1 Attachment B: Community Outreach Summary and Preliminary Policy Recommendations Based on Feasibility Analysis
Community Outreach
As a part of the community outreach and engagement strategy, the project team created a large map of the downtown area sectioned into smaller subareas based on locational attributes, general character of development, and shared physical features were provided as the base. The subareas were intended to encourage participants to take a contextual and place-based approach towards distributing density.
The subareas1 as presented to the community were:
• Subarea A: Encompasses blocks adjacent to the Caltrain Station, including Alma and High Streets, characterized by its proximity to regional transit and existing development.
• Subarea B: Parcels on University Avenue, characterized by development with active retail frontage, a mix of uses, smaller scale, fine-grained development pattern, and a consistent street canopy that defines University Avenue’s characteristic experience. • Subarea C and D: Parcels along Lytton and Hamilton Avenues, generally characterized by adjacent residential neighborhoods.
As a part of the exercise, participants were asked to distribute three dimensional blocks representing residential and commercial development within the identified project boundary. The following were recurring themes that emerged from the exercise, the pop-up event, and the survey:
• Subarea A should accommodate the highest levels of new density due to transit proximity.
• University Avenue’s existing character should be preserved, with minimal changes to scale and form.
• Increased residential density is appropriate in Subareas C and D, provided transitions to adjacent neighborhoods are context sensitive.
While feedback received at the pop-up event regarding Sub Areas A, C & D are similar to those stated here, the feedback received through the pop up exhibited more openness to height on University Avenue ranging up to 8 stories.
Feasibility Analysis
The project team analyzed five market-rate housing development prototypes on three representative sites within the plan area to assess their financial feasibility. Financial 1 https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range- planning/area-plans-and-studies/downtown-housing/cag-meeting-2-presentation-slides.pdf 2 feasibility of a project indicates the potential return on investment and helps determine the likelihood that a project would be built by developers. The analysis also identifies key factors influencing financial feasibility and highlights opportunities and policy considerations to encourage housing production under favorable market conditions, while advancing the City’s goals for housing affordability, fiscal sustainability, and overall livability. • Prototype 1 (1a–1c): Four-story mixed-use buildings on 8,000 sq. ft. parcels with retail, office, and four to eight housing units. • Prototype 2: Seven-story residential building with four stories of office/retail on a 0.48-acre parcel; 55 units with underground parking. • Prototype 3: Seven-story residential-over-office vertical mixed-use development on a 0.48-acre parcel; 63 units, FAR 2.73. • Prototype 4: Horizontal mixed-use development emphasizing office uses with podium parking on a 0.48-acre parcel. • Prototype 5: Seven-story mid-rise residential development with podium parking, entirely residential on a 0.48-acre parcel. Findings and Assumptions in the Feasibility Analysis (Attachment A) were developed using a static pro forma financial model based on the current market research, review of recent financial feasibility analyses of development projects (including construction costs, require returns, land values), interviews with experienced developers, and assumptions including affordable housing funding gap needs, fees, parking provisions, and changing market conditions. Each prototype developed is built on comparable protypes of current projects and account for the current construction costs, required returns, and supportable land values to ensure feasibility. Findings from the Feasibility Analysis The analysis used the residual land value approach. This method estimates a project’s market value, hard and soft costs, and applies a minimum return threshold. The land cost is excluded initially, with supportable land value determined in the end; representing the maximum price a developer would pay while maintaining financial viability. The feasibility analysis conducted yielded the following results: 1. Market conditions are cyclical, and the broader challenges currently impacting housing production are not limited to the project area, but affect the region. This is expected to change when the market conditions improve. 2. None of the development prototypes are likely to be financially feasible under current conditions due to high land value. 3. Small luxury ownership products significantly outperformed rental products due to high achievable sale prices; and 3 4. Mid-rise rental prototypes are relatively infeasible in downtown Palo Alto under current conditions, but as development conditions shift, feasibility outcomes can change quickly for projects that can achieve higher densities in an efficient format, especially on half-acre or larger sites. This indicates a potential need for parcel assembly in the Plan Area.; and 5. Office uses outperform residential uses in the Plan Area, creating a strong desirability, increasing the competitiveness for residential development. Preliminary Policy Recommendations The analysis takes into consideration associated project costs such as labor, construction materials, and other factors such as market demand and interest rates to determine the investment return in the current market. While no prototype tested yields favorable results to make a project financially feasible, the analysis identifies local strategies to improve development viability and accelerate housing production by ensuring competitive returns and manageable risks for developers, recognizing that market conditions and project-specific factors will vary over time. 1. Amending development regulations to allow for greater variety of housing product types, flexibility in accommodating parking, and increased opportunity to produce housing under different market cycles: a. Increased maximum building height to encourage mid-rise residential typology: Blocks closer to the Caltrain Station (between Alma and Emerson Streets), parcels in the Plan area interfacing with the South of Forest Ave (SOFA) district and blocks along Lytton and Hamilton Avenues could potentially have a greater building height of up to 85’-0”. This could facilitate increased ground floor heights ideal for ground floor active uses, stacked parking, and the use of modular/prefabricated construction materials. 2. Increased maximum Floor Area Ratio (FAR) by-right for residential use: a. Downtown Commercial (CD-C) and RM-zones in the Plan area can take advantage of increased residential FAR to maximize residential capacity and encourage variety of unit types at different affordability levels. b. Additional FAR (beyond the inclusionary requirement) can be used to incentivize Below Market Rate (BMR) units. c. Granting “bonus” office development rights through the production of housing, allowing for transfer of office development rights between properties; and facilitating lot consolidation in the Plan Area for residential development. 3. Updated open space and common use space requirements to improve project feasibility. 4. Updated maximum unit size standards and updated development requirements on smaller parcels:
4 a. A parcel size-based approach to on-site inclusionary unit and open space requirements. 5. Reducing impact fees for housing and providing flexibility with affordable housing requirements. 5