Published On: June 17th, 2015 / Categories: office construction, retail construction /

regulating developmentRegulating development in booming economy

A newly-energized City Council has taken action , on regulating development, through a series of “urgency” ordinances and project-specific zoning actions to restrain development in a manner that is already generating uncertainty among commercial real estate development interests in the area.Silicon Valley’s surging population as a result of its booming economy has been well documented. The pressures that this acute growth has inflicted on the traffic and parking capacities of our region have been equally remarkable; I wrote a blog article touching on the impact of these stresses in Palo Alto earlier this year. Now that the City of Palo Alto’s manifold efforts to forge a wholesale solution to these issues, including an update of the city’s legally-required comprehensive plan document, have stalled for at least a year,

Annual “cap” on the development

The first step to be considered was an annual “cap” on the development of new office projects, in view of the loss of retail space in Palo Alto in recent years and the adoption of a “cap” in other cities (e.g., Sunnyvale, San Francisco). After months of tinkering and discussion with staff, a unanimous City Council voted to apply the proposed “cap” only to certain areas of commercial concentration in Palo Alto; specifically, the cap would limit growth for office and R&D around University Avenue, California Avenue and El Camino Real to 50,000 square feet. The City Council then directed staff to bring the ordinance back to the City Council for review. At that time, despite having reached a hard-fought consensus on a variety of specific provisions of the ordinance, the City Council deadlocked on applying the cap to areas intended to be covered by “coordinated area plans” such as California Avenue, and sent that issue back to the Planning and Transportation Commission for consideration.   Among the most contentious matters was the City Council’s divided vote to apply the cap to the 10-plus projects currently in the planning process; to soften the blow, the City Council also voted to allow a preference for those projects that had been going through the planning process for a year or more.

Adoption of an emergency ordinance

The City Council’s next step was adoption of an emergency ordinance to prevent the conversion of existing retail space to commercial use. This new law bars the conversion to office use of all ground-floor retail located in Palo Alto. In addition, the new law eliminates the existing practice of allowing banks and medical offices to obtain permits and occupy sites meant for retail. All applications that were permitted or operating as of March 2, 2015 will be subject to the new law; existing nonconforming uses will be grandfathered.

Protect the California Avenue business district

Most recently, the City Council directed Palo Alto city staff to research and prepare a measure to protect the California Avenue business district from encroachment by chain stores. The contemplated ordinance would include new limits on “formula retail” (a term that is as yet undefined), limits on restaurants, nail salons and other businesses considered to be overrepresented in Palo Alto, an examination of existing and alternative mandates for restaurant parking, and the possible extension of the California Avenue requirement for ground floor retail to other streets in the area, including parts of Cambridge Avenue and Park Boulevard.

While the City Council has been spending valuable time studying and debating these restrictions, it has been unable to make meaningful progress on updating Palo Alto’s comprehensive plan, a tortured process that has been ongoing since 2006, and is now unlikely to be completed any sooner than next year. These deficiencies in Palo Alto’s comprehensive plan process, as well as the “band-aid” approach to development demonstrated by the Palo Alto City Council’s latest activities, should be of great concern to developers and owners of real estate, not only in Palo Alto, but elsewhere in Silicon Valley as well.

Piecemeal approach to regulating development

This piecemeal approach to regulating development may be red meat for proponents of “slow-growth” or “no-growth” in Palo Alto, but for everyone else, especially real estate developers and owners concerned about preserving and enhancing the value of their holdings, it is a prescription for confusion and uncertainty. Although ad hoc barriers to development may be popular short-run “fixes” for the impacts of growth on traffic and parking, they only mask deeper issues, which are best addressed through the adoption of a thorough comprehensive plan. Further, an inadequate or outdated comprehensive plan can be worse than having no plan at all, given the zoning and litigation risks associated with deficient plans. Such risks create uncertainty, which can be a substantial factor in lowering real estate values.

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