City Council
Staff Report
From: City Manager
Report Type: STUDY SESSION
Lead Department: Planning and Development Services
Meeting Date: October 22, 2025
Report #:2505-4745
TITLE
City Council Feedback on an Updated Housing Project Design Concept and Other Project Updates Related to the City and Alta Housing Partnership to Develop the Downtown Surface Parking lot at the Corner of Kipling Street and Lytton Avenue (Lot T) for Affordable Housing.
CEQA Status – Not a Project.
RECOMMENDATION
Staff recommends City Council receive an update on the design development for a 100% affordable housing development located on Lot T and provide informal feedback on key design considerations and other project updates.
EXECUTIVE SUMMARY
On January 21, 2025, the City Council selected Alta Housing as their development partner for a 100% affordable housing project on the City-owned surface parking lot, Lot T. The purpose of this study session is to seek informal feedback from City Council on design options studied for this project. Alta Housing will incorporate the feedback received in this study session and from a community meeting which will be held in late 2025 into a development application to be submitted in early 2026.
In addition to other feedback that may be provided, Alta Housing is seeking the City Council’s input on the preferred project size in terms of height, unit count and mix as well as the orientation of the building’s courtyard. These design considerations will influence the project’s development costs and the developer’s requested financial contribution from the City.
Alta Housing is expected to seek project approval and a City contribution of $4.1 million to $5.5 million as part of a future development agreement in 20261. The City currently has approximately $7 million in unreserved affordable housing funds after the anticipated allocation of $5 million to 3001 El Camino Real next month for a 100% affordable housing project. A concept proposal for a third potential affordable housing project at the former Fry’s 1 This contribution is in addition to the provision of the land parcel itself which is contemplated to be provided as a ground lease to Alta.
Electronics site (a part of the 340 Portage development agreement) will be shared with the City Council next month that would also likely require City funding.
BACKGROUND
Program 1.4 – City-owned Land Lots of the City’s Certified 2023-2031 Housing Element targets the development of 290 affordable housing units on City-owned lands, over the course of the eight-year planning period, including several surface parking lots in the Downtown. In the first phase of this effort, the City Council selected Lot T as the site for the first affordable housing development, and also re-initiated the design of a six-story garage structure to provide replacement public parking on Lot D, the City-owned parking lot located at the corner of Waverley Street and Hamilton Avenue.
On January 21, 2025, the City Council reviewed the responses received and selected Alta Housing as their development partner for a 100% affordable housing project on Lot T3, the City- owned parking lot located at the corner of Kipling Street and Lytton Avenue. On June 17, 2025, City Council approved a one-year exclusive negotiation agreement with Alta Housing for the development of 100% affordable housing on Lot T4.
Previous Council Feedback
Following the execution of the agreement in June, staff worked collaboratively with the Alta Housing team to refine the project proposal based on the preliminary feedback received from City Council on January 21, 2025. Specifically, during that hearing City Council expressed support for an initial project proposal from Alta Housing that included 54 units of family housing in a five-story building with 27 on-site parking stalls serving residents only. However, in their motion the members of City Council directed staff and Alta Housing to come back to Council with a plan to maximize the total units provided by the project while:
Not exceeding seven stories in height;
Maintaining the ratio of family housing included in the initial proposal; and Providing on-site parking for residents at a ratio similar to the initial proposal.
For reference, the initial proposal included 57.4% family housing units (two- and three- bedroom units) and provided 0.5 parking spaces per unit.
3 See minutes for Action Item 9 for details: https://portal.laserfiche.com/Portal/DocView.aspx?id=137876&repo=r- 704298fc
4 See minutes for Consent Item 4 for details:
https://portal.laserfiche.com/Portal/DocView.aspx?id=223613&repo=r-704298fc
ANALYSIS
The purpose of this study session is to receive City Council feedback on the design and development options studied in response to this direction. This section presents key design elements, cost considerations, and relationship to State laws relevant to the next steps for the proposed project.
Design Discussion
Alta Housing and staff have developed two additional design options for City Council’s consideration, in addition to the initial design Council supported in January 2025. For this report, the January 2025 design is referred to as Option 1 and the two new designs are referred to as Options 2 and 3. Conceptual plans for each of these options are included in Attachment C.
Options 2 and 3 both increase the total number of units provided compared to Option 1, which provides 54 units; Option 2 provides 72 units and Option 3 provides 68 units. Both Options 2 and 3 maintain the “C” shaped residential floorplate included in Option 1 but increase the building height from five to six stories in accordance with Council feedback.7 All three options currently assume an on-site transformer, however staff in the Utilities and Planning and Development Services departments are working closely together to explore additional options which may allow the project to achieve the upper end of the parking space ranges shown in Table 1 while also reducing construction costs.
The main difference between Option 2 and Option 3 is the orientation of the central courtyard.
Option 2 maintains the courtyard in the interior of the block as contemplated in the initial design (Option 1), while Option 3 explores a courtyard that faces the street. Alta Housing prefers Option 2 because it provides more units overall with a larger average unit size and better access to light and air within units. Alta Housing also shared that studio units, such as those included in Option 3, yield lower rents and can be harder to fill than one-bedroom units.
However, Option 3 significantly reduces the mass of the building on Kipling Street, opposite and adjacent to a collection of historic8, small-scale single-family homes and local businesses.
Table 1 summarizes these design differences. Staff encourages City Council to provide feedback on any preferences related to the overall building massing, height, average unit size, or unit quality.
7 Six stories is the greatest number of stories possible without requiring additional levels of concrete construction or changing construction types altogether; either of which would increase construction costs. Therefore, a seven story option is not proposed.
8 The nearby properties located at 405, 411, 421-423, 430, 431-433 and 443 Kipling Street are included in the City’s Historic Inventory, found here: https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development- services/historic-preservation/historic-inventory/city-historic-inventory-list.pdf.
Table 1: Summary of Design Option Differences
Option 1 Option 2 Option 3
Stories 5 6 6
Total Units 54 units 72 units 68 units
Courtyard
Orientation
Inward-Facing Inward-Facing Outward-Facing
Unit Mix 1-BR: 23
2-BR: 15
3-BR: 16
1-BR: 33
2-BR: 20
3-BR: 19
STUDIO: 10
1-BR: 20
2-BR: 19
3-BR: 19
Percent Family
Units
57.4% (31 total) 54.2% (39 total) 55.9% (38 total)
Approx. Parking
Spaces*
27-31 spaces 30-34 spaces 29-34 spaces
Parking Ratio 0.5-0.57 spaces per
unit
0.42-0.47 spaces per
unit
0.43-0.5 spaces per unit
Units facing
interior lot lines
2 units per
residential floor
(8 units total)
3 units per residential
floor
(15 units total)
7 units per residential
floor
(35 units total)
Courtyard
Lighting
Courtyard receives
mostly direct sunlight
Courtyard receives
mostly direct sunlight
Courtyard receives mostly
indirect sunlight
* Parking space counts for each option are estimated and will vary based on final transformer and trash room locations; one or more of the parking spaces provided may be dedicated to passenger loading and unloading.
Total Development Costs and Funding Sources
Table 2 below provides a summary of the total development costs, the requested City contribution, and potential gap funding required (see following section for gap funding options) under each of the three design options studied. Under any of these scenarios, the total development costs for the project are expected to be higher than those included in the proposal City Council reviewed in January 2025 for the following reasons:
1. The Alta Team recommends holding more conservative cost assumptions for the project in response to increased financial/economic volatility including (but not limited to) changing markets, construction costs, and material costs; and
2. There is increasing uncertainty around and competitiveness for funding at all levels (County, State, and Federal).
Additionally, Options 2 and 3 also increase the total development size and unit count above what was proposed in Option 1, which also increases the total development cost.
The City’s contribution shown in all options is based on the per unit cost contribution of approximately $76,000 that Council indicated support for in January 2025. This funding would be drawn from the Housing In-Lieu – Residential, Housing In-Lieu – Commercial, and Residential Housing Impact Fee funds. The gap financing needed is calculated by subtracting the City’s contribution and other reliable funding sources (such as state tax credits and loans) from the total development cost.
The City Council may consider providing a per unit cost contribution above $76,000, if it would like to reduce the total amount of gap funding needed. However, this has not been assumed at this time and should be considered in the context of other potential affordable housing development projects the City might like to support in addition to Lot T. For instance, through grant funding, staff has analyzed a financial feasible 100% affordable housing project design concept that could be considered at the former Fry’s Electronics site. Through a development agreement, a portion of this land will be given to the City with the intent to create in the future, a park and affordable housing project. The work to date on the affordable housing concept plan, which will be presented to the City Council in November, could be used for a future request for proposals if directed by Council. Managing limited affordable housing funds, which includes about $7 million at the time of this report is unlikely to support Lot T and a third project without an additional funding from Measure K, which is expected, but also serves as a potential limiter on additional funding for the Lot T project. Staff will continue to monitor the affordable housing fund relative to these projects.
Table 2: Development Costs by Design Scenario
Scenario
Total
Development
Costs
Cost Per
Unit
City
Contribution
Per Unit
Total City
Contribution
Gap Financing
Needed after
City
Contribution,
State Tax
Credits, Loans*
Option 1** $57.9 M $1.07 M $76,667 $4.1 M $2,034,000
Option 2 $78.3 M $1.09 M $76,389 $5.5 M $2,270,000
Option 3 $74 M $1.10 M $76,471 $5.2 M $2,648,000
* See sample proforma included as an attachment to the June 17, 2025 staff report on this topic: https://portal.laserfiche.com/Portal/DocView.aspx?id=188894&repo=r- 704298fc&searchid=52b8bf89-81f9-42ee-97a7-2c9c252f8c77
** The January 2025 project proposal costs have been updated to reflect market conditions and political considerations as of June 2025.
Gap Funding Sources
Alta Housing proposes filling the funding gap created by changing market and funding landscape conditions in one of the following ways, without requesting a City contribution per unit over and above what the Council expressed support for in January 2025:
1. Seeking a partnership with the Housing Accelerator Fund, an independent nonprofit lender;
2. Requesting funding from the County of Santa Clara or other regional source; or
3. Restructuring the project to serve a higher AMI level and applying for California Housing Financing Agency (CalHFA)'s Mixed Income Program (MIP).
Table 3 below provides an overview of the pros and cons of each of these options.
Table 3: Pros and Cons of Additional Funding Source Options Source Funding
Description
Pros Cons Programming
Impact(s)
Housing
Accelerator
Fund (HAF)
Covers
anticipated
gap and
replaces State
tax credit and
Affordable
Housing
Program
(AHP) loan
Streamlines
financing process
and schedule
Over the counter
application
Would require project
team to meet
aggressive cost per
unit targets
Requires approval
from HAF investors
Limited experience in
the Peninsula; looking
to expand beyond San
Francisco
None
County or
Other
Regional
Funding
Covers the
gap, replaces
the AHP loan
and partially
replaces State
tax credits
Compatible with
most other funding
sources
Experienced funding
partner for
Peninsula projects
No funding currently
available; may
become available
next election cycle
May be
required to
serve Rapid
Re-Housing
(RRH)
families
CalHFA MIP Covers the
gap, replaces
the AHP loan
and partially
replaces State
tax credits
Yearly source
Less competitive
than most other
funding sources
Inclusion of higher-
income units may
present marketing,
cost, funding and/or
policy challenges
AMI levels
served shifts
from
30% - 60% to
30% -120%
Zoning Compliance and State Density Bonus Law
The zoning designation for this site is Public Facilities (PF). The project will aim to comply with the City’s objective design standards and the PF development standards to the greatest extent possible while still delivering a significant number of high-quality, new affordable housing units.
The design materials developed to date are conceptual in nature and require further refinement for staff to complete a detailed analysis for compliance with both the City’s objective design standards and development standards.
The project is eligible for up to five concessions and unlimited waivers to development standards to accommodate project in accordance with the State Density Bonus Law (California Government Code 65915) and PAMC Chapter 18.15.
The project anticipates requesting waivers from the following standards:
Lot coverage (~90% v. 30%)
Property line setbacks (all)
The project would also likely request the following concessions:
Floor Area Ratio (~4.0:1 v 1.0:1)
Required open space dimensions
The exact waivers and concessions associated with this project will be determined once Alta Housing submits and staff reviews the formal application materials. Alta Housing has provided a summary of their anticipated compliance with the PF development standards based on their preferred design (Option 2); Attachment B includes more information. Alta Housing had not yet provided a summary of compliance with objective design standards at the time of this packet’s publication.
NEXT STEPS
Following this study session, Alta Housing plans to hold a community meeting in the fall/winter to explore these options with the public. While staff will attend the community meeting, it will be hosted and facilitated by Alta Housing. Alta Housing will submit a project application in early 2026 that is informed by the feedback received in this study session and the community meeting.
Once filed, the formal application would be processed in accordance with the Streamlined Housing Development Project Review Process, as outlined in Palo Alto Municipal Code (PAMC) Section 18.77.073, which requires the project to comply with objective standards. This process requires one study session with the Architecture Review Board (ARB) and will then be presented to the City Council for a final decision in accordance with PAMC Section 18.40.170.
A Development Agreement (DA) will be acted upon by the Council in addition to approving the project design. The DA will confirm the City’s agreed upon funding contribution to the project and establish the terms and conditions for granting Alta Housing a long-term lease to develop an affordable housing project on Lot T.
POLICY IMPLICATIONS
The advancement of affordable housing development on Lot T supports Implementation Program 1.4 of the City’s 2023–2031 Housing Element, which prioritizes redevelopment of City- owned surface parking lots for 100% affordable housing projects. It also directly supports Objective 50 of the City Council’s 2025 Priorities: Advance affordable housing project on Downtown surface parking lot (Lot T). This study session specifically meets the project’s target milestone for Council review of a revised development proposal in Q4 of this year.
The proposed housing development on Lot T has the potential to deliver 54 to 72 units of affordable housing, which would help the City to meet its Regional Housing Needs Assessment (RHNA) target of 6,086 new housing units by 2031.
FISCAL/RESOURCE IMPACT
There is no direct fiscal impact associated with holding this study session. However, there would be a fiscal impact associated with the potential approval of the project and the anticipated Development Agreement between the City and Alta Housing. At this time, Alta Housing expects to request a City contribution of $4.1 million to $5.5 million to the project depending on the design option Alta Housing chooses to pursue based on Council and the community’s feedback. This monetary contribution would be in addition to the City’s land contribution, most likely in the form of a long-term land lease. The land costs are not included in any of the financial scenario figures outlined in this report.
Funding sources and details for the City’s contribution will be confirmed at the time of the project and Development Agreement’s approval in Spring 2026. As of October 2025, the City had approximately $7.0 million of total unaudited funds available across the Residential In-Lieu Fee Housing Fund ($3.8 million), Residential Impact Fee Housing Fund ($0.8 million), and Commercial Housing Fund ($2.4 million) that could be used for this purpose.
Mentioned previously, the voters recently passed implementation of a business tax (Measure K) of which approximately 1/3 of the funding is to be invested in affordable housing and unhoused support. There is $2.5 million in unspent funding at the time of this report’s publication though the Council has expressed in other conversation significant investment in support for unhoused which would likely draw from this same source.
There is also $180,000 available in the Stanford University Medical Center (SUMC) fund for Infrastructure, Sustainable Neighborhoods and Communities, and Affordable Housing.
STAKEHOLDER ENGAGEMENT
This study session was publicly noticed as part of the October 22, 2025 City Council agenda.
Prior engagement activities included:
Council hearing and direction to initiate a Request for Information to examine housing and parking development opportunities in the downtown area on December 6, 2021;11 Issuance and Review of a Request for Information in 2022 and 2023, including a public hearing on December 11, 2023;12
Issuance of a Request for Refined Proposals in 2024;
Council review of refined proposals and direction to staff to prepare the subject Exclusive Negotiation Agreement (ENA) in January 2025; and Housing Element community meetings and discussions identifying Lot T as a City-owned site suitable for affordable housing.
Additional engagement is anticipated during the ENA term and project application review process, specifically:
A community meeting hosted by Alta Housing in Fall 2025; An ARB study session in early 2026; and
A public hearing with City Council in spring 2026.
ENVIRONMENTAL REVIEW
This study session with City Council is not a project subject to environmental review under the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15378(b)(2). The formal application with be evaluated in accordance with CEQA as part of that review.
ATTACHMENTS
Attachment A: Location Map
Attachment B: Development Standards Compliance Summary
Attachment C: Conceptual Design Plans and Diagrams
APPROVED BY:
Jonathan Lait, Planning and Development Services Director 11 For details, see: https://www.cityofpaloalto.org/files/assets/public/v/8/agendas-minutes-reports/agendas- minutes/city-council-agendas-minutes/2021/12-december/20211206/20211206pccsm-amended-linked.pdf 12 For details, see: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=433ee206-0e46-4856- aa54-d6aa54ee085d