,483,000
Residual Land Value $2,303,424
Proposed non-RBD Impact Fee Increase ($5) per square foot ($5) ($168,678) % of Project Value -0.79%
Willdan, 2024
63 City of East Palo Alto Development Impact Fee Feasibility Study 18 Residential Medium Density (R2)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 33 DU/Acre 33
Gross Building Area (Square Feet) 1,000 GBA/DU 33,000
Net Rentable Square Feet 85% 28,050
Total Parking Spaces 1.5 Space/DU 50
Surface Parking Spaces 25% of total parking 12
Stuctured Parking Spaces 75% of total parking 37

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Potential Rent $4.00 per SF/Month $41 1,346,400
Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) (67,320)
Gross Residential Revenue 1,279,080
Basic Operating Expenses 25% of Gross Potential Rent ($10) (336,600) Measure L 2.50% of Gross Potential Rent ($1) (28,611)
Additional Operating Expenses (TDM) $9,240 Per Year ($0.28) (9,240) Total Operating Expenses (374,451)
Net Operating Income (NOI) $27 $899,580
Project Market Value 4.50% Cap Rate $0 $19,990,667
Project Leasing Cost (included in operating costs) 0.0% Value $0 $0.0 Net Project Value $0 $19,990,667

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $450 Cost/SF (leaseable area) $383 $12,622,500 Surface Parking Direct Cost $22,500 per Space $8 $278,438 Structured Parking Direct Cost $65,000 per Space $73 $2,413,125 Total Construction Cost $464 $15,314,063
Soft Costs
Existing Impact Fees $88 per habitable sf $88 $2,468,400 Proposed Impact Fees (non RBD) $37 per habitable sf $37 $1,037,948 Financing 10% of Construction Costs $46 $1,531,406
Other Soft Costs 25% of Construction Costs $116 $3,828,516 Total Soft Costs $287 $8,866,270
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $2,901,640 Residual Land Value Model Output/Supportable Land Cost ($7,091,306) Total Other Costs ($4,189,666)
Total Project Cost (including land) $19,990,667
Residual Land Value ($7,091,306)
Proposed non-RBD Impact Fee Increase $6 per rentable sf $173,314 % of Project Value 0.87%
Willdan, 2024
64 City of East Palo Alto Development Impact Fee Feasibility Study 19 Residential High Density (R3)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 74 DU/Acre 74
Gross Building Area (Square Feet) 875 GBA/DU 64,750
Net Rentable Square Feet 85% 55,038
Total Parking Spaces 1.25 Space/DU 93
Surface Parking Spaces 10% of total parking 9
Stuctured Parking Spaces 90% of total parking 83

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Potential Rent $4.25 per SF/Month $43 $2,806,913
Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) (140,346)
Gross Residential Revenue 2,666,567
Basic Operating Expenses 25% of Gross Potential Rent ($11) (701,728) Measure L 2.5% of Gross Potential Rent $1 (70,173)
Additional Operating Expenses (TDM) $18,130 Per Year ($0.28) (18,130) Total Operating Expenses (790,031)
Net Operating Income (NOI) $31 $2,016,882
Project Market Value 4.50% Cap Rate $0 $44,819,590
Project Leasing Cost (included in operating costs) 0.0% Value $0 $0 Net Project Value $0 $44,819,590

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $500 Cost/SF (GBA) $425 $27,518,750 Surface Parking Direct Cost $22,500 per Space $3 $208,125 Structured Parking Direct Cost $65,000 per Space $84 $5,411,250 Total Construction Cost $512 $33,138,125
Soft Costs
Existing Impact Fees $101 per habitable sf $101 $5,535,200 Proposed Impact Fees (non RBD) $35 per habitable sf $35 $1,929,615 Financing 10% of Construction Costs $51 $3,313,813
Other Soft Costs 25% of Construction Costs $128 $8,284,531 Total Soft Costs $315 $19,063,159
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $6,264,154 Residual Land Value Model Output/Supportable Land Cost ($13,645,847) Total Other Costs ($7,381,693)
Total Project Cost (including land) $44,819,590
Residual Land Value ($13,645,847)
Proposed non-RBD Impact Fee Increase $1 per rentable sf $38,560 % of Project Value 0.09%
Willdan, 2024
65 City of East Palo Alto Development Impact Fee Feasibility Study 20 Mixed (M1)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (square feet) 3 Acres 130,680
Dwelling Units 80 DU 80
Gross Residential Building Area (Square Feet) 875 GBA/DU 70,000 Net Leaseable Square Feet 85% 59,500
Total Residential Parking Spaces 1.5 Space/DU 120
Surface Parking Spaces 15% of total parking 18
Stuctured Parking Spaces 85% of total parking 102
Gross Commercial Building Area (square feet) 50,000 50,000 Net Leaseable Square Feet 85% 42,500
Total Parking Spaces 3 /1000 leaseable sf 128
Surface Parking Spaces 50% of total parking 64
Stuctured Parking Spaces 50% of total parking 64
Total Gross Building Area 120,000

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Residential Potential Rent $4.00 per SF/Month $41 $2,856,000 Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) ($142,800)
Gross Residential Revenue $2,713,200
Basic Residential Operating Expenses 25% of Gross Potential Rent ($10) ($714,000) Measure L (residential only) 2.5% of Gross Potential Rent ($1) ($71,400) Additional Operating Expenses (TDM) $19,600 Per Year ($0.28) ($19,600) Total Operating Expenses ($805,000)
NNN Potential Commercial Rent $4.00 per SF/Month $41 $2,040,000 Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) (102,000)
NNN Commercial Revenue 1,938,000
Basic Operating Expenses 2% of Gross Potential Rent ($1) (57,120) Measure HH (commercial only) $2.50 per leaseable sf ($2) (106,250) Additional Operating Expenses (TDM) $14,000 Per Year ($0.28) (14,000) Total Operating Expenses (177,370)
Net Operating Income (NOI) $3,668,830
Project Market Value 5.50% Cap Rate $0 $66,706,000
Project Leasing Cost 4.0% Value 0 2,668,240
Net Project Value $0 $64,037,760

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $450 Cost/SF (GBA) $771 $54,000,000 Tenant Improvements (commercial only) $150 Cost/SF (GBA) $150 $7,500,000 Surface Parking Direct Cost $22,500 per Space $15 $1,839,375 Structured Parking Direct Cost $65,000 per Space $90 $10,773,750 Total Construction Cost $1,027 $74,113,125
Soft Costs
Existing Impact Fees $65 per leaseable sf $65 $6,661,500 Impact Fees - Residential (non RBD) $38 per leasable residential sf $32 $2,250,885 Impact Fees - Commercial (non RBD) $8 per leasable comercial sf $7 $296,225 Financing 10% of Construction Costs $106 $7,411,313
Other Soft Costs 25% of Construction Costs $265 $18,528,281 Total Soft Costs $475 $35,148,204
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $13,111,359 Residual Land Value Model Output/Supportable Land Cost ($58,334,928) Total Other Costs ($45,223,569)
Total Project Cost (including land) $64,037,760
Residual Land Value ($58,334,928)
Proposed non-RBD Impact Fee Increase $18 per leaseable sf $395,029 % of Project Value 0.62%
Willdan, 2024
66 City of East Palo Alto Development Impact Fee Feasibility Study 21 Mixed (M2)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (square feet) 3 Acres 130,680
Dwelling Units 165 DU 165
Gross Residential Building Area (Square Feet) 875 GBA/DU 144,375 Net Leaseable Square Feet 85% 122,719
Total Residential Parking Spaces 1.5 Space/DU 248
Surface Parking Spaces 10% of total parking 25
Stuctured Parking Spaces 90% of total parking 223
Gross Commercial Building Area (square feet) 50,000 50,000 Net Leaseable Square Feet 85% 42,500
Total Parking Spaces 3 /1000 leaseable sf 128
Surface Parking Spaces 10% of total parking 13
Stuctured Parking Spaces 90% of total parking 115
Total Gross Building SF 194,375

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Residential Potential Rent $4.25 per SF/Month $43 $6,258,656 Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) ($312,933)
Gross Residential Revenue $5,945,723
Basic Residential Operating Expenses 25% of Gross Potential Rent ($11) ($1,564,664) Measure L (residential only) 2.5% of Gross Potential Rent ($1) ($156,466) Additional Operating Expenses (TDM) $40,425 Per Year ($0.28) ($40,425) Total Operating Expenses ($1,761,555)
NNN Potential Commercial Rent $4.00 per SF/Month $41 $2,040,000 Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) (102,000)
NNN Commercial Revenue 1,938,000
Basic Operating Expenses 2% of Gross Potential Rent ($1) (125,173) Measure HH (commercial only) $2.50 per leaseable sf ($2) (106,250) Additional Operating Expenses (TDM) $14,000 Per Year ($0.28) (14,000) Total Operating Expenses (245,423)
Net Operating Income (NOI) $5,876,745
Project Market Value 5.50% Cap Rate $0 $106,849,906
Project Leasing Cost 4.0% Value $0 4,273,996
Net Project Value $0 $102,575,910

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $500 Cost/SF (GBA) $500 $97,187,500 Tenant Improvements (commercial only) $150 Cost/SF (GBA) $150 $7,500,000 Surface Parking Direct Cost $22,500 per Space $4 $843,750 Structured Parking Direct Cost $65,000 per Space $113 $21,937,500 Total Construction Cost $767 $127,468,750
Soft Costs
Existing Impact Fees $79 per leaseable sf $79 $13,019,500 Impact Fees - Residential (non RBD) $38 per leasable residential sf $32 $4,642,450 Impact Fees - Commercial (non RBD) $8 per leasable comercial sf $7 $296,225 Financing 10% of Construction Costs $88 $12,746,875
Other Soft Costs 25% of Construction Costs $221 $31,867,188 Total Soft Costs $427 $62,572,238
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $22,804,919 Residual Land Value Model Output/Supportable Land Cost ($110,269,996) Total Other Costs ($87,465,078)
Total Project Cost (including land) $102,575,910
Residual Land Value ($110,269,996)
Proposed non-RBD Impact Fee Increase $18 per leaseable sf $472,135 % of Project Value 0.46%
Willdan, 2024
67 City of East Palo Alto Development Impact Fee Feasibility Study 22 Office/Life Science (OL1)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 2 Acres 87,120
FAR 1
Gross Building Area (Square Feet) 43,560 GBA/Acre 87,120 Net Leaseable Square Feet 85% 74,052
Total Parking Spaces 3 /1000 leaseable sf 222
Surface Parking Spaces 20% of total parking 44
Stuctured Parking Spaces 80% of total parking 178

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL NNN Potential Rent $6.00 per SF/Month $61 $5,331,744
Losses to Vacancy 5% of Gross Income ($3) ($266,587)
NNN Commercial Revenue $5,065,157
Basic Operating Expenses 2% of Gross Potential Rent ($1) ($106,635) Measure HH $2.50 per leaseable sf ($2) ($185,130)
Additional Operating Expenses (TDM) 24,394 Per Year (0.28) ($24,394) Total Operating Expenses ($316,158)
Net Operating Income (NOI) $55 $4,748,998
Project Market Value 6.50% Cap Rate $0 $73,061,513
Project Leasing Cost 9.0% Value $0.0 $6,575,536.1
Net Project Value $0 $66,485,976

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $650 Cost/SF (net leaseable) $553 $48,133,800 Tenant Improvements $250 cost/sf (leaseable sf) $213 $18,513,000 Surface Parking Direct Cost $22,500 per Space $0 $999,702 Structured Parking Direct Cost $65,000 per Space $4 $11,552,112 Total Construction Cost $769 $79,198,614
Soft Costs
Existing Impact Fees $14 per leaseable SF $14 $1,003,405 Proposed Impact Fees (non RBD) $15 per leaseable SF $15 $1,129,851 Financing 10% of Construction Costs $91 $7,919,861
Other Soft Costs 25% of Construction Costs $227 $19,799,654 Total Soft Costs $347 $29,852,770
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $13,086,166 Residual Land Value Model Output/Supportable Land Cost ($55,651,574) Total Other Costs ($42,565,408)
Total Project Cost (including land) $66,485,976
Residual Land Value ($55,651,574)
Proposed non-RBD Impact Fee Increase ($9) per leaseable sf ($668,721) % of Project Value -1.01%
Willdan, 2024
68 City of East Palo Alto Development Impact Fee Feasibility Study 23 Office/Life Science (OL2)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 2.00 Acres 87,120
FAR 1.50
Gross Building Area (Square Feet) 65,340 GBA/Acre 130,680 Net Leaseable Square Feet 85% 111,078
Total Parking Spaces 3 /1000 leaseable sf 333
Surface Parking Spaces 10% of total parking 33
Stuctured Parking Spaces 90% of total parking 300

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL NNN Potential Rent $6.00 per SF/Month $61 $7,997,616
Losses to Vacancy 5% of Gross Income ($3) ($399,881)
NNN Commercial Revenue $7,597,735
Basic Operating Expenses 2% of Gross Potential Rent (1) (159,952) Additional Operating Expenses (TDM) 36,590 Per Year (0.28) (36,590) Total Operating Expenses ($196,543)
Net Operating Income (NOI) $57 $7,401,192
Project Market Value 6.50% Cap Rate $0 $113,864,500
Project Leasing Cost 9.0% Value $0.0 $10,247,805
Net Project Value $0 $103,616,695

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $750 Cost/SF (leaseable) $750 $98,010,000 Tenant Improvements $250 cost/sf (leaseable sf) $213 $27,769,500 Surface Parking Direct Cost $22,500 per Space $0 $749,777 Structured Parking Direct Cost $65,000 per Space $3 $19,494,189 Total Construction Cost $965 $146,023,466
Soft Costs
Existing Impact Fees $14 per leaseable sf $14 $1,505,107 Proposed Impact Fees (non RBD) $14 per leaseable sf $14 $1,602,130 Financing 10% of Construction Costs $112 $14,602,347
Other Soft Costs 25% of Construction Costs $279 $36,505,866 Total Soft Costs $419 $54,215,450
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $24,028,670 Residual Land Value Model Output/Supportable Land Cost ($120,650,890) Total Other Costs (96,622,220)
Total Project Cost (including land) 103,616,695
Residual Land Value (120,650,890)
Proposed non-RBD Impact Fee Increase ($9) per leaseable sf ($1,041,880) % of Project Value -1.01%
Willdan, 2024
69 City of East Palo Alto Development Impact Fee Feasibility Study 24 Flex (F)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 2 Acres 87,120
FAR 0.7
Gross Building Area (Square Feet) 30,492 GBA/Acre 60,984 Net Leaseable Square Feet 85% 51,836
Total Parking Spaces 3 /1000 leaseable sf 156
Surface Parking Spaces 100% of total parking 156
Stuctured Parking Spaces 0% of total parking 0

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL NNN Potential Rent $3.75 per SF/Month $38 $2,332,638
Gross Potential Parking Income 0 per Space/Month
Losses to Vacancy 5% of Gross Income ($2) ($116,632)
NNN Residential Revenue $2,216,006
Basic Operating Expenses 2% of Gross Potential Rent (0.77) ($46,653) Additional Operating Expenses (TDM) 17,076 Per Year (0.28) (17,076) Total Operating Expenses -$63,728
Net Operating Income (NOI) $35 $2,152,278
Project Market Value 6.50% Cap Rate $0 $33,111,966
Project Leasing Cost 9.0% Value $0.0 $2,980,077
Net Project Value $0 $30,131,889

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $350 Cost/SF (GBA) $350 $21,344,400 Tenant Improvements $125
Surface Parking Direct Cost $22,500 per Space $2 $3,498,957 Structured Parking Direct Cost $65,000 per Space $0 $0
Total Construction Cost $352 $24,843,357
Soft Costs
Existing Impact Fees $14 per leaseable sf $14 $702,383
Proposed Impact Fees (non RBD) $16 per leaseable sf $16 $846,484 Financing 10% of Construction Costs $41 $2,484,336
Other Soft Costs 25% of Construction Costs $102 $6,210,839 Total Soft Costs $172 $10,244,042
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $4,210,488 Residual Land Value Model Output/Supportable Land Cost ($9,165,997) Total Other Costs ($4,955,509)
Total Project Cost (including land) $30,131,889
Residual Land Value ($9,165,997)
Proposed non-RBD Impact Fee Increase ($9) per leaseable sf ($444,825) % of Project Value -1.48%
Willdan, 2024
70 City of East Palo Alto Development Impact Fee Feasibility Study 25 Industrial (I)

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Square Feet) 2 Acres 87,120
FAR 0.4
Gross Building Area (Square Feet) 17,424 GBA/Acre 34,848 Net Leaseable Square Feet 90% 31,363
Total Parking Spaces 1 /1000 leaseable sf 31
Surface Parking Spaces 100% of total parking 31
Stuctured Parking Spaces 0% of total parking 0

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR PER GBA TOTAL Gross Potential Rent $1.75 per SF/Month $19 $658,627
Losses to Vacancy 5% of Gross Income ($1) ($32,931)
Gross Residential Revenue $625,696
Basic Operating Expenses 0% of Gross Potential Rent $0 $0 Additional Operating Expenses (TDM) 9,757 Per Year (0.28) ($9,757) Total Operating Expenses ($9,757)
Net Operating Income (NOI) $18 $615,938
Project Market Value 6.00% Cap Rate $0 $10,265,640
Project Sale Cost 0.0% Value $0.0 $0.0
Net Project Value $0 $10,265,640

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (includes site development) $125 Cost/SF (leaseable area) $113 $4,356,000 Tenant Improvements $20 cost/sf (leaseable sf) $18 $627,264 Surface Parking Direct Cost $22,500 per Space $1 $705,672 Structured Parking Direct Cost $65,000 per Space $0 $0
Total Construction Cost $132 $5,688,936
Soft Costs
Existing Impact Fees $14 per leaseable sf $14 $424,971
Proposed Impact Fees (non RBD) $12 per leaseable sf $12 $390,367 Financing 5% of Construction Costs (incl. site) $8 $284,447 Other Soft Costs 25% of Construction Costs (excl. site) $41 $1,422,234 Total Soft Costs $75 $2,522,019
Other Project Costs
Developer Return on Investment 12% of Construction & Soft Costs $985,315 Residual Land Value Model Output/Supportable Land Cost $1,069,371 Total Other Costs $2,054,685
Total Project Cost (including land) $10,265,640
Residual Land Value $1,069,371
Proposed non-RBD Impact Fee Increase ($4) per leaseable sf ($119,897) % of Project Value -1.17%
Willdan, 2024
71 Mixed-Use Real Estate Development Feasibility in East Palo Alto July 18, 2025
Attachment B
72 M EMORANDUM
To: Michael Kramer, Sand Hill Property Company
From: Benjamin C. Sigman and Kate Traynor
Subject: Financial Analysis of East Palo Alto Inclusionary Housing Requirements; EPS #181057
Date: October 9, 2020
Sand Hill Property Company retained Economic & Planning Systems, Inc. (EPS) to prepare a financial feasibility assessment of new multifamily residential development in East Palo Alto (City), focused on the financial impact of the City’s inclusionary housing requirement. The financial analysis presented here tiers off of a financial feasibility analysis prepared for the City and published in 2019 as part of an effort to evaluate a number of local development impact fees.

In November 2019 the City of East Palo Alto adopted revisions to the City’s inclusionary housing requirement, pursuant to Municipal Code Chapter 18.37. The new requirement increased the legislated public policy burden on all new multifamily housing. In light of the new inclusionary policy, the objective of the EPS analysis is to evaluate whether the City’s inclusionary housing requirements are financially feasible for new multifamily residential development projects. The analysis relies on a generic “prototype” project.

Earlier in 2019, before updating the inclusionary housing ordinance, the City Council adopted Chapter 13.28 and an accompanying Fee Resolution to collect one-time impact fees from development projects to fund four categories of infrastructure improvements: 1) parks and trails; 2) public facilities; 3) storm drainage and 4) transportation infrastructure, effective July 2, 2019. As a part of this fee update, staff approved and the City Council unanimously adopted a Development Impact Fee Program Nexus Study and an accompanying Development Impact Fee Program Financial Feasibility Study (both dated February 28, 2019). AECOM, a consultant to the City, prepared both documents, which are publicly available on the City’s website.

The AECOM Development Impact Fee Financial Feasibility Study evaluates ten residential and commercial development prototypes through pro forma financial analyses to determine residual land value, and thereby financial feasibility. EPS uses the Study’s analysis of 73 Financial Analysis of East Palo Alto Inclusionary Housing Requirements October 9, 2020

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“Prototype R3 Urban Residential / Mid- or High-Rise Building” as a baseline for further testing of financial feasibility. Using the published information, EPS replicated the AECOM analysis and prepared a “live” spreadsheet model that supports evaluation of new policies, fees, and other development factors. It is important that construction costs have escalated since the completion of the AECOM analysis.1 EPS also notes that the AECOM model does not account for real estate sale costs or include a cost contingency as is typical. Acknowledging these shortcomings, the model provides a reasonable basis for ongoing feasibility analysis.

Using AECOM’s R3 80-unit prototype and all assumptions in the final 2019 study as a starting point, EPS (1) establishes baseline feasibility and (2) tests the feasibility of the City’s recently adopted inclusionary housing requirement, including when units are provided on site and when an in-lieu fee is paid.

The AECOM study indicates that “The analysis assumes that if a residual land value is negative, the project is not feasible. However, low land values indicate a low feasibility for a project. Staff estimate that land values below $25 per square foot (psf) indicate a low feasibility and low probability of completion for the prototype developments.” EPS results presented below can be interpreted similarly, though it is likely that the $25 value understates actual land cost in the market. EPS analytical scenarios are described below and Figure 1 summarizes results.
• Scenario 1 - February 2019 EPA Baseline: The AECOM prototype assumes a 1-acre site with 80 market rate units. Cost assumptions include the City’s existing and proposed fees at the time of the study, including the City’s former inclusionary housing fee. Scenario 1 establishes the baseline for the analysis, with no changes to the AECOM assumptions, and results that match those presented in the final study. Scenario 1 is deemed feasible, achieving $40 per square foot land value ($15 above the feasibility threshold established for the analysis).
• Scenario 2 - November 2019 Inclusionary Housing Ordinance: The Housing Impact InLieu Fee used in the AECOM analysis is removed and replaced with the current 2020 inclusionary requirement, which is satisfied either by building income-restricted units on site or paying an in-lieu fee, in line with the current Municipal Code Chapter 18.37, "Inclusionary Housing." In the on-site affordable housing Scenario 2a, 16 of the 80 units in the prototype project are valued based on allowable rents for Extremely Low Income, Very Low Income, and Low-Income households, as required. In the in-lieu fee Scenario 2b, a $250,000 fee is paid for each affordable unit not constructed on site, with the requirement shifting up to 25 percent of total units (20 affordable units in this case). The financial analysis reveals Scenario 2 is infeasible, yielding a negative residual land value of -$42 (2a) and -$43 (2b) per square foot. 1 The AECOM cost estimates in 2019 are lower than the current construction cost estimates in the April 27, 2020 DRA Memorandum to the City regarding the Inclusionary Housing In Lieu Fee Update. Using updated construction costs figures in the feasibility analysis would make all multifamily housing development more financially challenging than the findings presented here. 74 Financial Analysis of East Palo Alto Inclusionary Housing Requirements October 9, 2020

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Figure 1 Summary of Feasibility Results
A pro forma analysis for each scenario and additional detail supporting the assumptions used are provided in the tables that follow.

Feasibility Scenario
Scenario 1:

February 2019 EPA
Baseline
Scenario 2a:

November 2019
Inclusionary
Housing
Ordinance
Scenario 2b:

November 2019
IHO with In-Lieu
Fee

Total Units 80 80 80
Market Rate Units 80 64 80
Income-Restricted Units - 16 -
Replacement RSO Units - - -
Fees per Unit $37,598 $15,417 $77,917
Fee Burdened Units 80 80 80
Developer Return
on Investment 12% 12% 12%
Residual Land Value $1,754,285 -$1,825,450 -$1,858,225
per square foot $40 -$42 -$43
Feasibility Feasible Not Feasible Not Feasible
75 See supporting tables for additional detail.

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 80 DU / Acre 80
Gross Building Area (Square Feet) 875 GBA / DU 70,000
Net Rentable Square Feet 80% Efficiency Factor 56,000
Total Parking Spaces 1.7 Spaces / DU 136
Surface Parking Spaces 15% of total parking 20
Structured Parking Spaces 85% of total parking 116

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR REFERENCE PER GBA TOTAL Gross Potential Rent $4.16 per SF/Month see Detail Table 1 $40 $2,795,520 Gross Potential Parking Income $0 per Space/Month $0 $0 Losses to Vacancy 5.0% of Gross Income -$2 -$139,776
Gross Residential Revenue $38 $2,655,744
Basic Operating Expenses 25% Gross Potential Rent -$10 -$698,880 Additional Operating Expense (TDM)1 $0 per Year $0 $0
Total Operating Expenses -$10 -$698,880
Net Operating Income (NOI) 27.9552 $1,956,864
Project Market Value 4.25% Cap Rate $658 $46,043,859
Project Sale Cost1 0.0% Value $0 $0
Net Project Value $658 $46,043,859

Scenario 1: February 2019 EPA Baseline
[1] Expense not accounted for in prototype modeled by AECOM in 2018 Development Impact Fee Financial Feasibility Technical Memorandum, dated February 28, 2019.

Economic and Planning Systems, Inc. Tableset 1
76 DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 80 DU / Acre 80
Gross Building Area (Square Feet) 875 GBA / DU 70,000
Net Rentable Square Feet 80% Efficiency Factor 56,000
Total Parking Spaces 1.7 Spaces / DU 136
Surface Parking Spaces 15% of total parking 20
Structured Parking Spaces 85% of total parking 116
Income-Restricted Units 20% of net new DU count 16

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR REFERENCE PER GBA TOTAL Gross Potential Rent (inc. BMR units) $3.79 per SF/Month see Detail Tables 2 and 4 $36 $2,546,460 Gross Potential Parking Income $0 per Space/Month $0 $0 Losses to Vacancy 5.0% of Gross Income -$2 -$127,323
Gross Residential Revenue $35 $2,419,137
Basic Operating Expenses $8,736 per DU -$10 -$698,880
Additional Operating Expense (TDM) $0 per Year $0 $0
Total Operating Expenses -$10 -$698,880
Net Operating Income (NOI) $25 $1,720,257
Project Market Value 4.25% Cap Rate $578 $40,476,633
Project Sale Cost 0.0% Value $0 $0
Net Project Value $578 $40,476,633

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR REFERENCE PER GBA TOTAL Construction Cost
On-Site Infrastructure $35 per SF (development site) $22 $1,524,600 Building Direct Cost $330 Cost/SF (GBA) $330 $23,081,750 Surface Parking Direct Cost $10,000 per Space $3 $200,000 Structured Parking Direct Cost $31,000 per Space $51 $3,596,000 Total Construction Cost $406 $28,402,350
Soft Cost
Permits and Fees $15,417 per DU see Detail Table 3 $18 $1,233,320 Financing 5.0% of Construction Cost (incl. site) $20 $1,414,610 Other Soft Costs 25% of Construction Cost (excl. site) $96 $6,719,438 Total Soft Costs $134 $9,367,368
Other Project Costs
Development Contingency 0.0% of Construction & Soft Costs $0 $0 Developer Return on Investment 12% of Construction and Soft Costs $65 $4,532,366 Residual Land Value Model Output / Supportable Land Cost -$26 -$1,825,450 Total Other Costs $39 $2,706,916
Total Project Cost (including land) $578 $40,476,633
Residual Land Value -$1,825,450
per sf development site -$42
This model uses the same Prototype R3 Pro Forma published in the City's Development Impact Fee Program Financial Feasibility Technical Memorandum, submitted by AECOM, dated February 28, 2019. Two changes have been made: (1) the former Housing Impact In-Lieu Fee used by AECOM has been removed and (2) the inclusionary requirement is met by building income-restricted units on site, in line with the current Municipal Code Chapter 18.37, "Inclusionary Housing." Scenario 2a: November 2019 Inclusionary Housing Ordinance with On-Site BMR Housing Figures highlighted in blue have been adjusted from the City’s 2019 Feasibility Study, all other figures are directly taken from previously-approved study. See supporting tables for additional detail.

Economic and Planning Systems, Inc. Tableset 2
77 DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet) 1 Acres 43,560
Dwelling Units 80 DU / Acre 80
Gross Building Area (Square Feet) 875 GBA / DU 70,000
Net Rentable Square Feet 80% Efficiency Factor 56,000
Total Parking Spaces 1.7 Spaces / DU 136
Surface Parking Spaces 15% of total parking 20
Structured Parking Spaces 85% of total parking 116

BUILDING INCOME AND VALUE ASSUMPTION/FACTOR REFERENCE PER GBA TOTAL Gross Potential Rent (inc. BMR units) $4.16 per SF/Month see Detail Table 1 $40 $2,795,520 Gross Potential Parking Income $0 per Space/Month $0 $0 Losses to Vacancy 5.0% of Gross Income -$2 -$139,776
Gross Residential Revenue $38 $2,655,744
Basic Operating Expenses $8,736 per DU -$10 -$698,880
Additional Operating Expense (TDM) $0 per Year $0 $0
Total Operating Expenses -$10 -$698,880
Net Operating Income (NOI) $28 $1,956,864
Project Market Value 4.25% Cap Rate $658 $46,043,859
Project Sale Cost 0.0% Value $0 $0
Net Project Value $658 $46,043,859

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR REFERENCE PER GBA TOTAL Construction Cost
On-Site Infrastructure $35 per SF (development site) $22 $1,524,600 Building Direct Cost $330 Cost/SF (GBA) $330 $23,081,750 Surface Parking Direct Cost $10,000 per Space $3 $200,000 Structured Parking Direct Cost $31,000 per Space $51 $3,596,000 Total Construction Cost $406 $28,402,350
Soft Cost
Permits and Fees $77,917 per DU see Detail Table 3 $89 $6,233,320 Financing 5.0% of Construction Cost (incl. site) $20 $1,414,610 Other Soft Costs 25% of Construction Cost (excl. site) $96 $6,719,438 Total Soft Costs $205 $14,367,368
Other Project Costs
Development Contingency 0.0% of Construction & Soft Costs $0 $0 Developer Return on Investment 12% of Construction and Soft Costs $73 $5,132,366 Residual Land Value Model Output / Supportable Land Cost -$27 -$1,858,225 Total Other Costs $47 $3,274,141
Total Project Cost (including land) $658 $46,043,859
Residual Land Value -$1,858,225
per sf development site -$43
Scenario 2b: November 2019 Inclusionary Housing Ordinance with BMR Housing In-Lieu Fee This model uses the same Prototype R3 Pro Forma published in the City's Development Impact Fee Program Financial Feasibility Technical Memorandum, submitted by AECOM, dated February 28, 2019. The former Housing Impact In-Lieu Fee assumption used by AECOM has been removed and replaced with the City's current affordable housing in-lieu fee, consistent with the Municipal Code Chapter 18.37, "Inclusionary Housing." Figures highlighted in blue have been adjusted from the City’s 2019 Feasibility Study, all other figures are directly taken from previously-approved study. See supporting tables for additional detail.

Economic and Planning Systems, Inc. Tableset 3
78 Detail Table 1
Weighted Average Rent Calculation - Scenario 1
Number % Total Monthly per Square
Foot
Total Units 80
Market1 80 100% $2,912 $4.16
Income-Restricted - - - -
Restricted at 35% AMI - - - -
Restricted at 50% AMI - - - -
Restricted at 60% AMI - - - -
- - - -
Replacement RSO - - - -
Weighted Average Rent $2,912 $4.16
Sources: City of East Palo Alto; San Mateo County; Housing Authority of San Mateo County; Economic & Planning Systems, Inc.

Scenario 1
Units Average Rent
[1] Market rent is based on the City of East Palo Alto's Development Impact Fee Program Financial Feasibility Technical Memorandum, dated February 28, 2019.

Economic and Planning Systems, Inc. Tableset 4
79 Detail Table 2
Weighted Average Rent Calculation - Scenario 2
Number % Total Monthly per Square
Foot
Total Units 80
Market1 64 80% $2,912 $4.16
Income-Restricted2 16 20%
Restricted at 35% AMI 4 5% $1,140 $1.63
Restricted at 50% AMI 8 10% $1,658 $2.37
Restricted at 60% AMI 4 5% $2,003 $2.86
Replacement RSO - - - -
Weighted Average Rent $2,653 $3.79
Sources: City of East Palo Alto; San Mateo County; Housing Authority of San Mateo County; Economic & Planning Systems, Inc.

Scenario 2
Units Average Rent
[1] Market rent is based on the City of East Palo Alto's Development Impact Fee Program Financial Feasibility Technical Memorandum, dated February 28, 2019.
[2] Income-restricted rents are based on EPS application of 2020 San Mateo County Income Limits, incorporating the November 2019 Utility Allowance Schedule published by the Housing Authority of San Mateo County. EPS assumes landlord pays for water and trash collection.

Economic and Planning Systems, Inc. Tableset 5
80 Detail Table 3
Impact Fee Burden
AECOM Estimated Fee
Housing Impact In-Lieu Fee $1,774,500 $22,181
Other Fees $1,233,320 $15,417
Total Fee Burden $3,007,820 $37,598
AECOM Estimate Excluding Housing Impact Fee
Housing Impact In-Lieu Fee - $0
Other Fees $1,233,320 $15,417
Total Fee Burden $1,233,320 $15,417
Current Conditions
Housing Impact In-Lieu Fee 1 $5,000,000 $62,500
Other Fees $1,233,320 $15,417
Total Fee Burden $6,233,320 $77,917
Fee Project-wide Per Unit
[1] Inclusionary ordinance in-lieu fee assumed to be $250,000 per inclusionary unit, with the requirement shifting up to 25 percent of total units (20 affordable units in this case).”
Sources: City of East Palo Alto's Development Impact Fee Program Financial Feasibility Technical Memorandum, February 28, 2019; Economic & Planning Systems, Inc.

Economic and Planning Systems, Inc. Tableset 6
81 Detail Table 4
Below Market Weighted Average Rent
Housing
Cost
Limit1
Utilities
Allowance2
Rent
Potential
Housing
Cost
Limit1
Utilities
Allowance2
Rent
Potential
Housing
Cost
Limit1
Utilities
Allowance2
Rent
Potential
Studio 30% $1,065 -$75 $990 $1,522 -$75 $1,447 $1,827 -$75 $1,752 1-Bed 31% $1,142 -$85 $1,057 $1,631 -$85 $1,546 $1,957 -$85 $1,872 2-Bed 39% $1,370 -$107 $1,263 $1,957 -$107 $1,850 $2,349 -$107 $2,242 Weighted Average $1,117 $1,635 $1,980
per unit $1.60 $2.34 $2.83
Very Low Income Units
(50% AMI)
Low Income Units
(60% AMI)
[1] Based on 2020 San Mateo County Income Limits as analyzed by EPS. [2] U.S. Department of Housing and Urban Development, "Utility Allowance Schedule: Housing Authority of San Mateo County," November 2019. Assumes landlord pays for water and trash collection.

Sources: City of East Palo Alto; San Mateo County; Housing Authority of San Mateo County; Economic & Planning Systems, Inc.

Unit Type Unit
Distribution
Extremely Low Income Units
(35% AMI)
Economic and Planning Systems, Inc. Tableset 7
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85 M E M O R A N D U M
To: Woodland Park Communities
From: Economic & Planning Systems, Inc.

Subject: Fiscal and Economic Impact Analysis of the Proposed Euclid Improvements Project; EPS #181057
Date: July 7, 2022
Economic & Planning Systems (EPS) has been aiding Woodland Park Communities with fiscal and economic impact analysis of the proposed “Euclid Improvements” project in the City of East Palo Alto. The proposed project seeks to replace 160 existing rent-stabilized units with 605 mixed-income apartments and up to 8,000 square feet of retail and/or community/nonprofit space within Woodland Park. In addition, the proposed project provides for an additional 75 units of deedrestricted, below-market-rate affordable housing to be developed at an offsite location. The off-site housing would be delivered in partnership with Eden Housing and would satisfy City requirements for belowmarket-rate housing.

This memorandum summarizes the fiscal impact of the proposed project on the City of East Palo Alto General Fund, including the Woodland Park development and off-site housing. The analysis reflects coordination with the City and its fiscal consultant, Keyser Marston Associates (KMA).

Fiscal impact estimates for the Woodland Park development derive from EPS analysis completed in 2021 (EPS Memorandum February 8, 2021).

The findings presented here also add fiscal impact estimates for the proposed off-site affordable housing. However, design work and program formulation for the off-site affordable housing is still underway and the findings of this analysis could change as more project detail becomes available.

The following Summary of Findings highlights EPS estimates of the project’s net positive fiscal impacts at project stabilization. Actual fiscal and economic impacts will depend on factors that cannot be predicted with certainty, including the market performance of the project, future changes in City or State budgeting practices, the efficiency of various City departments in supplying services, and other factors. Critical analytical inputs relied upon by the analysis include assumptions provided by Woodland Park Communities, Eden Housing, City Finance 86 Memorandum July 7, 2022
FIA for Euclid Improvements Page 2
Z:\Shared\Projects\Oakland\181000s\181057_WoodlandPark\Deliverable\181057_FIA_Findings_7.7.22.docx Department, public documents, and EPS industry knowledge, among other sources. The analysis presents impact estimates in constant 2022 dollars.

S umm a r y o f F i n d i n g s

1. The Euclid Improvements project will result in a total net fiscal benefit to the City of East Palo Alto’s General Fund of over $1.1 million per year.

This updated analysis estimates that the net annual fiscal impact of the Euclid Improvements project on the City’s General Fund is positive and significant. As shown in Table 1, this impact estimate reflects net new General Fund revenues of over $1.1 million in year 11 when Measure O requirements apply. The estimated net fiscal impact of proposed development at Woodland Park totals almost $1.2 million, well above the net annual fiscal cost of $68,000 associated with the project’s off-site affordable housing. 1 Euclid Improvements overall net
new contribution to the General Fund will be available to support a range of City services.

Table 1 Euclid Improvements Project Fiscal Impact Summary (2022$) 1 This analysis finds that the off-site affordable housing development will have a negative fiscal impact on the City’s General Fund. The estimated annual cost to the City is largely attributable to the lost property tax revenue that results from tax exemption, combined with new General Fund costs from services to the housing project. The California Revenue and Taxation Code provides that property owned by a nonprofit organization or eligible limited liability company providing housing for lower income households can qualify for the welfare exemption.

Revenue/
Expense Category Net Impact1

WOODLAND PARK DEVELOPMENT
General Fund Revenues $1,712,000
General Fund Expenditures -$535,000
Annual Fiscal Impact on the General Fund $1,177,000

PARTNERSHIP FOR BELOW-MARKET-RATE HOUSING
Annual Fiscal Impact on the General Fund -$68,000
TOTAL
Annual Fiscal Impact on the General Fund $1,109,000
Sources: Woodland Park Communities; City of East Palo Alto; Economic & Planning Systems, Inc. [1] Net impact is based on year 11 of the Proposed Project. City revenues from Measure O begin after year 10.
87 Memorandum July 7, 2022
FIA for Euclid Improvements Page 3
Z:\Shared\Projects\Oakland\181000s\181057_WoodlandPark\Deliverable\181057_FIA_Findings_7.7.22.docx

2. At project buildout, Property Tax will account for the largest revenue source to the City.

After accounting for lost property tax revenue attributable to the off-site affordable housing, the analysis estimates that Euclid Improvements project will generate over $960,000 in net new annual property tax revenue accruing to the City’s General Fund. This growth in property tax revenue stems from an expected increase in assessed value of $308 million at Woodland Park. The rise in assessed value at Woodland Park is offset by a modest reduction in assessed value at the off-site affordable housing site.

3. The Euclid Improvements project’s most significant cost to the City’s General Fund is likely to be borne by the Police Department.

Assuming that Police Department costs increase with added population at Woodland Park and within the new off-site affordable housing, the analysis estimates that the cost of police services will grow from about $150,000 per year today to approximately $468,000 per year at project stabilization. This estimate reflects police department cost factors provided to EPS by the City. However, compared to historically reported calls for service at Woodland Park, the police cost estimates are conservative (i.e., more likely to overstate than understate costs). Woodland Park has dedicated, private, around-the-clock security fielding calls that would otherwise go to City police.

4. Over a 20-year time horizon, the project is expected to generate a cumulative net positive fiscal impact of about $18.6 million.

The City levies a Residential Rental Business License Tax (Measure O) which applies to all market-rate units starting 10 years after a certificate of occupancy has been issued.

Accounting for this tax increase beginning in year 11, the fiscal impact of the Euclid Improvements project is estimated at about $1.6 million in year three, $8.6 million in year 11, and over $18.6 million in year 20, including development at Woodland Park and off-site affordable housing.

5. One-time development impact fees paid by the project developer total roughly $8.17 million.

The City of East Palo Alto charges development impact fees including:

1. Parks and Trails Fee;

2. Public Facilities Fee;

3. Transportation Infrastructure Fee;

4. Storm Drainage Fee;

5. Water Capacity Fee; and

6. Residential Impact Fee.

Assuming that the proposed project is not subject to the City’s Residential Impact fee and that Woodland Park Communities pays impact fees on net new units delivered, roughly $8.17 million would be generated for City capital improvement programs. In addition, local infrastructure improvements delivered by the project and other development impact fees (e.g., levied by local school districts) will contribute to the community benefit of the proposed project.
88 TO: El Paseo Owner, LLC FROM: Elisha St Laurent
Candice Gonzalez Housing Department
SUBJECT: Final Response DATE:
to Development Application
PLANNING NO.: PD19-049
PD20-006
PDA20-006-002
LOCATION(S): 1312 El Paseo De Saratoga
1777 Saratoga Ave
UNITS 772
The Applicant submitted an IHO application on October 18, 2024, and the Developer has submitted a request for the City to approve its Alternative proposal pursuant to SJMC

5.08.610(F) Affordable Housing Plan Submittal and Inclusionary Housing Agreement. Under this subsection, the Director of Housing, as the City Manager s designee, may approve or decline a developer s proposed alternative method of meeting IHO requirements. The purpose of this section is to allow flexibility to developers to propose alternatives that could meet both the developers and the City objectives. The subsection reads as follows:

F. An Applicant may propose an alternative method of meeting inclusionary housing requirements that does not strictly comply with the requirements of this Chapter. The City Manager may approve such an alternative if he or she determines, based on substantial evidence, and which determination shall be specified in the Affordable Housing Plan, that the alternative will provide as much or more affordable housing at the same or lower income levels, and of the same or superior quality of design and construction, and will otherwise provide greater public benefit, than compliance with the express requirements of this Chapter and the Inclusionary Housing Guidelines.

The findings to be made under subsection F are that:

1. The alternative will provide as much or more affordable housing at the same or lower income levels, and of the same or superior quality of design and construction, and

2. The alternative will otherwise provide greater public benefit than compliance with the express requirements of the IHO and its guidelines.

Following is an analysis of the ways in which the proposed Development addresses the baseline IHO requirements. The relevant waiver requests from the table above are noted for each topic and rationale.
89 Developer selected the Mixed Compliance option to meet the City s objective of on-site affordability. Developer stated that full compliance of 15% of units on-site would not have been feasible, and their original proposal was to provide no affordable units at this site. The City s ability to be flexible on the strict unit comparability standard incented them to do onsite units.

The mix of on-site units and payment of an adjusted in-lieu fee is a better outcome for the City, as this property is in a high opportunity area. Consistent with the Siting Policy, the City is trying to incent affordability in these types of neighborhoods. In addition, collected fees will be redirected to deeply affordable units in the City.

For these reasons, staff finds that approving the requested flexibility would provide more affordable units than otherwise would have been produced at this site in a high opportunity area.

It results in a better outcome for the City than the Developer s original proposal. Therefore, staff recommends flexibility on strict unit comparability and the Director's approval.

Developer has completed the required application/plan, paid the application fee, and obtained approval of that plan/application for the Inclusionary Housing Ordinance and Commercial Linkage Fee.

Planning may now schedule the project for hearing. Housing has reviewed and approved the Plan for the development referenced above subject to the following conditions:

Conditions of approval for Inclusionary Housing Ordinance Requirements for Residential Developments and Mixed Use Developments
The permittee has submitted an Affordable Housing Compliance Plan Application ( Plan ) and processing/application fees
The Owner/Applicant understands the Plan is binding and can only be set forth under SJMC 5.08.610 (E).

Inclusionary Housing obligation under special use permit amendment has been submitted to create 772 units with a total of 39 units will be restricted for 99 years under IHO. The developer has selected to comply with the IHO through the Mixed Compliance with Rental Inclusionary Units On-Site pursuant with the San Jose Municipal Code

5.08.525. The applicant will restrict 5% of the units in the Residential Development at 100% AMI and pay an adjusted in lieu fee in Strong Market area ($21.74) calculated based on the rentable square footage of the Residential Development and will be subject to an in-lieu fee of $13, 5, . 0 ($21.74 X net residential square footage). To account for inflation in affordable housing development costs the adjusted In Lieu fee is subject to change on July 1 of each year.

AFFORDABLE DEED-RESTRICTED UNITS FOR 99 YEARS
I
90 a. Prior to earliest of: approval of any parcel or final map or issuance of any building permits, the permittee must execute and record their Affordable Housing Agreement memorializing the IHO obligations against the property, any other property required for the satisfaction of the compliance option selected in the Plan, and record the Affordable Housing Agreement or a City covenant against contiguous property under common ownership and control. No building permit may issue except consistent with the requirements of the IHO and the proposed Plan to fulfill the affordable housing obligations.
b. Permittee must strictly comply with each requirement of the approved Affordable Housing Compliance Plan, the Affordable Housing Agreement, and any other applicable requirements of the IHO or its guidelines and submit any additional or updated documents requested by the Housing Department in connection with the satisfaction of the compliance option selected in the Plan.
c. No Temporary Certificate of Occupancy, Certificate of Occupancy, or Notice of Completion for any units shall be issued until all requirements of the IHO, its guidelines and the Affordable Housing Agreement are met.

Conditions for Projects with Non-Residential Uses Adding at least 5,000 Square Feet - Commercial Linkage Fee (CLF)
The Permittee has completed a CLF Satisfaction Plan Application (Plan) re obligations under the Commercial Linkage Fee Ordinance, Chapter 5.11 of the San Jose Municipal Code. The Permittee CLF obligation is set forth in the below table. a) Permittee must strictly comply with each requirement of the approved CLF Satisfaction Plan Application (Plan), Processing Fee, and Agreement, and any other applicable requirements of the CLF.
b) No scheduling of the first Final Building Inspection will occur until all requirements of the Commercial Linkage Fee Ordinance and Guidelines are met. c) The Commercial Linkage Fee will be due by First Building Final Inspection (SJMC

5.11.030). If paid by Building Permit Issuance, a 20% reduction will apply to the total current fee.

Non-Residential CLF Project Details:

Use Proposed Floor Area
(SF) Sub Area FY24/25 Fee Per SF *
Current CLF
Total
Current CLF Total
with 20%
Reduction**
Residential
Care 227,842 SF
West San Jose
Urban
Villages
$7.16 $1,631,348.72 $1,305,078.98
I
91 Please contact me at [email protected] if you have any questions about the information contained in this letter.

Elisha St Laurent
Housing Department
*CLF Rates Subject to change every new Fiscal Year, July 1. **20% Reduction Applies if CLF is paid by Building Permit Issuance.

Fees Pulled From: Resolution No. RES2024-230
92 93
94 95
96 97
98 ADOPTED OCTOBER 4 2016
FINAL VERSION: MARCH 2017
99 CHAPTER 4: LAND USE AND URBAN DESIGN
CITY OF EAST PALO ALTO: GENERAL PLAN 2035 | 4-35
Goal LU-12. Foster the creation of a
“main street,” centered on University
Avenue and along Bay Road to
enhance the City’s image and identity.

Intent: To enliven the street with new ground-floor shops and mixed-use development. To create community
gathering spaces with new parks and plazas along Bay
Road.

12.1 Specific Plan. Implement the vision, goals, policies and regulations of the Ravenswood TOD Specific
Plan as a high priority of the City.

12.2 Vacant parcel. Prioritize the development of the
vacant parcel at the intersection of Bay Road and
University Avenue as a catalyst project for the City.

12.3 4 Corners identity. On all parcels with frontage on the intersection of University Avenue and Bay Road,
encourage new development that exhibits a high
quality and character, and that supports this
intersection’s identity as the heart of the City.

12.4 Main Street. Create a walkable main street
environment for East Palo Alto to serve adjacent
neighborhoods, and the entire community, along
with connecting with Cooley Landing and the Bay
Trail. Ensure that development along Bay Road
helps reinforce the corridor’s importance as the
primary “activity spine” within the City.

12.5 Ground floor activity. Require active ground-floor land uses along Bay Road. New development should
be built with minimal setbacks in order to activate
the pedestrian realm.

12.6 Gateway. Ensure that new development at 4
Corners responds to its regional significance as a
gateway to East Palo Alto as a whole.

12.7 Design standards. Ensure that all development in
the Plan Area along University Avenue and Bay
Road adheres to the Specific Plan’s design
standards and guidelines.

12.8 Parcel aggregation. Assist in and encourage the
assembly of sites to enable implementation of the
vision for the area that overcomes existing small
and irregular parcelization patterns and maximizes
uses along Bay Road.

12.9 Development partners. Seek outside development
partners to develop large portions of the “main
street” along Bay Road. Encourage the use of the
existing City density incentives to develop mixed
use housing in this area.
100
PUBLIC HEARING ITEM 5.2

EAST PALO ALTO

CITY COUNCIL

As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit.
101
PUBLIC HEARING ITEM 5.2
b. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b)(5).

Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
 Comprehensive Housing
 Land Use, Economic and Workforce Development
 Public Health, Safety, and Quality of Life
Background
The Four Corners townhome project located at 2400 University, APN 063-111-250 (“Project”), is a proposed townhome development on a currently vacant 327,622 square feet (7.52 acre) lot.

The Project applicant is Four Corners EPA Property Owner, LLC d/b/a Sand Hill Property Company (“Applicant”). The Project area is zoned as Urban Residential (“UR”). The Applicant is proposing an Alternative Compliance Plan to meet the Inclusionary Housing Ordinance (“IHO”) requirements, but by only providing 10% of the ownership/for-sale units restricted at 120% of Area Median Income (“Inclusionary Units”).1
Prior Project and Proposed Changes
On November 19, 2020 the Planning Division received a formal application for a 180-unit rental mixed-income development at 2400 University/1675 Bay Road, including 40,000 square feet of retail, restaurants, and community space, and 500,000 square feet of life science/laboratory space. The 180 proposed residential units were comprised of 125 base units and 55 units resulting from the applicant using State Density Bonus Law (“SDBL”). The City’s IHO required the Applicant to provide 20% of the 125 base units as on-site deed-restricted affordable units, that is 25 on-site Inclusionary Units. At the time, the applicant stated they would be able to meet this IHO requirement; however, later the Applicant decided not to pursue the project.

On November 25, 2024, Applicant submitted a new Preliminary Application (PRE24-003) to initiate the preliminary review process, gather community feedback on a new project at the site:
the University and Bay at Four Corners Townhomes Residential Project, and vested rights under Government Code Section 65589.5(o)(1). PRE24-003 included a 95-unit townhome ownership development along with several open common spaces and guest parking. Again, the Applicant stated that the project would meet all requirements of the IHO including the 20% baseline

1 Definitions for “median income” and “moderate income” households are cited in the East Palo Alto Municipal Code Chapter 18.37 – Inclusionary Housing, and in the Inclusionary Housing Guidelines. Inclusionary Housing Ordinance webpage: https://www.cityofepa.org/housing/page/inclusionary-housing 102
PUBLIC HEARING ITEM 5.2
requirement, by providing 10 units at Median Income, 9 units at Moderate Income, and the remaining 76 at market rate. Additionally, the Applicant pledged to meet all other IHO requirements, including: concurrent construction of inclusionary units and market rate units, even distribution of inclusionary units throughout the project site, and like finishes and access to amenities.

The Planning Commission considered the preliminary application on March 24, 2025. The Commission observed that the townhome project may not fully align with the intent of the MixedUse High zoning designation or the City’s vision for an active corridor. Commissioners suggested increasing the amount of commercial space, with retail uses oriented toward the primary street frontage rather than the interior courtyard. The Commission also emphasized the importance of incorporating greater community accessibility and inclusivity into the project design and uses.

The Current Proposed Project
On May 19, 2025, the Applicant returned to the Planning Division with a higher density, primarily residential 106-unit proposal with 231,946 gross square feet across 10 individual townhome buildings, with 4,816 square feet of private open space and 31,574 square feet of common open space. The proposal included 24 two-bedroom units, 60 three-bedroom units, and 22 fourbedroom units. The Applicant cited higher than anticipated construction costs, interest rate increases, and decreased demand for employment uses as reasons for the modification. The Applicant also cited delays related to the update of the area’s Specific Plan “affected the original vision” for the plan thereby purportedly making the original plan infeasible. The Specific Plan included a thorough Community Benefits Framework that not only encouraged more affordable housing, but also would provide more square footage and density to projects that qualify as an Exemplary Project and took the initial Four Corners development proposal from 2020 into account. However, the Applicant has requested that this revised application be processed under the previous 2013 RBD Specific Plan, as required by State Bill 330.

Inclusionary Housing Requirement

All residential development projects are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code (“EPAMC”) Inclusionary Housing Ordinance (“IHO”), adopted by City Council on November 19, 2019.2 An applicant of an ownership residential development with five or more units must provide twenty percent (20%) of the dwelling units in the residential development as Inclusionary Units upon the same site as the residential development, with fifty percent of the Inclusionary Units available at a sales price affordable to median-income households (80% of AMI or “Median Income”) and fifty percent of Inclusionary Units affordable to moderate-income households (120% of AMI or “Moderate Income”).

Fractions of an Inclusionary Unit shall be provided by the payment of an In-Lieu fee as established in Section 18.37.050.A. The In-Lieu Fee for ownership residential units for Fiscal Year 2025-26 is $268,800 per unit.3 The fee is applicable upon issuance of a certificate of

2 November 19, 2019 City Council meeting (item 9B):
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1271 3 For In-Lieu Fee updates, see: https://www.cityofepa.org/housing/page/inclusionary-housing. 103
PUBLIC HEARING ITEM 5.2
occupancy or final inspection because this is a residential development project. Therefore, this project would be liable to pay the In-Lieu Fee.

In the Inclusionary Housing Plan, applicants must select from the listed “Inclusionary Housing Compliance Options” to show how their project will meet the inclusionary requirement.

Developers may request alternative compliance options subject to City Council approval.

Developer’s must identify the proposed alternative compliance option in the Inclusionary Housing Plan submitted with the Planning application and must pay all costs needed to demonstrate compliance. Providing such evidence does not guarantee approval. If a developer proposes an alternative compliance option, the inclusionary requirement for the Residential Development increases from 20% to 25% of applicable units at specific affordability levels. a. Off-Site Construction: Developers may build the required Inclusionary Units (25%) at an off-site location if the City Council approves. The Developer, an affiliated entity, or another entity under agreement with the Developer may complete the construction, subject to City approval. Please see Chapter 5 (Off-Site Construction) for details of the off-site construction option.
b. In-Lieu Fee Payment: With City Council approval, Developers may pay an In-Lieu Fee to fulfill the 25% inclusionary requirement. The City deposits all In-Lieu Fees into an affordable housing fund. See Chapter 2, 2A, 2B, and 2C for details on the In-Lieu Fee compliance option.
c. Other Alternative Compliance Options: Developers may propose other compliance options. The City Council may approve them if the Developer provides substantial evidence that the option will provide as many or more Inclusionary Units at the same or lower income levels, or that it will otherwise provide greater public benefit than building on-site.

Please see the Inclusionary Housing webpage for more details and the updated chapters of the IHO Guidelines as referenced: https://www.cityofepa.org/housing/page/inclusionary-housing.

IHO Requirement for the Current Proposed Project
The City’s IHO requires the Applicant to provide 20% of the 106 units as on-site deed-restricted affordable units, that is 21 on-site Inclusionary Units – 11 at or below 80% of AMI and 10 at or below 120% of AMI. The Applicant proposes an alternative compliance option under option C, above, Other Alternative Compliance Options. The Applicant’s proposal is included in Attachment 2.
104
PUBLIC HEARING ITEM 5.2
This staff report evaluates the merits of the proposed alternative and ultimately recommends that the City Council deny the proposed alternative because it does not fulfill the IHO on-site affordability requirements or the alternative compliance plan requirements. If the Inclusionary Housing Plan is approved by City Council, the project’s entitlements, which include a Design Review and Tentative Map, would be scheduled for Planning Commission consideration once the project is ready for a decision. The timeline for the project is:

Table 1. Project Timeline
December 2, 2024 Applicant Submitted Preliminary Application Project Packet March 24, 2025 Preliminary Application Planning Commission Review April 1, 2025 Preliminary Application City Council Review May 19, 2025 Applicant Submitted Project Packet
July 21, 2025 Applicant Submitted Complete Inclusionary Housing Plan Pending Planning Commission Hearing
Pending Final Map
Analysis
The IHO is intended to ensure that new developments contribute meaningfully to meet the City’s affordable housing goals exacerbated by their projects, especially on high priority sites, which are identified for their potential to deliver more public benefit, not less. Allowing reduced affordability requirements on such sites undermines the ordinance’s purpose and sets a precedent that could lead to weakened standards across other key parcels.

Developer’s Proposed Alternative Compliance
The proposed Project consists of 106 base units, so under the Original Compliance, the applicant must provide twenty-one (21) ownership units and an In-Lieu Fee payment equivalent for a 0.2 partial unit. Under Alternative Compliance, under current local law, the Applicant must provide twenty-six and one half (26.5) ownership inclusionary housing units, at the Area Median Income (“AMI”) levels outlined in Table 2 below. The calculation is as follows:
106 Base Units x .25 = 26.5 Inclusionary Units Alternative Compliance Requirement = 26 Inclusionary Units and 0.50 In-Lieu Fee Payment
105
PUBLIC HEARING ITEM 5.2
The Applicant may meet this requirement through providing the units on and off-site, paying the appropriate In-lieu fees, or a combination of unit provision and fee payment; however, the IHO requires the proposed alternative to provide a public benefit equivalent to or beyond that resulting from 26.5 units at specific affordability levels.

Applicant’s Proposed Alternative
On May 27, 2025, the Applicant proposed to provide 10% of the base units (11 units) as on-site Inclusionary Units at 120% of AMI, which is Moderate Income according to the IHO. The Applicant met several times with City Staff between June 25 and July 21 to discuss the Alternative Compliance Options given that Council would prefer to see affordable units at the level outlined in the IHO. The Applicant submitted a complete Inclusionary Housing Plan application on July 21, 2025.

The proposed 11 on-site Inclusionary Units to be sold at an affordable price for Moderate-Income Households (120% of AMI) is considered an alternative due to the proposed affordability level.

Had the Applicant proposed affordability levels of Median Income (80% of AMI) and Moderate Income (120% of AMI) as shown in Table 2, the application would have been considered Original Compliance. This proposed alternative does not meet the IHO Original Compliance or the IHO Alternative Compliance requirements).4
Table 2: Inclusionary Housing Income Requirements
Maximum Income Percent of
Inclusionary
Units
Number of Units
Required – Original
Compliance
Number of Units
Required –
Alternative
Compliance
Median Income (80% of
AMI)
50% 11 units 13 units
Moderate Income
(120% of AMI)
50% 10 units 13 units
Total Inclusionary Units 100% 21 units
+ 0.2 In-Lieu Fee
Payment
26 units
+ 0.50 In-Lieu Fee
Payment
Applicant’s Explanation of Proposed Alternative
The Applicant provides several arguments for City Council to make its findings in favor of their Alternative Compliance Plan, which are listed in detail in Attachment 2. The Applicant cited higher than anticipated construction costs, interest rate increases, and decreased demand for employment uses as reasons for the modification. The Applicant also stated that the delays related to the update of the area’s Specific Plan affected the original vision for the plan and made the original plan infeasible.

4 EPAMC 18.37.050.A states: “In the event only one inclusionary unit is required, or the inclusionary requirement results in a fraction that does not evenly divide by the percentages required above, inclusionary units shall first be provided at the lower required affordability level.” EPAMC 18.37.050.C.2 states: “In computing the total number of inclusionary units required in a residential development, fractions of an inclusionary unit shall be provided by the payment of an in-lieu fee as established in Section 18.37.050.B.” 106
PUBLIC HEARING ITEM 5.2
This development is proposed on a “high priority site” for development in the City’s Housing Element. The Applicant has stated this as a reason to waive the IHO requirements and approve their Alternate Compliance Option. However, this argument is not a sufficient limiting principle to justify approving an alternative compliance option that is well below the requirements of the Original Compliance and would open up other “priority sites” to similar proposals that would cost the city significant public benefit in high priority areas of the city.

The Applicant further wishes to use State Density Bonus Law (“SDBL”) to waive the development standard requiring the City Council approval of any alternative compliance method and proposes in their application a “Preferred Inclusionary Housing Plan – Alternative Compliance” outlined in Attachment 2 and described herein. Staff does not believe that the SDBL can be used to wrest away the Council’s authority to conduct a hearing to consider the Applicant’s alternative compliance option, as the Applicant has contended. That is because the SDBL provides relief from development standards, and as such a procedural requirement (e.g., a hearing before the Council) is not such a standard. In sum, it cannot be the law that SDBL can stop a city council from conducting a public hearing well within its subject matter authority.

The Applicant is drawing an analogy between San Jose and East Palo Alto due to the similar language in the Inclusionary Housing Ordinances and the priority site case, despite the vast differences in size, income, demographics, and population. Although the City of San Jose’s ordinance has a similar ordinance provisions to East Palo Alto that city also has a Siting Policy, which encourages affordability in “high opportunity area” neighborhoods, whereas the City of East Palo Alto does no. A further distinction: the project in the City of San Jose that was approved with fewer inclusionary units also paid an adjusted in-lieu fee to compensate for some of the difference between the proposed alternative and requirements of the inclusionary housing ordinance. The Applicant here has not included payment of in-lieu fees in its Alternative Compliance proposal. This further differentiates the example San Jose project and the proposed project.
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PUBLIC HEARING ITEM 5.2
San Jose’s Siting Policy serves as a sufficient limiting principle for the City of San Jose to avoid undercutting their Inclusionary Housing Ordinance entirely. If the Applicant’s current Alternative Compliance Option were approved, any applicant could propose an alternative compliance option at levels lower than required by the IHO and make this same argument (that some units are better than no units, and other cities have approved similar), leaving the IHO effectively defunct.

Public Benefit Analysis
To put concrete numbers on the affordability level proposed by the Applicant, Table 3 below demonstrates the income limits for different households based on the City’s 2025 income limits.5
Table 3. San Mateo County Income Limits
Household Size 1 2 3 4
Median-Income
(80% of AMI)
$91,420 $104,510 $117,565 $130,620
Moderate-Income
(120% of AMI)
$143,660 $164,230 $184,745 $205,260

Greater Public Benefit (or Not)
The Applicant’s proposal is significantly below the requirements for an alternative compliance plan (“Alternative Compliance”) which would be applicable to 25% of the project. Stated another way, if a developer proposes to use alternative compliance the baseline 20% increases to 25%.

Yet, the proposed alternative compliance option provides only half of the required affordable units while maintaining the affordability at 120% of Area Median Income, which also does not meet the requirements of the IHO. If approved, this Alternative Compliance Option would leave a substantial gap between the housing demand generated by the project and the amount of that demand being mitigated through on-site affordable units. If approved, this alternative compliance option would lead to reduction in 15% of the required number of units that must be provided or

3.9 units.

5 East Palo Alto’s 2025 Income Limits calculated using Chapters 3 and 4 of the Inclusionary Housing Ordinance guidelines, available at https://www.cityofepa.org/housing/page/inclusionary-housing, and the 2025 State Income Limits, available athttps://www.hcd.ca.gov/sites/default/files/docs/grants-and-funding/income-limits-2025.pdf.

Rounded to the nearest 50th.
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PUBLIC HEARING ITEM 5.2
Evaluation of the Alternative Compliance Option

Also, Inclusionary Units shall meet the City’s Inclusionary Housing Standards under Section

18.37.060 of the EPAMC, including:
 Comparability in exterior appearance and overall quality of construction (to the marketrate units)  Comparability in average bedroom mix and unit size
 Dispersion of Inclusionary Units throughout the project, rather than a single location  Same amenities (access to common open space, parking, storage, etc.)

For the purposes of comparison, the market-rate units and Inclusionary Units are shown sideby-side in Table 4. Note that according to the Applicant, the Unit Mix may be subject to change. 109
PUBLIC HEARING ITEM 5.2
Table 4. Inclusionary and Market-Rate Unit Overview *
Inclusionary
Proposal
Original
Compliance
Requirement
Alternative
Compliance
Requirement
Market-Rate
Proposal
Units (#)
2-bedroom 0 5 6 24
3-bedroom 8 12 15 52
4-bedroom 3 4 5 19
Total 11 21** 26** 95***
Size
(sq ft avg)
2-bedroom N/A 1,311 avg 1,311 avg 1,305-1,316
3-bedroom 1,944-2,609 avg 1,480 avg 1,480 avg 1,269-1,690 4-bedroom 2,547 avg 1,950 avg 1,950 avg 1,889-2,011
Affordability
Median-Income
(80% AMI)
0% 50% - 11 units 50% - 13 units 0%
Moderate-Income
(120% AMI)
100% 50% - 10 units 50% - 13 units 0%
Market Rate 0% 0% 0% 100% - 95
units
*Estimates provided by the Applicant are subject to change. **Fractional units are rounded to nearest tenth and in-lieu fee payment is required for fractional units. The IHO states that in the event the inclusionary requirement results in a fraction that does not evenly divide by the percentages required in the IHO, inclusionary units shall first be provided at the lower required affordability level.
***The Applicant is proposing 24 2-bedroom units, 60 3-bedroom units, and 22 4-bedroom units, for a total of 106 units, per the General Planning Application dated May 16, 2025.

Table 5. Ownership Sales Price Required by IHO for Original Compliance (Even Unit Mix) IHO Requirement
Sale Price
AMI Level 2-Bedroom 3-Bedroom 4-Bedroom
80% $327,000 $361,000 $400,000
120% $645,000 $739,00 $793,000
# of Units
AMI Level 2-Bedroom 3-Bedroom 4-Bedroom
80% 3 6 2
120% 2 6 2
Total Sales Price: $11,257,000
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PUBLIC HEARING ITEM 5.2
Table 6: Sales Price Proposed by Applicant as Alternative Compliance Applicant’s Proposal
Sales Price
AMI Level 2-Bedroom 3-Bedroom 4-Bedroom
120% None Provided $739,000 $793,000
# of Units
AMI Level 2-Bedroom 3-Bedroom 4-Bedroom
120% 0 8 3
Total Sales Price $8,291,000
Code Required Number of Units. The number of Inclusionary Units required for this Project is twenty-one on-site Inclusionary Units and a partial in lieu fee of 0.2 units ($53,360 in FY 25-26) for Original Compliance, or twenty-six Inclusionary Units at alternate affordability levels approved by City Council and a partial in lieu fee of 0.5 units ($134,400 in FY 25-26) for Alternative Compliance. The proposed Alternative Compliance option of eleven inclusionary units at significantly higher incomes falls far short of the requirements of the IHO.

Bedroom Count and Size. The Inclusionary Units proposed would be 3 four-bedrooms and 8 three-bedroom units. Table 7 outlines what is required, and what is proposed.

Table 7. Bedroom Count Proposed by Applicant as Alternative Compliance Option* Bedroom Type Alternative
Compliance
Units Required
Alternative
Compliance
Units Proposed
Alternative
Compliance
Beds Required
Alternative
Compliance
Beds Proposed
2-Bedroom 6 0 12 0
3-Bedroom 15 8 45 24
4-Bedroom 5 3 20 12
Total 26 11 77 36
*Note that the bedroom mix requirements are based on the preliminary bedroom mix the developer provided for the market-rate units.

The proposal is to provide 36 beds, less than the 77 beds that would be required by the policy, a loss of 41 beds. There is also the loss of the partial in lieu fee of 0.5 units ($134,400).

Affordability- AMI. As noted in Tables 2 and 3 above, all 11 of the Inclusionary Units would be restricted at affordability for Moderate-Income (120% of AMI) households.

Staff has concluded that building eleven Inclusionary Units for Moderate-Income Households (120% of AMI) on-site, as an Alternative Compliance Option, does not provide more affordable units or affordability at the same or lower income than required by the IHO and does not provide a greater public benefit as is required for an Alternative Compliance option. 111
PUBLIC HEARING ITEM 5.2
Under the IHO’s Alternative Compliance standards, the project would be required to provide 26 affordable units totaling 77 bedrooms. However, the Applicant’s proposal offers only 11 affordable units with 36 bedrooms. That’s a shortfall of 15 units and 41 bedrooms, including no 2-bedroom units at all, which significantly limits housing options for small and moderate-sized families..

According to the American Community Survey (2023) the average household size in East Palo Alto is 3.49 persons. East Palo Alto’s median household income is $104,832. The current San Mateo County 120% Area Median Income for a 3-person household is $201,500. Thus, the Developer’s proposed 11 moderate-income units is a lesser public value than the Alternative Compliance requirement and a lesser public value than the Original Compliance Option, due to the higher income levels of affordability provided. The options made available based on the proposed option from the Applicant would not be affordable to the average household in East Palo Alto.

Staff finds this Alternative Compliance Option to be insufficient it includes fewer affordable units than required and targets higher income levels than intended. This not only reduces the public benefit but also misses a key opportunity to help offset the housing impacts created by the development.. Further, the Applicant is also seeking to waive the requirements that the inclusionary units have comparable square footage, proportions, or be dispersed throughout the building. While the Applicant states that the benefit of any level of affordable housing and the development itself is a “superior public good”, this alternative compliance proposal is significantly below the requirements of the IHO, and without some sort of limiting principle, could allow other applicants to propose a similar argument to circumnavigate the IHO with any level of alternative compliance plan.

Construction of Units in Alternative Compliance Option

The City or its designated entity, such as the City’s Below Market Rate (“BMR”) Program Administrator, would be responsible for ongoing compliance monitoring. As with all units created and income-restricted under the Inclusionary Housing program, these units would remain part of the City’s BMR portfolio.
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PUBLIC HEARING ITEM 5.2
Other Key Points for City Council Consideration
City staff would like to include two other important points for consideration:

Inclusionary Ordinance Update – The City plans to amend the Inclusionary Housing Ordinance, in line with the 2023-2031 Housing Element and City Council Priorities. As per the City of East Palo Alto Council Priorities, 2024-2028 Affordable Housing Strategy, and the 2023- 2031 City of East Palo Alto Housing Element, the City will be conducting an update of its IHO to reflect the current market conditions and financial feasibility of its inclusionary requirements. The Applicant could withhold its application until that update is completed, until the IHO is amended, allowing for the development to move forward within the requirements of the IHO and to address the financial feasibility concerns of the Applicant. This update will be done in conjunction with the countywide Grand Nexus Study, which is currently selecting a vendor to conduct the study and should be moving forward in 2026, with initial feasibility study results by mid-2026 with review and recommendations in the last half of 2026. This option would be the most fair to all applicants and avoid creating a preferential solution for the Applicant.

Development Agreement – The City could create a separate Development Agreement with the Applicant, however the Ravenswood Specific Plan recommends against separate Development Agreements. The City could create and approve a Development Agreement with the Applicant to satisfy their concerns and find an alternative solution, while also creating a limiting principle that would avoid undermining the IHO. However, the Ravenswood Business District Specific Plan did recommend against separate Development Agreements with the applicants to avoid uneven standards and to standardize the development process. Furthermore, the project applicant has not submitted an application for a Development Agreement.

If the City and Applicant choose to move forward with this option, City staff would work with the Applicant to create a Development Agreement, reviewed by both parties, before returning to the City Council for approval of the Development Agreement.

In discussions with the applicant, Sandhill is not interested in a Development Agreement and would rather propose another alternative compliance option or just entitle the project with the IHO baseline requirements (20%) and then figure out how to fulfill the requirements further into the project timeline. City staff also recommend against negotiating Development Agreement and would stand behind the IHO at this time and await the potential IHO update mentioned prior.

Staff Recommendation

Based on the above considerations, staff believes the Applicant's proposal to provide eleven deed-restricted units for Moderate Income Households does not fulfill the requirements of Section 18.37.080 and recommends the City Council deny this Alternative Compliance Option. 113
PUBLIC HEARING ITEM 5.2
Next Steps
Inclusionary Housing Process
If the City Council determines that the proposed Alternative Compliance Option is sufficient to fulfill the Project’s inclusionary obligation, City staff will incorporate the Inclusionary Housing Plan into the permit issuance process.

The Inclusionary Housing Agreement will ensure the Project complies with EPAMC Section

18.37.070, which requires concurrent construction and issuance of final inspection or certificates of occupancy for the Inclusionary Units and market-rate units.5 In accordance with Chapter 3 of the IHO Guidelines, the Affordable Rental Price will be calculated within 90 days before the date of the final signing of the rental agreement for an Inclusionary Unit and the values of the Affordable Rental Price, as defined in the IHO, will be updated every 90 days thereafter.

Construction of Units in Alternative Compliance Option

The City or its designated entity, such as the City’s Below Market Rate (“BMR”) Program Administrator, would be responsible for ongoing compliance monitoring. As with all units created and income-restricted under the Inclusionary Housing program, these units would remain part of the City’s BMR portfolio.
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PUBLIC HEARING ITEM 5.2
Fiscal Impact
There is no fiscal impact on the General Fund for this item.

Note if the Council wishes to accept the Applicant’s proposal, the City will lose out on the public benefit and will not have the financial means to build the units in place of the Applicant leaving the housing impacts of this development only partially mitigated.

Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto. Public notice was also provided in the August 22, 2025 San Mateo Daily Journal Newspaper.

Government Code § 84308
Applicability of Levine Act: Yes.

Analysis of Levine Act Compliance: The signatory for the application is Mike Kramer, Sand Hill Property Company Staff is unaware of any other parties or participants relevant to the Commission’s consideration of this item.

Attachments

1. Resolution

2. Affordable Housing Compliance Plan
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Resolution No. XX-2025 1 of 2
RESOLUTION NO. ____-2025

A RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF EAST PALO ALTO
REJECTING AN INCLUSIONARY HOUSING ALTERNATIVE COMPLIANCE OPTION FOR A ONEHUNDRED AND SIX-UNIT TOWNHOME DEVELOPMENT PROJECT (“FOUR CORNERS TOWNHOME") AT 2400 UNIVERSITY AVENUE, PORTION OF APN 063-111-250 WHEREAS, on November 19, 2020, the City Council of the City of East Palo Alto (“City Council”) adopted Ordinance No. 425, adding Chapter 18.37 – Inclusionary Housing (“IHO”) to the City of East Palo Alto Municipal Code; and
WHEREAS, a preliminary application for a residential development consisting of a 106-unit townhome ownership development at 2400 University/1675 Bay Road (“Project”) APN 063-111-250, was submitted by Four Corners EPA Property Owner, LLC d/b/a Sand Hill Property Company (“Applicant”) on December 2, 2024; and
WHEREAS, on May 27, 2025, the Applicant returned to the Planning Division with a primarily residential 168-unit proposal with 5,554 square feet of ground-floor retail space; and WHEREAS, on July 21, 2025, the Applicant submitted to the Housing Division a complete Inclusionary Housing application for alternative compliance (“Alternative Compliance Plan”); and WHEREAS, the Project’s baseline inclusionary obligation (“Original Compliance”) under Section

18.37.050 of the IHO is to provide 21 on-site ownership/for-sale inclusionary units (“Inclusionary Units”), with half at an affordable sales price to a Median-Income Households and half at an affordable sales price to Moderate-Income Households, as defined in Section 18.37.020 of the IHO; and WHEREAS, Section 18.37.080 of the IHO provides that an applicant of a residential development may choose from a list of alternative compliance options to meet the inclusionary obligation if the inclusionary requirement for the project is increased by 5% over the inclusionary housing requirement for projects with five or more units, and this option must be approved by the City Council; and
WHEREAS, Subsection (D) of section 18.37.080 of the East Palo Alto Municipal Code allows the Council to grant a residential development applicant “Other alternative compliance methods” but “only if the approval body determines, based on substantial evidence, that such alternative compliance will provide as many or more inclusionary units at the same or lower income levels or will otherwise provide greater public benefit than would provision of the inclusionary units on-site”; and WHEREAS, in lieu of the inclusionary obligation, the Applicant proposed an Alternative Compliance Plan to provide 11 on-site Inclusionary Units, to be sold at an affordable sales price for Moderate-Income Households (120% of AMI); and
WHEREAS, as an initial matter, the Applicant contends it can use State Density Bonus Law (“SDBL”) to waive the development standard requiring the City Council approval of any alternative compliance method and proposes in their application a “Preferred Inclusionary Housing Plan – Alternative Compliance” outlined in Attachment 2 and described in the staff report. The Council 116
Resolution No. XX-2025 2 of 2
considered and noted that the SDBL cannot be used to wrest away its authority to conduct a hearing to consider the Applicant’s alternative compliance option, as the Applicant has contended because the SDBL provides relief from development standards, and as such a procedural requirement (e.g., a hearing before the Council) is not such a standard. In sum, the Council finds that SDBL does not allow a developer to stop a city council from conducting a public hearing well within its subject matter authority; and
WHEREAS, the Applicant asks City Council to approve the proposed Alternative Compliance Plan with the following findings:
1) Building at the affordability levels and percentage of inclusionary units is financially infeasible and providing any affordable housing is preferable to providing zero housing units (both market rate and affordable);
2) The proposal helps meet the City’s 2023-2031 Regional Housing Needs Allocation (“RHNA”) obligations;
3) The Four Corners site, as a vacant parcel, is a top priority in the City’s 2016 General Plan Update;
4) The units will provide a positive fiscal impact on the City’s General Fund from property taxes, special taxes, development impact fees, and more; and
5) Other cities such as San Jose have approved projects with fewer inclusionary units than required they found “will provide greater public benefit” than the project not being constructed due to infeasibility; and
WHEREAS, the Applicant’s findings are outside of the scope of the IHO or fail to identify substantial evidence supporting the Alternative Compliance Option, including, for example, the failure to identify project-specific financial feasibility data; and WHEREAS, the Applicant’s assertion that “anything more than zero is better than nothing at all” is not, in itself, a justifiable basis for approving an alternative compliance request that does not meet the intent or standards of the IHO; and
WHEREAS, as compared to the City of San Jose, the City of East Palo Alto does not have a Siting Policy that would encourage affordability in “high opportunity area” neighborhoods, which provided the City of San Jose with a sufficient limiting principle to approve a project with fewer inclusionary units than required; and
WHEREAS, the proposed Alternative Compliance Plan does not sufficiently align with the City’s broader housing policy objectives, including equitable distribution, depth of affordability, and consistency with long-term planning goals; and
WHEREAS, the Applicant’s proposal is significantly below the requirements for an alternative compliance plan (“Alternative Compliance”) and below what would be required for the original compliance plan (“Original Compliance”) as outlined in the IHO; and WHEREAS, an Original Compliance Plan for the Project to provide 21 deed-restricted Inclusionary Units on-site at the affordability levels prescribed in the IHO (distributed among Median Income and Moderate Income households), and a partial In-Lieu Fee payment equivalent to 0.2 Inclusionary Units would satisfy the IHO requirements; and 117
Resolution No. XX-2025 3 of 2
WHEREAS, an Alternative Compliance Plan for the Project to provide 26 deed-restricted Inclusionary Units on-site at the proposed affordability level of 120% of AMI and a partial In-Lieu Fee payment equivalent to 0.5 Inclusionary Units, if approved by City Council, might also satisfy the IHO requirements; and
WHEREAS, no Planning approvals or clearances may be issued for a residential project unless the inclusionary housing requirements are first met.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY:

1. Finds the foregoing recitals are true and correct and are incorporated into this action by this reference;

2. Finding that the proposed alternative for the Four Corners townhome development project at 2400 University Ave (portion of APN 063-111-250, “Project”), to provide 11 townhome units, deed-restricted at 120% of Area Median Income (“AMI”) does not meet the City’s Inclusionary Housing Ordinance (“IHO”) requirements under Section 18.37.080 of the East Palo Alto Municipal Code (“EPAMC”), including that:
 The 11 deed-restricted townhome units only represent 10% of the total 106 units, and do not meet the required 20% as outlined in the IHO; and
 The 11 units at 120% of the Area Median Income do not satisfy the affordability levels required by the City. The City’s IHO requires these units to be allocated among households at median and moderate-income levels, but the proposal fails to meet these criteria; and
 The proposal does not provide greater public benefit (i.e., additional units or deeper levels of affordability), instead the proposal falls short of meeting both the baseline number of units required and also does not achieve the baseline AMI levels required. As such, the proposal does not meet the IHO requirement that alternative proposals provide greater public benefit.

3. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment, or alternatively, finding that a decision to deny a project is exempt from CEQA pursuant to Public Resources Code § 21080(b)(5) PASSED AND ADOPTED this 2nd day of September 2025, by the following vote:

AYES:

NOES:
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Resolution No. XX-2025 4 of 2
ABSENT:

ABSTAIN:

Martha Barragan, Mayor
ATTEST: APPROVED AS TO FORM:

James Colin, City Clerk John D. Lê, City Attorney
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2600 El Camino Real, Suite 410 | Palo Alto, California 94306 2041 Euclid Avenue | East Palo Alto, California 94303
nodisplacement.com | universityandbay.com
July 21, 2025
Karen Camacho
Housing & Economic Development Manager
City of East Palo Alto
2415 University Ave.

East Palo Alto, CA 94303
Via Electronic Mail
RE: Four Corners Townhomes –
Inclusionary Housing Ordinance Alternative Compliance Option Dear Ms. Camacho:

Thank you for your efforts to advance our applications for the Four Corners Townhomes project and to present our Inclusionary Housing Alternative Compliance Option to the City Council. The proposed project would construct 106 mixed-income for-sale townhomes on the long-vacant “Four Corners” site at University Avenue and Bay Road.

1. INCLUSIONARY HOUSING PLAN
The City’s Development Code requires that residential developments include contributions to affordable housing. Residential developments proposing five or more dwelling units must provide 20 percent of the dwelling units as inclusionary units. See Municipal Code section 18.37.050(A). In for-sale projects like the proposed project, half of these must have a sales price affordable to median-income households and half must have a sales price affordable to moderate-income households.

Alternatively, a developer may propose an “alternative compliance method” to be considered by the approval body to determine “based on substantial evidence, that such alternative compliance will provide as many or more inclusionary units at the same or lower income levels…” In this application, the Applicant is proposing an alternative compliance method as the “Preferred Inclusionary Housing Plan.” In the event that the approval does not approve the alternative compliance (“Preferred Inclusionary Housing Plan”), the Applicant will comply with the “Fallback Inclusionary Housing Plan.”
Preferred Inclusionary Housing Plan—Alternative Compliance. Applicant proposes that 10 percent of the total dwelling units of the proposed project are sold at the “moderate income” level. In this project with 106 dwelling units, 11 of the dwelling units would be affordable. As part of this alternative compliance plan, the affordable units need not be dispersed, need not have the same proportion of unit types as the market rate units, and need not have comparable square footage or bedroom count as the market rate 120
2 units. This Preferred Inclusionary Housing Plan makes the provision of affordable housing cost-effective, with actual and identifiable cost-savings that make the project feasible.

The approval body would be able to make the required findings for this Preferred Inclusionary Housing Plan. It will provide as many or more inclusionary units at the same or lower income levels as would strict compliance with the inclusionary housing ordinance. This is because it is infeasible to include 20% of the units as affordable units. The expense of a high inclusionary requirement makes it impossible to construct a project that includes so many affordable units, especially at deep affordability levels. If a 20% requirement is imposed, the project will not be built so there will be zero affordable units. Similarly, if a 25% requirement were imposed, the project would be even less feasible and no affordable units would be built. Eleven affordable units is more than zero affordable units, so the Preferred Inclusionary Housing Plan would provide more inclusionary units.

Fallback Inclusionary Housing Plan. If the approval body does not approve the Preferred Inclusionary Housing Plan, Applicant offers the “Fallback Inclusionary Housing Plan” with the significant caveat that Applicant does not believe that the Fallback Inclusionary Housing Plan will be feasible to construct.

The Fallback Inclusionary Housing Plan is to provide 20% of the dwelling units as affordable in full compliance with the East Palo Alto Inclusionary Housing Ordinance. Half of these (10%) would be affordable at the “median-income” level, which is defined as up to 80% of the area median income (AMI) and the other half (10%) would be affordable at the “moderate-income” level, which is defined as up to 120% of AMI. In this project with 106 dwelling units, 11 of the dwelling units would be affordable at the median-income level and 10 of the dwelling units would be affordable at the moderate-income level for a total of 21 affordable units.

Other inclusionary requirements. The City imposes a number of additional requirements on inclusionary units as follows:

Not applicable
Single-family detached affordable units shall be
dispersed throughout the housing development.

Townhouse, row-house, and multiple-family
affordable units shall be located so as not to
create a geographic concentration of affordable
units within the housing development.

Complies because
requirement modified by
alternative compliance
plan.

Complies with
waiver under SDBL,
as described below.

The quality of exterior design and overall quality
of construction of the affordable units shall be
consistent with the exterior design of all market
Complies. Complies.
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3 Inclusionary requirement Compliance
rate units in the housing development and meet
all site, design, and construction standards of this
Code, including but not limited to, compliance
with all design guidelines included in applicable
specific plans or otherwise adopted, and the
affordable housing guidelines. Affordable units
shall have functionally equivalent parking.

Complies Complies.

The affordable units shall have the same
amenities as the market rate units, including the
same access to and enjoyment of common open
space and facilities in the housing development.

Complies Complies.

Complies because
requirement modified by
alternative compliance
plan.

Complies with
concession/incentive
under SDBL, as
described below.

The affordable units shall have a comparable
square footage and the same or greater bedroom
count and bedroom count ratio as the market
rate units.

Complies because
requirement modified by
alternative compliance
plan.

Complies with
waiver under SDBL,
as described below.

All required affordable units shall be made
available for occupancy concurrently with the
market rate units.

Complies Complies.

Please see Exhibit A for the Inclusionary Housing Plan application requested by Housing staff.

2. EVIDENCE FOR ALTERNATIVE COMPLIANCE OPTION
Below and attached are evidence that would support a determination by the City Council pursuant to the Inclusionary Housing Ordinance to fulfill the requirement that “The approval body may approve or conditionally approve such an alternative only if the approval body determines… that such alternative compliance… will otherwise provide greater public benefit than would provision of the inclusionary units on-site.”
122
4 • The Preferred Inclusionary Housing Plan will provide as many or more inclusionary units at the same or lower income levels as would strict compliance with the inclusionary housing ordinance.

This is because it is infeasible to include 20% of the units as affordable units. The expense of a high inclusionary requirement makes it impossible to construct a project that includes so many affordable units. If a 20% requirement is imposed at the City’s required depths of affordability, the project will not be built so there will be zero affordable units. Eleven affordable units at 120% AMI is more than zero affordable units, so the Preferred Inclusionary Housing Plan would provide more inclusionary units. See Exhibit A.
• EPS Financial Analysis of EPA Inclusionary Housing Requirements – We retained Economic & Planning Systems, Inc. (“EPS”) to conduct a financial feasibility assessment of new townhome development in the City. The EPS study tiers off the financial feasibility study that the City conducted when considering development impact fees in 2024. EPS finds that using the City’s development prototype and assumptions, the current inclusionary housing requirements are infeasible. That is, compliance with the inclusionary housing ordinance will create no new housing. Therefore, allowing higher affordability levels and lower inclusionary percentage provides greater public benefit by allowing housing, including affordable housing, to be built instead of having no new housing. See Exhibit A.
• East Palo Alto RHNA Obligations and Progress – Our proposals will include 25 units of low-income housing (mixed-use), 11 units of moderate-income housing (townhomes), 143 units of abovemoderate rental housing (mixed-use) and 95 units of above-moderate for-sale housing, helping to meet the City’s 2023-2031 Regional Housing Needs Allocation. According to HCD, East Palo Alto is required to create 95 units of low income housing, 159 units of moderate income housing, and 410 units of above-moderate income housing. So far in this RHNA cycle, the city has created only 7 units of low-income housing (7% of requirement), 6 units of moderate-income housing (4% of requirement), and 9 units above moderate income (2% of requirement). Providing more lowincome, moderate-income, and above-moderate income units provides greater public benefit since it helps the City better meet its RHNA obligations. See Exhibit C. • Fiscal Impact Analysis – Our previous fiscal impact analysis of the Woodland Park Euclid Improvements (attached) was prepared by EPS and peer-reviewed by Keyser Marston on behalf of the City. It shows a significant positive net fiscal impact of developing new housing. If you extrapolate the findings for the 389 net new units at the Euclid Improvements to the 274 net new units at Four Corners, you will have a net positive fiscal impact on the EPA General Fund of $18.8 million dollars over 20 years, including property taxes, special taxes, and development impact fees. This does not factor in that the Rental Business License Tax (Measure O/L/JJ) has significantly increased since then, or that there are other positive fiscal benefits beyond the EPA General Fund, such as school fees for the Ravenswood School District. Allowing a feasible project provides greater public benefit by creating millions of dollars of positive fiscal impact for the City.

See Exhibit D.
• Other Cities Accept Similar Rationale – The City of San Jose has a similar inclusionary housing ordinance that allows for alternative compliance if “the alternative will provide as much or more affordable housing at the same or lower income levels… and will otherwise provide greater public benefit, than compliance with the express requirements of this Chapter and the Inclusionary 123
5 Housing Guidelines.” A recent approval (staff report attached) cited the rationale that “Developer stated that full compliance of 15% of units on-site would not have been feasible, and their original proposal was to provide no affordable units at this site… [but then proposed a] mix of onsite units and payment of an adjusted in-lieu fee” (5% of units at 100% of AMI). City of San Jose staff found that approving the alternative compliance was better because the alternative would have created no affordable units at all. Please note that this required no third-party analysis, peer review, or disclosure of proprietary information. See Exhibit E. • EPA General Plan Goal to “Prioritize” Development – The 2016 General Plan Update, through years of community engagement and adopted with unanimous City Council approval, set a goal to:

Allowing a feasible project provides greater public benefit by prioritizing the development of the vacant parcel at University and Bay as directed in the General Plan. See Exhibit F.

3. STATE DENSITY BONUS LAW
Providing affordable units within the proposed project qualifies the project for a density bonus under SDBL.

With the Preferred Inclusionary Housing Plan, the proposed project includes more than 10% of the units as affordable at a moderate-income level, so the project qualifies for a density bonus. It is entitled to use an unlimited number of waivers and one concession/incentive for development standards that impede the project’s ability to utilize the density bonus or increase feasibility.

In addition, the project will use up to two waivers and a concession to waive the following requirements:
• The affordable units shall have the same proportion of unit types as the market rate units in the housing development except that single-family detached housing projects may include singlefamily attached affordable units and single-family detached affordable units may have smaller lots than single-family detached market rate units.
• The affordable units shall have a comparable square footage and the same or greater bedroom count and bedroom count ratio as the market rate units. 124
6 • Single-family detached affordable units shall be dispersed throughout the housing development.

Townhouse, row-house, and multiple-family affordable units shall be located so as not to create a geographic concentration of affordable units within the housing development.

Thank you for your consideration of our Inclusionary Housing Ordinance Alternative Compliance Option.

We look forward to discussing further with your team and the City Council.

Sincerely,
Michael Kramer
CC: Amy Chen, Assistant City Manager and Community and Economic Development Director Melvin Gaines, City Manager
John Le, City Attorney
Attachments
Exhibit A: Inclusionary Housing Plan form
Exhibit B: Memo from EPS Regarding Feasibility of Inclusionary Housing Ordinance Requirements Exhibit C: California Department of Housing and Community Development Report on East Palo Alto Regional Housing Needs Assessment (RHNA) Obligations and Progress Exhibit D: Fiscal Impact Analysis from analogous project Exhibit E: City of San Jose Inclusionary Housing Ordinance acceptance of Alternative Compliance Option Exhibit F: Excerpt from 2016 “Vista 2035” General Plan Update regarding prioritization of Four Corners site
125
4 City of East Palo Alto Inclusionary Housing Plan
Residential Developments in East Palo Alto (“Residential Developments”) are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code – Inclusionary Housing.

Please fill out the application below and submit it together with the Unit Mix Table and Unit Mix Details to the Housing Project Manager at [email protected].

Application for Inclusionary Housing Plan
Developer Information
Company name
Address
Phone
Contact name
Email/Phone
Project Information
Project Name:

Project Address:

Project APNs:

Planning file number if assigned:

Number of residential buildings:

Total number of units:

For-sale housing project? Y N
For rent housing project? Y N
Is this project a mixed use (commercial/residential)? Y N Total square footage of non-residential space:

Is this a rehab project? Y N
If so, number of units to be added:
126
5 Will any residential units be demoed or converted? Y N Does developer intend to obtain a parcel, or tentative, and final map for the project? Y N Does developer intend to create condos, coops, or similar housing requiring CA BRE report approval? Y N
Does Developer intend to request a Density Bonus (Section 18.37.060)? Y N Exemption (Section 18.37.040)
Does developer intend to seek an exemption for the project? Y N Additional documentation may be required.

1. Map Act Vesting: Project has subdivision map(s) which the Developer claims confer vesting rights under the Subdivision Map Act:

Tentative or parcel: Y N
Approval date:

Final: Y N
Approval date (if applicable):

Please indicate if any maps are phased or vesting.

2. Building permit issued Y N
Issue date:

3. Previously executed Development Agreement: Y N
Approval date:

Please attach an explanation to this application with supporting documentation, including any approved maps or permits needed to support your claim.

In-Lieu Fee (25% Inclusionary Units)
Off-Site (25% Inclusionary Units)
Other
By signing below, Developer acknowledges that most claims of exemption can only be conditionally approved at the time the Inclusionary Housing Plan Application is approved. The Developer will be required to record an Inclusionary Housing Agreement agreeing to satisfy the Obligation if conditions of exemption are not met.
127
6 Developer Signature
Date
Planning acceptance of application Date
Housing acceptance of application Date
128
7 Unit Mix Table
Please see Section 18.37.050 and Section 18.37.060.

2. Please indicate the affordability levels of the Inclusionary Units in the table.3 a) For-Sale requirement: 10% of units affordable to households at or below 80% AMI and 10% of units affordable to households at or below 120% AMI. b) Rental requirement: 5% of units affordable to households at or below 35% AMI; 10% of units affordable to households at or below 50% AMI; and 5% of units affordable to households at or below 60% AMI.
129
8 Unit Mix Details
Please see Section 18.37.060.

4.) Please outline a Fair Housing and Marketing plan, which must comply with all applicable Fair Housing laws and not discriminate in the sale or rental of Inclusionary Units on the basis of race, national origin, color, religion, gender, disability, familial status, age, income source, or marital status. This includes application of the City’s Local Preference Policy.
130
Four Corners Townhomes
Applicant Statement - May 2025
7 5. FAIR HOUSING AND MARKETING PLAN
Project Information:

Address: 1675 Bay Road | APN: Portion of APN 063-11-125 | Census Tract: 6118 Applicant Information: Four Corners EPA Property Owner, LLC or successor entity 131
Four Corners Townhomes
Applicant Statement - May 2025
8 Entity Responsible for Marketing: Four Corners EPA Property Owner, LLC, successor entity, or third-party administrator
Target Date of Initial Occupancy: Q3 2028
Estimated Advertising Start Date: Q1 2028
Acknowledgment of Local Preference: The Applicant acknowledges the City of East Palo Alto Local Preference Policy and intends to comply with it.

Acknowledgment of Need to Partner with Housing Department and City Third-Party Administrator:

Applicant acknowledges that it is responsible for the marketing of all units and must follow fair marketing practices between the market rate units and the Inclusionary Units. The Applicant may market and sell the inclusionary units in partnership with a third-party administrator to implement and oversee this part of the Inclusionary program. Ultimately, the Applicant is responsible for the fair marketing of units and through this acknowledgement understands that this is a requirement of the City’s Inclusionary Housing Program. 132
Memo
To: Michael Kramer, Sand Hill Property Company
From: Benjamin C. Sigman and Kaavya Chhatrapati, Economic & Planning Systems Subject: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto
EPS #201102
Date: July 18, 2025
Sand Hill Property Company retained Economic & Planning Systems, Inc. (EPS) to prepare an initial financial feasibility assessment of new residential townhome development in East Palo Alto (City), focused on the financial impact of onsite inclusionary housing. The EPS financial analysis tiers off of a feasibility analysis prepared for the City and published in 2024 as part of an evaluation of local development impact fees. The analysis also employs assumptions derived from the City of East Palo Alto’s Inclusionary Housing Guidelines (FY25-26).

The fundamentals the EPS initial financial feasibility assessment derive from the Financial Feasibility Analysis for Development Impact Update (Public Review Draft dated November 15, 2024). This City-sponsored analysis, prepared by Willdan Financial Services, finds that market-rate townhome development in East Palo Alto is likely to be financially feasible for a typical project. Willdan assumes that development pays the affordable housing in lieu fee rather than providing units on site, stating that “the general preference of the City is that residential projects provide onsite affordable housing, but this is difficult to model in a general pro forma.” In this Initial Feasibility Assessment, EPS modeled onsite affordable housing. Like the Willdan study, the EPS analysis reflects prototypical housing development scaled to a one-acre site.

The EPS assessment uses a static pro forma financial methodology to quantitatively evaluate financial feasibility of new development. The key output of the pro forma analysis is Residual Land Value, an estimate of the site cost burden that a new development project can bear. Residual Land Value generated by a project reflects expected market value minus the total cost of development, excluding land. If Residual Land Value is negative, the project is not feasible. Low land value results indicate a project is challenging to develop and may not be feasible. The Willdan study establishes that a Residual Land Value below $50 per square foot of land ($2.178 million per acre), 133
Memo: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto

Page 2 ends

indicates a “low feasibility” and “low probability of completion.”1In the EPS assessment, residual land values for an acre of market rate and affordable housing are compared to Willdan’s feasibility threshold of $2.178 million to evaluate feasibility potential.

EPS relies on Willdan assumptions regarding townhome development revenues and costs. The EPS analysis removes affordable housing fees and calculates feasibility estimates for onsite affordable housing units. The EPS analysis assumes that 20 percent of total units will be affordable and that that the affordable units are distributed evenly between those priced for 70 percent of Area Median Income (AMI) and 110 percent of AMI in San Mateo County. EPS derived key assumptions informing the maximum affordable housing sales price levels for below-market-rate units from City of East Palo Alto’s Inclusionary Housing Guidelines (e.g., purchase down payment, mortgage interest rate, property tax rate assumptions).

The EPS initial assessment finds market-rate townhomes are feasible and affordable townhomes priced for 70 percent and 110 percent AMI are infeasible (i.e., negative Residual Land Value), individually. When market rate and affordable townhomes are combined to achieve 20 percent affordable housing onsite, the resulting blended Residual Land Value indicates that feasibility is positive but below the established feasibility threshold, meaning there is a low probability of development. Relying on Willdan’s market assumptions, development costs, impact fees, return on investment and other factors, EPS estimates that townhome projects with 20 percent inclusionary units generate residual land value ranging from $1.7 million to $2.0 million per acre (before consideration of feasibility threshold) with larger affordable units (i.e., more bedrooms) achieving higher land value due to greater allowable sale prices.2 This range reflects townhomes for 2.5- to 4-person households. None of the inclusionary scenarios EPS tested achieved Residual Land Value above the $2.178 million per-acre threshold established by the Willdan study.

The following five tables present the EPS initial feasibility assessment. Table 1 offers a summary of findings. Table 2 through Table 4 present stabilized pro forma feasibility calculation for 3-bedroom market rate and affordable townhomes. Table 5 details data 1 This estimate of $50 per square foot is based on historical land sale data and is meant to be a broad assessment of feasibility rather than the threshold for any particular projects. Willdan has estimated this number from an examination of historical transaction data; individual land transaction prices vary widely. (Willdan 2024, p.3)
2 Note that feasibility is affected by analytical inputs and assumptions contained in the pro formas and are particularly sensitive to market values and construction costs. Willdan’s work included a stakeholder outreach process that identified reasonable ranges for these factors, given current market conditions.
134
Memo: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto

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and calculations that underpin the affordable housing sale prices for all potential unit sizes.

Figure 1
Initial Development Feasiblity Summary (Per-Acre Values with 110% and 70% AMI ) Four Corners Initial Feasibility Assessement; EPS #201102 3-BR DU (4-Person HH) Market Rate 110% AMI 70% AMI Blended* Revenue $21,483,000 $15,726,612 $7,627,054 $19,521,767
Development Cost $17,495,433 $17,495,433 $17,495,433 $17,495,433 Residual Land Value $3,987,567 ($1,768,820) ($9,868,379) $2,026,334 Above/(Below)
Feasibility Threshold** $1,809,567 ($3,946,820) ($12,046,379) ($151,666)

2.5-BR DU (3.5-Person HH) Market Rate 110% AMI 70% AMI Blended* Revenue $21,483,000 $14,952,218 $7,257,428 $19,407,365
Development Cost $17,495,433 $17,495,433 $17,495,433 $17,495,433 Residual Land Value $3,987,567 ($2,543,214) ($10,238,005) $1,911,932 Above/(Below)
Feasibility Threshold** $1,809,567 ($4,721,214) ($12,416,005) ($266,068)

1.5-BR DU (2.5-Person HH) Market Rate 110% AMI 70% AMI Blended* Revenue $21,483,000 $13,385,572 $6,500,303 $19,174,988
Development Cost $17,495,433 $17,495,433 $17,495,433 $17,495,433 Residual Land Value $3,987,567 ($4,109,861) ($10,995,129) $1,679,555 Above/(Below)
Feasibility Threshold** $1,809,567 ($6,287,861) ($13,173,129) ($498,445) * 20% inclusionary housing requirement split 50/50 between 110% and 70% AMI units ** Willdan's estimates residual land value below $50 per square foot (land area) indicates a low feasibility and low probability of completion for development. The degree to which estimated per-acre residual land value exceeds (or falls below) the feasibility theshold for an acre of land is calculated by subtracting $2.178 million (43,560 square feet x $50) from Residual Land Value estimates. 135
Memo: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto

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Figure 2
Market Rate Townhome Pro Forma
Four Corners Initial Feasibility Assessement; EPS #201102

DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR TOTAL Development Site (Acres) 1
Dwelling Units 22 0 22
Gross Residential Area (Square Feet) 1,500 GBA / DU (w.o. parking) 33,000 Net Habitable Square Feet 100% Efficiency Factor 33,000 Total Parking Spaces 2 Spaces / DU 44

BUILDING OPERATING INCOME (ANNUAL) ASSUMPTION/FACTOR PER GBA TOTAL Project Market Value $1,050,000 Per DU $700 $23,100,000 Project Sale Cost 7% Value -$49 -$1,617,000
Net Building Value $651 $21,483,000

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (incl. site development) $300 Cost/SF (Gross Resi Area) $300 $9,900,000 Parking Direct Cost $22,500 per Space $30 $990,000
Total Construction Cost $330 $10,890,000
Soft Cost
Existing Impact Fees (Excl. Affordable ILF) $11.27 per habitable sf $11 $371,875 Proposed Impact Fees (Excl. RBD) $16.59 per habitable sf $17 $547,547 Financing 10.0% of Construction Cost $33 $1,089,000
Other Soft Costs 25.0% of Construction Cost $83 $2,722,500 Total Soft Costs $143 $4,730,922
Other Project Costs
Developer Return on Investment 12.0% of Construction & Soft Costs $57 $1,874,511 Residual Land Value Model Output / Supportable Land Cost $121 $3,987,567 Total Other Costs $178 $5,862,078
Total Project Cost $651 $21,483,000
Residual Land Value $3,987,567
per acre $3,987,567
per unit $181,253
136
Memo: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto

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Figure 3
Below-Market-Rate Townhome (110% AMI)
Four Corners Initial Feasibility Assessement; EPS #201102

BUILDING OPERATING INCOME (ANNUAL) ASSUMPTION/FACTOR PER GBA TOTAL Project Market Value $768,652 Per DU $512 $16,910,336
Project Sale Cost 7% Value -$36 -$1,183,724
Net Building Value $477 $15,726,612

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (incl. site development) $300 Cost/SF (Gross Resi Area) $300 $9,900,000 Parking Direct Cost $22,500 per Space $30 $990,000
Total Construction Cost $330 $10,890,000
Soft Cost
Existing Impact Fees (Excl. Affordable ILF) $11.27 per habitable sf $11 $371,875 Proposed Impact Fees (Excl. RBD) $16.59 per habitable sf $17 $547,547 Financing 10.0% of Construction Cost $33 $1,089,000
Other Soft Costs 25.0% of Construction Cost $83 $2,722,500 Total Soft Costs $143 $4,730,922
Other Project Costs
Developer Return on Investment 12.0% of Construction & Soft Costs $57 $1,874,511 Residual Land Value Model Output / Supportable Land Cost -$54 -$1,768,820 Total Other Costs $3 $105,690
Total Project Cost $477 $15,726,612
Residual Land Value -$1,768,820
per acre -$1,768,820
per unit -$80,401
137
Memo: Initial Feasibility Assessment of Townhome Development with Inclusionary Housing in East Palo Alto

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Figure 4
Below-Market-Rate Townhome (70% AMI)
Four Corners Initial Feasibility Assessement; EPS #201102

BUILDING OPERATING INCOME (ANNUAL) ASSUMPTION/FACTOR PER GBA TOTAL Project Market Value $372,779 Per DU $249 $8,201,133
Project Sale Cost 7% Value -$17 -$574,079
Net Building Value $231 $7,627,054

PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL Construction Cost
Building Direct Cost (incl. site development) $300 Cost/SF (Gross Resi Area) $300 $9,900,000 Parking Direct Cost $22,500 per Space $30 $990,000
Total Construction Cost $330 $10,890,000
Soft Cost
Existing Impact Fees (Excl. Affordable ILF) $11.27 per habitable sf $11 $371,875 Proposed Impact Fees (Excl. RBD) $16.59 per habitable sf $17 $547,547 Financing 10.0% of Construction Cost $33 $1,089,000
Other Soft Costs 25.0% of Construction Cost $83 $2,722,500 Total Soft Costs $143 $4,730,922
Other Project Costs
Developer Return on Investment 12.0% of Construction & Soft Costs $57 $1,874,511 Residual Land Value Model Output / Supportable Land Cost -$299 -$9,868,379 Total Other Costs -$242 -$7,993,868
Total Project Cost $231 $7,627,054
Residual Land Value -$9,868,379
per acre -$9,868,379
per unit -$448,563
138
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Figure 5
Below-Market-Rate Home Price Calculation
Four Corners Initial Feasibility Assessement; EPS #201102 110% Area Median Income Home Price
# Persons (HH Size) 1 2 3 4 5
# Bedrooms 0 1 2 3 4
110 % AMI $143,660 $164,230 $184,745 $205,260 $221,705
35% Income
Total Annual Housing Cost $50,281 $57,481 $64,661 $71,841 $77,597 Monthly Housing Cost $4,190 $4,790 $5,388 $5,987 $6,466 Mortgage Payment
Annual $37,470 $43,386 $48,845 $54,181 $58,320
Monthly $3,123 $3,616 $4,070 $4,515 $4,860
Down Payment 5.00% $26,579 $30,775 $34,648 $38,433 $41,369 Loan Amount $504,998 $584,734 $658,306 $730,219 $786,003 Interest Rate 6.29% 6.29% 6.29% 6.29% 6.29% 6.29%
Property Taxes 1.20% $532 $616 $693 $769 $827
Monthly HOA $200 $200 $200 $200 $200 $200
Home Insurance $100 $100 $100 $100 $100 $100
Utilities $236 $259 $325 $403 $479
Subtotal Other Costs $1,068 $1,175 $1,318 $1,472 $1,606 Sale Value $531,576 $615,509 $692,953 $768,652 $827,372 70% Area Median Income Home Price
# Persons (HH Size) 1 2 3 4 5
# Bedrooms 0 1 2 3 4
70 % AMI $91,420 $104,510 $117,565 $130,620 $141,085
30% Income
Total Annual Housing Cost $27,426 $31,353 $35,270 $39,186 $42,326 Monthly Housing Cost $2,286 $2,613 $2,939 $3,266 $3,527 Mortgage Payment
Annual $17,940 $21,060 $23,730 $26,277 $28,180
Monthly $1,495 $1,755 $1,977 $2,190 $2,348
Down Payment 5.00% $12,725 $14,938 $16,832 $18,639 $19,989 Loan Amount $241,782 $283,830 $319,815 $354,140 $379,794 Interest Rate 6.29% 6.29% 6.29% 6.29% 6.29% 6.29%
Property Taxes 1.20% $255 $299 $337 $373 $400
Monthly HOA $200 $200 $200 $200 $200 $200
Home Insurance $100 $100 $100 $100 $100 $100
Utilities $236 $259 $325 $403 $479
Subtotal Other Costs $791 $858 $962 $1,076 $1,179
Sale Value $254,508 $298,769 $336,647 $372,779 $399,783 139
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M E M O R A N D U M
To: Woodland Park Communities
From: Economic & Planning Systems, Inc.

Fiscal impact estimates for the Woodland Park development derive from EPS analysis completed in 2021 (EPS Memorandum February 8, 2021).

The following Summary of Findings highlights EPS estimates of the project’s net positive fiscal impacts at project stabilization. Actual fiscal and economic impacts will depend on factors that cannot be predicted with certainty, including the market performance of the project, future changes in City or State budgeting practices, the efficiency of various City departments in supplying services, and other factors. Critical analytical inputs relied upon by the analysis include assumptions provided by Woodland Park Communities, Eden Housing, City Finance 143
Memorandum July 7, 2022
FIA for Euclid Improvements Page 2
Z:\Shared\Projects\Oakland\181000s\181057_WoodlandPark\Deliverable\181057_FIA_Findings_7.7.22.docx Department, public documents, and EPS industry knowledge, among other sources. The analysis presents impact estimates in constant 2022 dollars.

S umm a r y o f F i n d i n g s

1. The Euclid Improvements project will result in a total net fiscal benefit to the City of East Palo Alto’s General Fund of over $1.1 million per year.

Revenue/
Expense Category Net Impact1

WOODLAND PARK DEVELOPMENT
General Fund Revenues $1,712,000
General Fund Expenditures -$535,000
Annual Fiscal Impact on the General Fund $1,177,000

PARTNERSHIP FOR BELOW-MARKET-RATE HOUSING
Annual Fiscal Impact on the General Fund -$68,000
TOTAL
Annual Fiscal Impact on the General Fund $1,109,000
Sources: Woodland Park Communities; City of East Palo Alto; Economic & Planning Systems, Inc. [1] Net impact is based on year 11 of the Proposed Project. City revenues from Measure O begin after year 10.
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Memorandum July 7, 2022
FIA for Euclid Improvements Page 3
Z:\Shared\Projects\Oakland\181000s\181057_WoodlandPark\Deliverable\181057_FIA_Findings_7.7.22.docx

2. At project buildout, Property Tax will account for the largest revenue source to the City.

3. The Euclid Improvements project’s most significant cost to the City’s General Fund is likely to be borne by the Police Department.

4. Over a 20-year time horizon, the project is expected to generate a cumulative net positive fiscal impact of about $18.6 million.

The City levies a Residential Rental Business License Tax (Measure O) which applies to all market-rate units starting 10 years after a certificate of occupancy has been issued.

5. One-time development impact fees paid by the project developer total roughly $8.17 million.

The City of East Palo Alto charges development impact fees including:

1. Parks and Trails Fee;

2. Public Facilities Fee;

3. Transportation Infrastructure Fee;

4. Storm Drainage Fee;

5. Water Capacity Fee; and

6. Residential Impact Fee.

Assuming that the proposed project is not subject to the City’s Residential Impact fee and that Woodland Park Communities pays impact fees on net new units delivered, roughly $8.17 million would be generated for City capital improvement programs. In addition, local infrastructure improvements delivered by the project and other development impact fees (e.g., levied by local school districts) will contribute to the community benefit of the proposed project.
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TO: El Paseo Owner, LLC FROM: Elisha St Laurent
Candice Gonzalez Housing Department
SUBJECT: Final Response DATE:
to Development Application
PLANNING NO.: PD19-049
PD20-006
PDA20-006-002
LOCATION(S): 1312 El Paseo De Saratoga
1777 Saratoga Ave
UNITS 772
The Applicant submitted an IHO application on October 18, 2024, and the Developer has submitted a request for the City to approve its Alternative proposal pursuant to SJMC

The findings to be made under subsection F are that:

1. The alternative will provide as much or more affordable housing at the same or lower income levels, and of the same or superior quality of design and construction, and

2. The alternative will otherwise provide greater public benefit than compliance with the express requirements of the IHO and its guidelines.

Following is an analysis of the ways in which the proposed Development addresses the baseline IHO requirements. The relevant waiver requests from the table above are noted for each topic and rationale.
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Developer selected the Mixed Compliance option to meet the City s objective of on-site affordability. Developer stated that full compliance of 15% of units on-site would not have been feasible, and their original proposal was to provide no affordable units at this site. The City s ability to be flexible on the strict unit comparability standard incented them to do onsite units.

For these reasons, staff finds that approving the requested flexibility would provide more affordable units than otherwise would have been produced at this site in a high opportunity area.

It results in a better outcome for the City than the Developer s original proposal. Therefore, staff recommends flexibility on strict unit comparability and the Director's approval.

Developer has completed the required application/plan, paid the application fee, and obtained approval of that plan/application for the Inclusionary Housing Ordinance and Commercial Linkage Fee.

Planning may now schedule the project for hearing. Housing has reviewed and approved the Plan for the development referenced above subject to the following conditions:

AFFORDABLE DEED-RESTRICTED UNITS FOR 99 YEARS
I
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a. Prior to earliest of: approval of any parcel or final map or issuance of any building permits, the permittee must execute and record their Affordable Housing Agreement memorializing the IHO obligations against the property, any other property required for the satisfaction of the compliance option selected in the Plan, and record the Affordable Housing Agreement or a City covenant against contiguous property under common ownership and control. No building permit may issue except consistent with the requirements of the IHO and the proposed Plan to fulfill the affordable housing obligations.
b. Permittee must strictly comply with each requirement of the approved Affordable Housing Compliance Plan, the Affordable Housing Agreement, and any other applicable requirements of the IHO or its guidelines and submit any additional or updated documents requested by the Housing Department in connection with the satisfaction of the compliance option selected in the Plan.
c. No Temporary Certificate of Occupancy, Certificate of Occupancy, or Notice of Completion for any units shall be issued until all requirements of the IHO, its guidelines and the Affordable Housing Agreement are met.

5.11.030). If paid by Building Permit Issuance, a 20% reduction will apply to the total current fee.

Non-Residential CLF Project Details:

Use Proposed Floor Area
(SF) Sub Area FY24/25 Fee Per SF *
Current CLF
Total
Current CLF Total
with 20%
Reduction**
Residential
Care 227,842 SF
West San Jose
Urban
Villages
$7.16 $1,631,348.72 $1,305,078.98
I
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Please contact me at [email protected] if you have any questions about the information contained in this letter.

Elisha St Laurent
Housing Department
*CLF Rates Subject to change every new Fiscal Year, July 1. **20% Reduction Applies if CLF is paid by Building Permit Issuance.

Fees Pulled From: Resolution No. RES2024-230
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ADOPTED OCTOBER 4 2016
FINAL VERSION: MARCH 2017
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CHAPTER 4: LAND USE AND URBAN DESIGN
CITY OF EAST PALO ALTO: GENERAL PLAN 2035 | 4-35
Goal LU-12. Foster the creation of a
“main street,” centered on University
Avenue and along Bay Road to
enhance the City’s image and identity.

Intent: To enliven the street with new ground-floor shops and mixed-use development. To create community
gathering spaces with new parks and plazas along Bay
Road.

12.1 Specific Plan. Implement the vision, goals, policies and regulations of the Ravenswood TOD Specific
Plan as a high priority of the City.

12.2 Vacant parcel. Prioritize the development of the
vacant parcel at the intersection of Bay Road and
University Avenue as a catalyst project for the City.

12.5 Ground floor activity. Require active ground-floor land uses along Bay Road. New development should
be built with minimal setbacks in order to activate
the pedestrian realm.

12.6 Gateway. Ensure that new development at 4
Corners responds to its regional significance as a
gateway to East Palo Alto as a whole.

12.7 Design standards. Ensure that all development in
the Plan Area along University Avenue and Bay
Road adheres to the Specific Plan’s design
standards and guidelines.

EAST PALO ALTO

CITY COUNCIL

STAFF REPORT
DATE: September 2, 2025
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Batool Zaro, Senior Engineer
Humza Javed, Public Works Director
SUBJECT: PG&E Rule 20A - Demeter Street Underground District Establishment Recommendation
Adopt a resolution:

1. Designating Demeter Street as an underground Utility District; and

Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:

Promote Health & Public Safety
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PUBLIC HEARING 5.3
Background
Under Electric Rule 20A, the California Public Utilities Commission (CPUC) requires the Pacific Gas & Electric Company (PG&E) to allocate annual work credits to cities and counties for underground conversion projects. Undergrounding means converting overhead electric facilities (poles, wires, and equipment) into underground facilities such as trenches, underground vaults, and surface mounted structures for transformers and other equipment. Undergrounded utilities may include electricity (PG&E), telephone, cable, and internet (Verizon, AT&T, Comcast, or others).

CPUC rules allow cities and counties to establish legislation creating underground utility districts where overhead electric and telecommunication facilities will be converted to underground.

East Palo Alto Municipal Code Chapter 13.16 authorizes the City Council to designate areas where all overhead poles, wires and equipment for electric, telecom, and cable services must be replaced with underground facilities.

Analysis
Under Rule 20A, PG&E allocates credits to cities to convert overhead electric lines to underground. The City of East Palo Alto has about $900,000 in Rule 20A credits. City staff identified Demeter Street as the site for an underground utility district (district) as shown in Exhibit 1 of Attachment 1. Staff confirmed with PG&E that the district meets CPUC criteria, specifically that wheelchair access is limited or impeded in a manner that is not compliant with the Americans with Disabilities Act. Prior to the selection of Demeter Street, other roadway segments, like Pulgas Avenue north of Bay Road, were identified by City staff. However, the other segments proposed did not meet any of the required CPUC criteria and were denied.

Demeter Street was initially investigated for undergrounding due to the roadway segment length and due to the fact that prior Rule20A efforts took place on Bay Road as part of the Bay Road Capital Project.

City staff contacted each affected utility to complete engineering of their respective portions of the Demeter Street Overhead to Underground Utility Conversion Project. Staff recommends designating the area identified in Attachment 1 Exhibit 1 as an underground utility district where all overhead poles, wires, and equipment for electric, telecom, and cable services will be replaced with underground facilities. The undergrounding occurs within the existing right of way and replaces existing electrical and street facilities.

As required by PG&E, city staff notified affected property owners within the proposed Demeter Street Underground Utility District and invited them to attend the public hearing at the September 2 nd meeting, to discuss formation of the proposed district.

Fiscal Impact
There is no fiscal impact for this item.
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PUBLIC HEARING 5.3
Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto.

Environmental
The action being considered is categorically exempt from the California Environmental Quality Act (CEQA) Guidelines pursuant to California Code of Regulations, Title 14, Chapter 3 (“Guidelines for Implementation of the CEQA”), Section 15302 (d) Conversion of overhead electric utility distribution system facilities to underground including connection to existing overhead electric utility distribution lines where the surface is restored to the condition existing prior to the undergrounding.

Government Code § 84308
Applicability of Levine Act: No, as the proposed action does not involve an entitlement.

Analysis of Levine Act Compliance: Not applicable.

Attachments

1. Resolution

2. East Palo Alto Municipal Code - Chapter 13.16 Ordinance 160
Resolution No. XX-2025 1 of 3
Internal
RESOLUTION NO. XX– 2025

A RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF EAST PALO ALTO

DESIGNATING DEMETER STREET AS AN UNDERGROUND UTILITY DISTRICT WHEREAS, the California Public Utilities Commission (CPUC) has authorized electric and telecommunication utilities to convert overhead utility lines and facilities to underground pursuant to Electric Rule 20 and Telecommunication Rule 32; and
WHEREAS, pursuant to certain criteria, CPUC rules allow participating cities and counties to establish legislation authorizing the creation of underground utility districts within which existing overhead electric distribution and telecommunication distribution and service facilities will be converted to underground; and
WHEREAS, the City of East Palo Alto, has adopted an ordinance, in Chapter 13.16, authorizing the City Council to designate areas within which all existing overhead poles, overhead wires and overhead equipment associated with the distribution of electric power, telecommunication services and cable television should be removed and replaced with underground wires and facilities; and WHEREAS, the Director of Public Works for the City of East Palo Alto has consulted with the affected public utilities and is working to reach an agreement on the proposed underground conversion district, designated the Demeter Street Underground Utility District and more particularly described in Exhibit 1 attached hereto and incorporated herein by reference, meets the criteria established by the rules of the CPUC, to wit, that the wheelchair access is limited or impeded in a manner that is not compliant with the Americans with Disabilities Act; and WHEREAS, each year the City of East Palo Alto is notified by PG&E regarding the allocation of work credits for conversion of overhead electric distribution lines and facilities to underground, known as Rule 20A allocations; and
WHEREAS, the Director of Public Works for City of East Palo Alto has consulted with PG&E and determined that the City has accumulated Rule 20A work credits or PG&E has agreed that the City may borrow against future credits sufficient to complete the proposed overhead to underground conversion project; and
WHEREAS, the City of East Palo Alto has reached out to each affected utility to complete the engineering of their respective portion of the Demeter Street Overhead to Underground Utility Conversion Project; and
WHEREAS, the City of East Palo Alto has reached out to each affected utilities to agree that PG&E shall be responsible for preparation of the trench profile and composite drawings and that PARTY shall be designated as “trench lead” to manage trenching, installation of substructures, and pavement restoration and such other work; and
WHEREAS, the Director of Public Works of the City East Palo Alto and the affected utilities have agreed on a work schedule which meets their respective capabilities and further agreed to waive any administrative fees, costs or special street restoration requirements for purposes of this project; and 161
Resolution No. XX-2025 2 of 3
Internal
WHEREAS, to the extent required, the City East Palo Alto has agreed to provide easements or rights of way on private property as may be necessary for installation of utility facilities in a form satisfactory to the affected utilities; and
WHEREAS, the City Council of the City of East Palo Alto has now received the report from the Director of Public Works recommending that the area identified in Exhibit 1 should be designated as an underground utility district within which all existing overhead poles, overhead wires and overhead equipment associated with the distribution of electric power, telecommunication services and cable television should be removed and replaced with underground wires and facilities; and WHEREAS, upon the recommendation of the Director of Public Works, the City Council of the City of East Palo Alto has determined that the proposed Demeter Street Underground Utility District is categorically exempt from environmental review pursuant to the California Environmental Quality Act; and
WHEREAS, the City of East Palo Alto has notified all affected property owners within the proposed Demeter Street Underground Utility District and inviting same to attend a public hearing to discuss formation of the proposed district; and
WHEREAS, the City Council of the City of East Palo Alto held a public hearing at the September 2 nd meeting at which time the Council did receive and consider the recommendation of the Public Works Director and did hear any and all objections or protests that were raised by the owners of property within the above described district pertaining to designating this area an underground utility district.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY FINDS AND DECLARES:

Section 1. The public interest requires the removal of all existing utility poles [excepting those poles supporting streetlights, traffic signals or trolley lines], overhead wires and associated overhead structures and installation of underground wires and facilities for supplying electric power, communication, or similar associated services within the areas as shown in Exhibit 1, attached hereto, with such area being designated as the Demeter Street Underground Utility District; and Section 2, That the utility companies, cable television services and other affected services shall commence work on installation of underground facility installation in the Demeter Street Underground Utility District and that as each phase of the project is complete and ready for conversion from overhead to underground utility facilities, all fronting property owners shall be notified by first class letter, postage pre-paid, of the schedule for conversion of all utility service lines; and Section 3, The electric utility shall use the underground conversion allocation computed pursuant to decisions of the California Public Utilities Commission for the purpose of providing to each premises requiring it in the Demeter Street Underground Utility District a maximum of one hundred feet of individual electric service trenching and conductor (as well as backfill, paving and conduit, if required) and each other serving utility shall provide service trenching and conductor in accordance with its rules and tariffs on file with the California Public Utilities Commission or as required by its Franchise Agreement with the City of East Palo Alto; and
Section 4. The electric utility shall use said underground conversion allowance allocation, up to 162
Resolution No. XX-2025 3 of 3
Internal
a maximum amount of $1,500 per service entrance excluding permit fees, for the conversion of electric service panels to accept underground service in the Demeter Street Underground Utility District, and the City of East Palo Alto shall be financially responsible for any and all costs not covered by the electric utility for the installation and maintenance of the conduit and termination box located on, under or within any structure on the premises served; and
Section 5. That upon notification as specified in Section 2, all property owners in the Demeter Street Underground Utility District shall have underground electrical entrance facilities installed and inspected pursuant to the City of East Palo Alto Electrical Code within sixty (60) days and that should any property owner fail to install satisfactory underground electrical entrance facilities by the date specified in the notice, the electric utility shall notify the Director of Public Works who shall, within thirty (30) days direct the electric utility in writing to discontinue electrical service to the property, without recourse, pursuant to Rule 11 until electrical entrance facilities are ready to accept underground electrical conductors and have passed the necessary inspection requirements; and Section 6. That once all services have been converted from overhead to underground, the utility companies, cable television services and other affected services shall remove all poles (except as specified above) and associated overhead facilities in the Demeter Street Underground Utility District, within 120 days.

Section 7. That the proposed project is categorically exempt from the California Environmental Quality Act (CEQA) Guidelines pursuant to California Code of Regulations, Title 14, Chapter 3 (“Guidelines for Implementation of the CEQA”), Section 15302 (d) Conversion of overhead electric utility distribution system facilities to underground including connection to existing overhead electric utility distribution lines where the surface is restored to the condition existing prior to the undergrounding.

PASSED AND ADOPTED this 2
nd day of September 2025, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

Martha Barragan, Mayor
ATTEST: APPROVED AS TO FORM:

James Colin, City Clerk John D. Lê, City Attorney
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ATTACHMENT 1 EXHBIT 1
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East Palo Alto City CouncilSeptember 2, 2025

East Palo Alto City Council
September 2, 2025