260 HOMER AVENUEPALO ALTO PLANNING COMMISSION MEETING
Summary•260 Homer is a mixed-use building, which was built in 2009, and is made up of 5 office condominiums and 2 residential condominiums.•The Development Agreement signed with the City of Palo Alto, dated 4/10/2000, mandates that “There shall be no single tenant that occupies more than one-third of the net usable office space”.•Since inception, there have been multiple instances where the occupancy restriction provision has hindered the City of Palo Alto and ownership.•There are no scenarios in which the restriction has benefited the City.•We are proposing an amendment to remove the occupancy restriction.
Direct Impacts•Ernst & Young Leasing –EY, an international accounting firm, sought to expand their footprint at the property when another suite became vacant, but could not due to the occupancy restriction.•Downtime –Being unable to accommodate EY’s expansion request, the building experienced downtime of 16 months in Suite 202 (~26% of the property), a loss of $225,000 in potential retail foot traffic revenue[1].•Duane Morris Leasing Provision –DM, an international law firm, has expressed interest in future expansion options at the property. We risk losing DM as a tenant if we are unable to accommodate their expansion needs.•Future Leasing –Recurring question from our prospective tenants –“What is our ability to expand our footprint at this property?”The occupancy restriction arbitrarily impairs our ability to attract tenants seeking future expansion opportunities.•There are no scenarios in which this restriction has benefited the City.[1] Assumes 200 sqft/person, 70% office utilization, $30.00 average daily retail spending, and a 65% conversion rate.
City Benefits•Retail Foot Traffic –•Approximately 36,500 sqft building @ 200 sqft/person = approximately 183 people supporting additional retail foot traffic.•This translates into approximately $648,000 of annual retail commerce[1].•Other Benefits –oA more activated and vibrant downtown office environment.oLocal economic multiplier effects from local office occupancy. (Conferences, hotel occupancy, retail spending, volunteer work, catering, etc.)oSales taxes earned on retail transactions (1% of every purchase).oHigher office occupancy leads to higher utility revenues, which are the largest single source of revenue for the City of Palo Alto (commercial rate payers account for 54% of City utility revenues). [1] Assumes 200 sqft/person, 70% office utilization, $30.00 average daily retail spending, and a 65% conversion rate.
City Benefits [Continued]•Tax Considerations – 55%+ of RE Tax Revenue Goes to CityoCity of Palo Alto – 9.42%oPalo Alto Unified School District – 45.61%oPalo Alto City / PA Unified School District Bonds – 0.09%•Although we have not sought a sale of the property to date, it is in the best interest of the City to maximize office property values and occupancy due to tax revenue implications.oEstimate up to $53,500 per yearin increased tax benefit to the City of Palo Altoupon sale.oCurrent occupancy restriction doesn’t just hinder leasing, but also negatively impacts a hypothetical future buyers’ perception of leaseability and property value.
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