HomeMy WebLinkAboutStaff Report 7286
City of Palo Alto (ID # 7286)
City Council Staff Report
Report Type: Action Items Meeting Date: 10/4/2016
City of Palo Alto Page 1
Summary Title: Retail Urgency Ordinance Amendment
Title: PUBLIC HEARING: Adoption of an Urgency Ordinance Amending the
Urgency Interim Ordinance (Ordinance 5325 extended by Ordinance 5330)
Preserving Ground Floor Retail Uses on a Citywide Basis to Allow Educational
Uses on the Ground Floor of Parcels Zoned RT-35 along Alma Street and
Finding the Amendment Exempt from Review Under the California
Environmental Quality Act (CEQA) Pursuant to State CEQA Guidelines Section
15061(b)(3)
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends that the City Council conduct a public hearing and adopt the proposed
ordinance amending interim protections for ground floor retail uses to provide a limited
exception permitting conversion to private educational facility, and finding the amendments
exempt from review under the California Environmental Quality Act.
Executive Summary
The proposed ordinance would amend temporary restrictions that protect ground floor retail
and “retail like” uses from being converted to office space or other uses. Specifically, the
amendment would allow educational uses on a limited number of parcels zoned RT-35 along
the Alma Street corridor south of Homer Avenue in the South of Forest Area (SOFA).
The proposed ordinance would not extend the duration of the temporary restrictions enacted
by Ordinance Number 5325 and 5330, which are set to expire on April 30, 2017. The City still
intends to enact additional, permanent retail protections prior to this date.
Background
The City’s land use data shows that there was a loss of approximately 70,000 square feet of
retail-type uses in the period from 2008 until early-2015. The loss of retail-type uses coincided
with an increase in commercial office rents, such that property owners had an economic
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incentive to convert ground floor retail spaces to office use where this was permitted by the
City’s zoning regulations.
For this reason, the City of Palo Alto enacted Urgency Interim Ordinance 5325 on May 11, 2015
to prevent the conversion of ground floor space to office or other non-retail uses, which was a
trend in the City’s commercial districts. This urgency interim ordinance was extended through
adoption of Ordinance 5330 on June 15, 2015, and is set to expire on April 30, 2017, before
which time, the City intends to adopt permanent retail protections.
Since the urgency interim ordinance was adopted, the City has adopted permanent retail
protections for the California Avenue business district, and has adopted an ordinance closing a
loophole in PAMC Section 18.16.050 that was allowing the loss of retail space along El Camino
Real. Permanent zoning restrictions are still being developed for the balance of the City as
discussed at a City Council meeting on August 22, 2016.
At the same meeting, the City Council heard from property owners who own properties outside
of traditional retail areas and who view the preservation of existing retail spaces as a hardship.
The City Council considered the specific circumstances of four of these property owners and
found that their hardship did not rise to the level of a constitutional taking, and that no waiver
was warranted under the terms of the urgency interim ordinance.
The owners were encouraged to participate in the public process to develop permanent retail
protections, which the City Council indicated should include a path for them to request
approval for conversions or retail spaces to other uses without proving there is an economic
hardship rising to the level of a constitutional taking.
Nonetheless, in response to the property owner requests, the City Council indicated their desire
to provide more flexibility for property owners in the RT-35 zoning district during the term of
the urgency interim ordinance. The RT-35 zoning district allows private educational facilities as
a principally permitted use, and along Alma Street in this district, the City Council would like to
allow these uses as an exception to the prohibition on conversion of ground floor retail to office
or other uses.
At Council’s direction this amendment is being brought forward as an urgency ordinance.
Accordingly, the ordinance makes the requisite health and safety findings, is exempt from
Planning and Transportations review, and goes into effect immediately upon adoption. An
urgency ordinance requires a 4/5 (i.e. 8 members) vote.
Policy Implications:
The proposed ordinance would amend ground floor retail protections that are consistent with
the City’s Comprehensive Plan, which contains a focus on walkable neighborhoods and vital
retail enviroments, as evidenced by the following goals and policies:
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Goal L-3: Safe Attractive Residential Neighborhoods, each with its own distrinct
character and within walking distance of shoping, services, schools, and/or other public
gathering places.
Goal L-4: Inviting, Pedestrian-scale Centers the Office a Variety of Retail and
Commercial Services and Provide Focal Points and commnity gathering places for the
city’s residential neighborhoods and employment districts.
Policy B-6: Maintain distinct neighborhood shoping areas that are attractgive,
accessible, and convenient to nearby residents.
Policy B-20: Support and enhance the Univeristy Avenue/Downtown area as a vital
mixed use area containing retail, personal service, office, restaurant, and entertainment
uses. Recognize the importance of an appropriate retail mix, including small local
businesses, to the continued vitality of Downtown.
These issues are also addressed in the South of Forest Area (SOFA) Coordinated Area Plan,
which includes POLICY L-6: Enhance the vitality and livability of the South of Forest Area by
allowing a mixture of residential and neighborhood serving commercial land uses.
Resource Impact
The proposed ordinance would affect a limited number of parcels, allowing ground floor spaces
to convert from retail to educational uses. Likely mpacts on sales tax revenues would be
negligible.
Environmental Review
The proposed ordinance would affect a limited number of parcels, allowing them to be used in
a manner that is consistent with the City’s land use regulations during the term of the urgency
ordinance. Resulting Individual development proposals, if any, would be subject to separate
environmental review during the planning entitlement phase. For these reasons, it can be seen
with certainty that the proposed ordinance could not have a significant effect on the
environment, and is excluded from review under the California Environmental Quality Act
(CEQA) consistent with State CEQA Guidelines Section 15061(b)(3), the “General Rule.”
Attachments:
Attachment A: Ordinance Amending Retail Preservation to Allow School Use (PDF)
NOT YET APPROVED
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Ordinance No. ____
Urgency Interim Ordinance of the Council of the City of Palo Alto Amending Interim
Ordinance Nos. 5325 and 5330 to Provide a Limited Exception to the Citywide
Limitation on the Conversion of Ground Floor Retail and “Retail Like” Uses
FINDINGS
A. The City of Palo Alto has long been considered the birth place of Silicon Valley.
With its proximity to Stanford University, its international reputation, its deep ties to
technology firms, its highly rated public school system and its ample public parks, open space
and community centers, Palo Alto continues to serve as a hub for technology based business.
B. Palo Alto is considered one of Silicon Valley's most desirable office markets.
According to one study Class A office rates have climbed 49 percent since the start of 2010. The
same study reported Class B office space increasing by 114.4 % since 2010.
C. In particular, average commercial rental rates have gone up significantly from
2013 to 2015. In 2013 the average monthly rental rate citywide for office was $4.57 per square
foot. That rate increased to $5.12 in 2015. While retail rents have also increased during this
period, retail rents are considerably lower than office rents. The average monthly rental rate
for retail in 2013 was $4.21 and in 2015 was $4.88.
D. Price increases have been even more significant in the downtown area. In 2013
the average downtown monthly office rent was $6.37. In 2015 the rate increased to $7.33.
E. At the end of 2014, Palo Alto’s downtown vacancy rate was a low 2.83 percent,
according to a report prepared by Newmark Cornish & Carey.
F. These record high monthly rental rates for office and low vacancy rates have
created financial incentives to replace current retail use with office use where such conversions
are permitted by the City’s zoning ordinance. These economic pressures are more severe in the
downtown and California Avenue commercial areas but exist throughout the City.
G. The data submitted by the City to support the Valley Transportation Authority’s
Congestion Management Plan (CMP) each fiscal year suggests that there has been a loss of
approximately 70,000 square feet of retail-type uses in the period from 2008 to the present.
The CMP data is broad in the sense that it includes uses like automotive services in the “retail”
category even though they are considered separate uses in the City’s zoning ordinance.
However any overstatement of the trend towards less retail is likely to be offset by the data’s
reliance on a list of discretionary applications processed by the City, since there have also been
recent conversions of retail space to office space that did not require discretionary approvals
and are not included in the 70,000 square foot number.
H. City residents have seen this occurring in the City’s commercial districts as the
City’s Architectural Review Board has considered projects like those affecting Spagos restaurant
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at 265 Lytton, Inhabiture at 240 Hamilton Ave, Palo Alto Bowl at 4301 El Camino Real, and Club
Illusions Restaurant at 260 California Avenue. In addition, familiar retail businesses like the
Zibibbo restaurant have closed and their spaces have been acquired and occupied by non-
retailers. Likewise the old location for Fraiche Yogurt, which moved from Emerson Street to
Hamilton Avenue, was immediately re-purposed as office space.
I. Based on these trends, on March 2, 2015, the Palo Alto City Council asked staff
to consider whether zoning-based protections for ground floor retail uses need to be
strengthened where they currently exist and expanded to areas of the City where they do not.
J. This direction is consistent with the City’s existing Comprehensive Plan, which
identifies the desirability of neighborhood serving retail (Policy L-16) and envisions inviting,
pedestrian-scale “centers” with a mix of uses as focal points for neighborhoods (Goal L-4).
Policy L-20 suggests that the City “encourage street frontages that contribute to retail vitality…”
and Policy B-5 calls on the City to “maintain distinct business districts within Palo Alto as a
means of retaining local services and diversifying the City’s economic base.”
K. The City of Palo Alto enacted Urgency Interim Ordinance 5325 on May 11, 2015
to prevent the conversion of ground floor space to office or other non-retail uses, which was a
trend in the City’s commercial districts. The ordinance was adopted as an interim ordinance to
give the City time to further study the issue and adopt permanent protections if warranted.
L. The urgency interim ordinance was extended through adoption of Ordinance
5330 on June 15, 2015, and is set to expire on April 30, 2017, before which time, the City
Council desires to adopt permanent retail protections.
M. The City’s land use data shows that there was a loss of approximately 70,000
square feet of retail-type uses in the period from 2008 until the urgency interim ordinance was
adopted. This loss of retail-type uses coincided with an increase in commercial office rents,
such that property owners had an economic incentive to convert ground floor retail spaces to
office use where this was permitted by the City’s zoning regulations.
N. The economic conditions that favor conversion of retail space to office space
remain in place because office rents remain higher than retail rents.
O. Since the urgency interim ordinance was adopted, the City has adopted
permanent retail protections for the California Avenue business district, and has adopted an
ordinance closing a loophole in PAMC Section 18.16.050 that was allowing the loss of retail
space along El Camino Real. Permanent zoning restrictions are still being developed for the
balance of the City.
P. In the same period, the City was approached by property owners who own
properties outside of traditional retail areas and who view the preservation of existing retail
spaces as a hardship. The City Council considered the specific circumstances of four of these
property owners on August 22, 2016, and found that their hardship did not rise to the level of a
constitutional taking, and that no waiver was warranted under the terms of the urgency interim
160912 cs 0131547 3 Rev. Sept. 12, 2016
ordinance. The owners were encouraged to participate in the public process to develop
permanent retail protections, which the City Council indicated should include a path for them
to request approval for conversions or retail spaces to other uses without proving there is an
economic hardship rising to the level of a constitutional taking.
Q. Nonetheless, in response to the property owner requests, the City Council
indicated their desire to provide more flexibility for property owners in the RT-35 zoning district
during the term of the urgency interim ordinance to prevent properties from remaining vacant
and potentially blighting the immediate area. The RT-35 zoning district allows private
educational facilities as a principally permitted use, and along Alma Street in this district, the
City Council would like to allow these uses as an exception to the prohibition on conversion of
ground floor retail to office or other uses.
R. The public’s health, safety and welfare are currently and immediately
detrimentally affected as neighborhood-serving retail service and related uses are priced-out by
rising rents and replaced by uses that do not provide similar services or activate the street
frontage by creating pedestrian activity and visual interest (i.e. shop windows and doors).
These changes affect neighborhood quality of life, and mean that local residents have to drive
to similar retail destinations in other locations, diminishing the public health benefit when
residents can walk to needed services and increasing traffic congestion, vehicle miles traveled
and greenhouse gas emissions. In addition, the public’s health, safety and welfare are
negatively impacted if properties subject to the moratorium are unable to find retail tenants to
occupy the ground floor during the limited period of the moratorium. The proposed
amendment strikes a balance between these two competing health, safety and welfare goals.
S. Unless abated, the City’s actions to approve conversion of ground floor spaces
from retail to other uses will exacerbate the reduction of retail and changes described above,
resulting in the need for the proposed interim ordinance.
T. The City Council desires on an interim basis to temporarily suspend conversions
of retail and retail like uses to office throughout the City as such conversions may be in conflict
with the City’s Comprehensive Plan and zoning proposal that the legislative body, planning
commission or the planning department is considering or studying or intends to study within a
reasonable time.
U. This urgency interim ordinance is adopted in accordance with the requirements
of Government Code Section 65858 and Palo Alto Municipal Code Section 2.04.270 and is based
on the need to protect the public safety, health and welfare as set forth in the above findings.
A 4/5 vote is required for adoption.
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. Section 18.85.103 of Chapter 18.85 of Title 18 of the Palo Alto Municipal
Code is hereby amended to read as follows:
18.85.103 Exemptions. The following shall be exempt from this Ordinance:
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(a) Pipeline Projects. Any project where a discretionary permit or entitlement
application to convert ground floor Retail use to a non-Retail use was submitted to the City on
or before March 2, 2015 and is currently pending. For purposes of this Ordinance a “Use and
Occupancy” Permit Application shall not constitute a discretionary permit.
(b) Vested Rights. Any project for which an applicant has received a valid building
permit from the City prior to March 2, 2015 and performed substantial work and incurred
substantial liabilities in good faith reliance on such permit as of the date of this Ordinance.
(c) RT-35 Zoned Parcels on Alma: Parcels located in the RT-35 zoning district on
Alma south of Channing Avenue, shall be allowed to convert to a private educational facility
provided they comply with the development standards governing such use in the RT-35 district.
SECTION 2. This Ordinance supersedes Ordinance Nos. 5325 and 5330 and any
provision of the Palo Alto Municipal Code inconsistent with the provisions of this Ordinance.
SECTION 3. Severability. If any provision, clause, sentence or paragraph of this
ordinance, or the application to any person or circumstances, shall be held invalid, such
invalidity shall not affect the other provisions of this Ordinance which can be given effect
without the invalid provision or application and, to this end, the provisions of this Ordinance
are hereby declared to be severable.
SECTION 4. Effective Date. This ordinance shall be effective immediately and shall
expire on April 30, 2017.
SECTION 5. CEQA. The City Council finds that this Ordinance falls under the California
Environmental Quality Act (CEQA) exemption found in Title 14 California Code of Regulations
Section 15061(b)(3) and 15301 because private educational facilities are a permitted use in the
RT-35 zone.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST: APPROVED:
______________________________ ____________________________
City Clerk Mayor
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APPROVED AS TO FORM: ____________________________
City Manager
______________________________
Senior Assistant City Attorney ____________________________
Director of Planning and
Community Environment