City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: November 17, 2025
Report #:2507-4927
TITLE
Review and Provide Feedback on an Analysis of a Conceptual Affordable Housing Project on Land to be Conveyed to the City and Associated With the Sobrato Development Agreement (340 Portage Avenue); Consideration and Possible Direction to Staff to Prepare a Future Request for Proposal for a Future Affordable Housing Project. CEQA Status: Not a Project.
RECOMMENDATION
Staff recommends that Council:
1. Review the evaluation material including, massing diagrams and shadow studies (Attachment B) and associated proforma analyses (Attachment C) presenting three possible development scenarios and provide feedback to staff;
2. Provide direction to staff to prepare and release a Request for Proposals for a future partnership to build an affordable housing project at the subject property or defer release of the RFP as a future consideration.
EXECUTIVE SUMMARY
On September 12, 2023, City Council adopted Ordinance 55951 approving a Development Agreement (DA) for an approximately 14.65-acre parcel located 3200 Park Boulevard/340 Portage Avenue. The terms of the development agreement included dedication of a 3.25-acre parcel intended to be used for the development of an affordable housing project and a public park.
Following Council’s decision on the DA, the City applied for a Metropolitan Transportation Commission (MTC) grant, which provides funding to support housing development. On May 22, 2024, MTC awarded the City of Palo Alto funding for technical assistance to prepare initial planning work for a future affordable housing development that could potentially take place on the future dedicated parcel adjacent Matadero Creek across and from 340 Portage Avenue.
This report shares the work prepared under this grant and requests Council’s feedback on whether the conceptual typology is aligned with its interest, including aspects related to 1 Ordinance 5595 is available online at: https://www.paloalto.gov/Departments/City-Clerk/City-Records
building height, density, unit mix, parking, or other characteristics. This feedback is anticipated to inform preparation of an RFP and, in turn, better inform the proposals from affordable housing partners.
BACKGROUND
In September 2023 Council approved the Sobrato DA, which included development of a 14.65- acre site located at 200-404 Portage Avenue, 3040- 3250 Park Boulevard, 3201-3225 Ash Street & 278 Lambert Avenue, as shown in the Location Map in Attachment A, with a mix of housing, retail, research and development, and public park uses. The DA included dedication of a 3.25- acre parcel to the City for the purposes of developing an affordable housing project and a public park. The Comprehensive Plan designation and Zoning for the site was modified as part of the same application to align with these future uses. In a separate action on this same Council agenda, Council will consider the Final Map, which will create the subject parcel for this affordable housing project, as well as consider authorization for the City Manager to complete the necessary documentation conveying the City dedication parcel to the City. The DA and relevant documentation anticipate that the affordable housing project would sit on approximately one acre of the resulting 3.25-acre parcel.
Metropolitan Transportation Commission Grant
Following approval of the DA, the City nominated the site as a MTC priority site. Following MTC’s award of that designation to this site in November 2023, staff applied for an MTC grant funded through the State’s Regional Early Action Planning (REAP) 2.0 funds, which provides funds to support early planning for housing projects on priority sites. MTC awarded the grant for this technical assistance on May 22, 2024, contingent on approval of the State’s Regional Early Action Planning (REAP) 2.0 funding in California’s budget, which was approved in June 2024. The grant provides funding in addition to selecting consultants and overseeing the contracts for technical assistance to complete the following work:
1. Prepare a proforma analysis of the project’s feasibility under three different unit mix scenarios;
2. Prepare conceptual massing studies for each of those three scenarios;
3. Prepare shadow studies; and
4. Prepare a Request for Proposal (RFP) for the City to partner with an affordable housing developer for the project.
Van Meter Williams Pollock (VMWP) and Street Level Advisors were selected by MTC, in coordination with the City, as the consultants to complete this technical assistance.
Additionally, to inform the selected scenarios and the RFP, Street Level Advisors conducted interviews with several affordable housing developers in the area. Key takeaways from those interviews are discussed further in Attachment C.
ANALYSIS
The three potential scenarios presented in this report are not recommendations. Rather, they are examples of what a developer may reasonably propose given the City’s goals and site conditions. The massing diagrams and proformas for the three scenarios provide a conceptual understanding both from a visual and cost perspective to better inform Council’s feedback.
Experienced housing developers have expressed that clarity and predictability in the RFP process is a key consideration in determining whether to respond to an RFP and in a successful partnership. Therefore, Council’s early feedback is intended to encourage responsiveness to the RFP and set forth clear expectations for respondents.
Massing Diagrams and Shadow Studies
Table 1 provides a summary of the three scenarios, including key physical and programmatic characteristics including building height, total square footage, unit mix, and parking ratios.
Table 1: Building Scenarios Summary
Scenario 1 Scenario 2 Scenario 3
Building Height ± 55 ft (5 stories) ± 65 ft (6 stories) ± 75 ft (7 stories) Total Gross Floor Area (square feet) 110,935 150,030 173,950 Residential Floor Area (square feet) 73,200 92,200 110,780 1-Bedroom Units 37 (42%) 49 (44%) 59 (44%)
2-Bedroom Units 26 (29%) 30 (28%) 36 (28%)
3-Bedroom Units 26 (29%) 30 (28%) 36 (28%)
Total Units 89 109 131
Average Unit Size (square feet) 1BR: 590
2BR: 870
3BR: 1,080
1BR: 590
2BR: 870
3BR: 1,080
1BR: 590
2BR: 870
3BR: 1,080
Parking Provided 45 (90 with
stackers)
52 (104 with
stackers)
52 (104 with
stackers)
Parking Ratio 0.5 (1.0 with
stackers)
0.47 (0.95 with
stackers)
0.4 (0.8 with
stackers)
Additionally, staff requested that at least one scenario evaluate the open space opening to the future public park to understand how it may modify the building’s interface with the park and the effect of shadows from the building. For consistency with the NVCAP, all scenarios assumed a 50-foot setback from the mid-line of the creek.
Staff did not explore an eight-story scenario based on feedback from affordable housing developers that because of cost escalation and construction complexity, there was a preference for pursuing projects of seven stories or less. In particular, they indicated that adding a level of parking to meet desirable parking ratios increases the cost significantly without improving financing potential. Additionally, staff did not seek scenarios that explore a greater number of larger units as affordable housing developers have expressed that too many large family units increases the cost per unit and that in order to achieve a minimum number of units the overall size of the building needs to increase.
Different building sizes and layouts can change both the number of homes delivered and the amount of subsidy required to make the project feasible. Therefore, staff is seeking Council’s feedback on key development standards that they may want to prescribe for the purposes of the RFP. Some examples may include: a minimum parking ratio; a preferred height maximum or number of stories; a minimum or maximum number of units; any preference regarding unit mix; preferred creek setback; or similar.
Council’s input on key design features such as opening the courtyard toward the park or away from the park and design of the ground floor facing the park is also encouraged. Staff has expressed a desire to have either ground floor units facing the park or ground floor amenities wrapping the ground floor parking so that facades facing the future park are activated. In interviews with affordable housing developers they expressed a desire for this as well.
Shadow studies
VMWP generated the shadow diagrams using 3D simulations, illustrating the difference in shadows cast between the proposed development building height and courtyard orientation.
The analysis considered critical times of day (e.g., 9:00 a.m., 12:00 p.m., and 3:00 p.m.) on June 21st, the longest day of the year, and on December 21st, the shortest day of the year, to represent the minimum and maximum shading that would occur on the park. Overall, the shadow study analysis in Attachment B indicates that the proposed development would not result in significant adverse shadow impacts under any of the scenarios for the majority of the year. Maximum shadow for a seven-story building of 32.9% at two hours before sunset on December 21, leaves 67.1% of the park unshaded. Locating the courtyard on the north side of the building reduces the shadow and reduces the size and impact on the park.
Financial Analysis
Street Level Advisors prepared three detailed project proformas corresponding with the three prototypes developed by Van Meter, Williams, Pollack. For each scenario they evaluated the likely range of development costs based on a review of the costs of comparable affordable projects in the region and developed realistic financing scenarios for each prototype. Affordable housing financing is very competitive: there are far more projects seeking funds than there are funds available. However, a 100% affordable housing project will generally need to compete successfully for federal Low-Income Housing Tax Credits and critical gap funding from the State of California to be viable.
Therefore, Street Level Advisors evaluated each of the three scenarios against the scoring criteria used in the most recent rounds of these key funding sources. The analysis found that an affordable housing development of any of the three prototypes at this location would have been competitive for state funding in recent years. Because the available State funds may be more limited in the coming years and because the scoring systems used to allocate these funds change, it may nonetheless take time for the selected development team to assemble the necessary funding. But this analysis suggests that this is a competitive location for affordable housing. Table 2 provides a high-level summary of the three scenarios. Attachment C includes a more detailed breakdown.
Table 2: Summary of Financing Scenarios
Scenario 1 Scenario 2 Scenario 3
Hard Costs/Foot (excluding parking) $535 $600 $650
Cost per Parking Space $65,000 $65,000 $65,000
Total Development Cost $88,771,732 $119,276,186 $153,411,200 TDC/Unit $997,435 $1,094,277 $1,171,078
Anticipated Gap Funding $24,124,634 $36,594,275 $50,218,646 Estimated City Contribution* $5 Million $5 Million $5 Million *For the City to reach the level of local subsidy per unit that was typical of the winning projects in the most recent State SuperNOFA, the City would need to commit at least $5 million in addition to the land.
One key question Street Level Advisors considered was the necessary level of contribution toward the gap funding from the City of Palo Alto. Local funding is critical to feasibility for two reasons. First, affordable housing projects generally struggle to assemble the funding needed from a limited number of sources so local funding is often a key opportunity to close the gap. Second, the State funding sources often use the level of local funding as a tiebreaker when they determine which projects to fund. Projects with stronger local investment are more likely to secure State funding. For the purposes of this analysis Street level Advisors assumed that under any scenario the land would be provided at essentially no cost and that the development would receive the development impact fee waivers that Palo Alto provides for any affordable housing project. Both will be treated as local contributions under state program rules. They considered the extent to which an additional cash investment from the City’s housing trust fund would improve the competitiveness of the project. For the City to reach the level of local subsidy per unit that was typical of the winning projects in the most recent State SuperNOFA, the City would need to commit at least $5 million in addition to the land. Higher levels of funding would further strengthen the project’s competitiveness and likely shorten the timeline for development of the site noticeably. With this level of contribution, anticipated gap funding that would be needed from the state or another source ranges from approximately $24 million to $50 million, as shown in the table. This is shown in further detail in Table 5 of Attachment C.
Request for Proposal (RFP)
The Metropolitan Transportation Commission (MTC) grant will conclude with preparation of a draft Request for Proposals (RFP). The City could then, with any necessary modifications, use this document to solicit and select a development partner to construct affordable housing units.
The decision to release the RFP, and the timing of that release, rests with the City. Staff seeks Council direction either to: (1) proceed with issuing the RFP once the grant is complete and the subject property is under City control; or (2) defer issuance until the City has a clearer vision for redevelopment of the entire parcel. At present, only one acre of the 3.25-acre site is anticipated for affordable housing, with the balance expected to support a future park. No plans are currently under evaluation for the park portion. If Council wishes to understand how the park and housing components will integrate before proceeding, it may be prudent to delay the RFP until that relationship is defined.
FISCAL/RESOURCE IMPACT
Work prepared for Council’s consideration tonight was developed under a grant awarded to the City of Palo Alto and therefore has no fiscal impact on the City. The three proforma scenarios presented tonight provide conceptual feedback on possible financing sources, anticipated total cost, and anticipated gap funding that would be needed under each of the scenarios. Gap funding would generally need to be provided from a state funding source and, in part, through the City’s Affordable Housing funds.
The City currently has approximately $7.5 million in its Affordable Housing funds that are not yet allocated for any specific project and an additional $2.35 million in Measure K funding for Affordable Housing. The Council has recently considered use of these funds for initiatives like the investments to address oversized vehicles and the unhoused community member needs and the development of Lot T which anticipates a funding gap as well.
No specific additional costs for Oversized Vehicles beyond the $157,000 approved by the City Council on October 20 have yet been appropriated. However, it is anticipated that additional resource needs may be identified by the City Council ad hoc when it returns to the City Council with its evaluation of activities in ‘Phase 2’ of the City’s response.
As discussed with City Council on October 22, any development of housing on Lot T would also require funding from the City. Although no formal action was taken, based on City Council discussion that night it seems likely that Alta Housing will request funding of $5.5 million from the City, which would significantly decrease the available funding for other affordable housing projects. Additionally, pursuant to the DA, at the time of occupancy of the townhomes, the City will receive $5 million in revenue that may be used toward the construction of a public park at this site and/or construction of this affordable housing project. Building permit submittals for the townhomes is currently anticipated in Spring 2026.
Prior to release of the RFP, staff recommends that Council consider reserving either all or a portion of the anticipated $5 million from the Development Agreement or an additional portion of the Citywide Affordable Housing funds toward this use so that all respondents assume the same funding from the City in preparing their proposal.
STAKEHOLDER ENGAGEMENT
The Palo Alto Municipal Code requires notice of this public hearing be published in a local paper and mailed to owners and occupants of property within 600 feet of the subject property at least ten days in advance. Notice of a public hearing for this project was published in the Daily Post on November 7, 2025, which is 10 days in advance of the meeting. Postcard mailing occurred on November 6, 2025, which is 11 days in advance of the meeting.
The location of this planned affordable housing development was identified in approved Sobrato Development Agreement. The Development Agreement went through a public review process that included 17 public hearings before the Architectural Review Board, Planning and Transportation Commission, Public Arts Commission, Historic Resources Board Commission and City Council. Additionally, as part of the preparation of the Environmental Impact Report for the DA, the impacts of a 75-unit development were evaluated in accordance with the public review process for an EIR.
However, the DA and associated development plan did not include specific architectural plans for the housing project. Therefore, a key criterion for evaluation of the RFP is anticipated to include the affordable housing developer’s proposed community engagement effort. The community engagement process for this project is expected to be a collaborative effort with the selected developer and the City to conduct community meetings and solicit feedback that will inform the overall design.
ENVIRONMENTAL REVIEW
Feedback on the preferred direction to inform the RFP is not a project under CEQA as it would have no potential to result in a direct impact on the environment. The City circulated a Draft Environmental Impact Report (“Draft EIR”) for public review from September 16, 2022 through November 15, 2022. The Revised Final Environmental Impact Report, published June 2, 2023, is comprised of the Draft EIR, together with the Revised Final Responses to Comment (collectively, all of said documents are referred to herein as the “EIR”). City Council adopted Resolution 10123 on September 12, 2025, certifying the EIR and making overriding considerations. The EIR (SCH # 2021120444) analyzed the development agreement under Alternative 3 in the EIR and assumed the development of approximately 75 affordable housing units on the subject property. All three scenarios assume more than the 75 units previously evaluated. If the future project exceeds 75 units, additional analysis, such as an addendum or supplement to the previously approved EIR may be warranted to evaluate the increase in the number of units.
ATTACHMENTS
Attachment A: Location Map
Attachment B: Massing Diagrams and Shadow Studies
Attachment C: Financial Analysis
APPROVED BY:
Jonathan Lait, Planning and Development Services Director