HomeMy WebLinkAbout2026-03-10 Policy & Services Committee Agenda PacketPOLICY AND SERVICES COMMITTEE
Regular Meeting
Tuesday, March 10, 2026
Council Chambers & Hybrid
6:00 PM
Amended Agenda
Amended Agenda Items Appear Below in RED
Policy and Services Committee meetings will be held as “hybrid” meetings with the option to
attend by teleconference/video conference or in person. Information on how the public may
observe and participate in the meeting is located at the end of the agenda. The meeting will be
broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto,
and streamed to Midpen Media Center https://midpenmedia.org.
VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621)
Meeting ID: 946 1874 4621 Phone: 1(669)900-6833
PUBLIC COMMENTS
General Public Comment for items not on the agenda will be accepted in person for up to three
minutes or an amount of time determined by the Chair. General public comment will be heard
for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.
Public comments for agendized items will be accepted both in person and via Zoom for up to
three minutes or an amount of time determined by the Chair. Requests to speak will be taken
until 5 minutes after the staff’s presentation or as determined by the Chair. Written public
comments can be submitted in advance to city.council@PaloAlto.gov and will be provided to
the Council and available for inspection on the City’s website. Please clearly indicate which
agenda item you are referencing in your subject line. Multiple individuals who wish to speak on
the same item may designate a spokesperson. Spokespersons must be representing five or more
verified individuals who are present either in person or via zoom. Spokespeople will be allowed
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presiding officer reduces the speaking time for individual speakers.
PowerPoints, videos, or other media to be presented during public comment are accepted only
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1 March 10, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas.
CALL TO ORDER
PUBLIC COMMENT
Members of the public may speak in-person ONLY to any item NOT on the agenda. 1-3 minutes depending on number of
speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.
ACTION ITEMS
1.Nonprofit Partnership Workplan: Follow-up Recommendation on Winter Lodge Tennis
lease extension and Status of Phase I Grant Funding Process. CEQA Status: Not a Project.
2.Consider Policy Options to Encourage Multi-Family Development in Mixed-Use Districts
(2023-2031 Housing Element Program 3.9(A)) and Potential Recommendation for City
Council on Next Steps. CEQA Status: The Addendum to the Comprehensive Plan
Environmental Impact Report (EIR), approved by the City Council on April 15, 2024,
analyzed potential environmental impacts of the 6th Cycle Housing Element including
Program 3.9(A).
3.Discussion of the Rental Registry Program First Year Report and Rent Stabilization
Analysis, Including Recommendations to the City Council to Not Expand the Rental
Registry Program to Properties with Two or Fewer Units and to Defer Further
Consideration of a Possible Rent Stabilization Ordinance. CEQA: Exempt pursuant to
CEQA Guidelines Section 15061(b)(3).
AA1.Recommend Approval of New Task Order 4.42 - Flock Safety Assessment for Inclusion
in the City Auditor's FY 2026 Audit Plan and Amend FY 2026 Task Order budgets to
Support this New Task Order with a Net Zero Financial Impact; CEQA – Not a project
New Item Added
FUTURE MEETINGS AND AGENDAS
Members of the public may not speak to the item(s)
ADJOURNMENT
2 March 10, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas.
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email,
teleconference, or by phone.
1.Written public comments may be submitted by email to city.council@PaloAlto.gov.
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table at the entrance to the Council Chambers and deliver it to the Clerk prior to
discussion of the item.
3.Spoken public comments for agendized items using a computer or smart phone will be
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below to access a Zoom-based meeting. Please read the following instructions carefully.
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please limit your remarks to the agenda item and time limit allotted.
CLICK HERE TO JOIN Meeting ID: 946-1874-4621 Phone: 1-669-900-6833
Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public
programs, services and meetings in a manner that is readily accessible to all. Persons with
disabilities who require materials in an appropriate alternative format or who require auxiliary
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service.
3 March 10, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas.
California Government Code §84308, commonly referred to as the "Levine Act," prohibits an
elected official of a local government agency from participating in a proceeding involving a
license, permit, or other entitlement for use if the official received a campaign contribution
exceeding $500 from a party or participant, including their agents, to the proceeding within the
last 12 months. A “license, permit, or other entitlement for use” includes most land use and
planning approvals and the approval of contracts that are not subject to lowest responsible bid
procedures and have a value over $50,000. A “party” is a person who files an application for, or
is the subject of, a proceeding involving a license, permit, or other entitlement for use. A
“participant” is a person who actively supports or opposes a particular decision in a proceeding
involving a license, permit, or other entitlement for use, and has a financial interest in the
decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform
Act, which encompasses interests in business entities, real property, sources of income, sources
of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a
“party” or “participant” to a proceeding, and you have made a campaign contribution to a
Council Member exceeding $500 made within the last 12 months, you must disclose the
campaign contribution before making your comments.
4 March 10, 2026
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for
public inspection at www.paloalto.gov/agendas.
Policy & Services Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: City Manager
Meeting Date: March 10, 2026
Report #:2601-5854
TITLE
Nonprofit Partnership Workplan: Follow-up Recommendation on Winter Lodge Tennis lease
extension and Status of Phase I Grant Funding Process. CEQA Status: Not a Project.
RECOMMENDATION
Staff recommends the Policy & Services Committee: (1) continue discussion of Nonprofit
Workplan Phase II (Long-Term Leases framework) and recommend Council extend the Winter
Lodge tennis lease, (2) Receive a status update on Nonprofit Workplan Phase I grant funding
process refinement next steps.
EXECUTIVE SUMMARY
This item continues Policy & Services Committee discussion of the Nonprofit Partnership
Workplan (NPW) Phase II, long-term lease framework, and consideration of a lease extension
for Winter Lodge tennis courts. Phase II focuses on establishing policy criteria for evaluating
long-term nonprofit leases, emphasizing public benefit, financial transparency, partnership
sustainability, and Council priorities, in alignment with 2022 City Auditor’s recommendations.
Building on prior discussion of leases for Gamble Garden, Winter Lodge, and the Palo Alto Lawn
Bowls Club, the Committee previously supported moving forward with extending the Gamble
Garden’s lease and directed staff to return with additional information regarding public access
and pricing structures for Winter Lodge and Lawn Bowls to better define community benefit.
This report provides additional analysis and recommendations for the Winter Lodge tennis
lease.
The report also provides a status update on NPW Phase I, which established a structured
process for evaluating nonprofit funding requests outside existing programs. While the FY 2026
pilot successfully funded 17 organizations and addressed prior concerns about ad hoc funding
decisions, the Committee identified the need to clarify Phase I’s purpose and its relationship to
the Human Services Resource Allocation Program (HSRAP) before relaunch for FY 2027. Staff
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will return to Council with refined policy options and an updated implementation timeline for
further direction.
BACKGROUND
NPW Phase I Funding Requests
Nonprofit Lease Agreements
Nonprofit Multi-year Service Agreements
Comprehensive review of all grant programs including Human Services Resource
Allocation Process (HSRAP) and Community Development Block Grants (CDBG)
1, the Policy & Services Committee discussed NPW Phase II,
beginning with upcoming lease extensions with Gamble Garden, Winter Lodge, and the Palo
Alto Lawn Bowls Club. The report outlined a framework for considering nonprofit leases based
on public benefit, financial relationship and partnership sustainability, consistent with the
guiding principles and recommendations in the 2022 City Auditor’s report on Nonprofit
Management. The intent was not to evaluate lease term details but rather establish a
framework by which long-term lease partnerships are evaluated and aligned with existing real
estate policy. The three nonprofit leases were used as leading examples as their leases will
soon expire, though all have holdover clauses to continue on a month-to-month basis.
1 November 19, 2025 Policy & Services Committee Meeting:
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=9499&meetingTemplateType=2&comp
iledMeetingDocumentId=17629
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Additionally, the Policy & Services Committee discussed NPW Phase I refinements at its January
14, 2026 meeting3. The overall sentiment was that the process produced positive outcomes by
funding 17 nonprofit organizations, four of which were new partnerships to provide services to
the Palo Alto community. The pilot was intentionally iterative but revealed structural and
policy issues, which require refining prior to resuming in FY 2027. Staff presented a set of
process improvements informed by stakeholder feedback for the Committee to consider. The
Committee suggested several administrative improvements but also expressed the need to
clarify and refine Phase I’s policy purpose. This report serves as a status update on
recommended next steps for Committee review and Council consideration.
ANALYSIS
3 January 14, 2026 Policy & Services Committee Meeting:
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=10664&meetingTemplateType=2&com
piledMeetingDocumentId=18259
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Using Guiding Principles and the 2022 Audit on Nonprofit Management, the framework looks at
various dimensions which communicate the value of the long-term resource:
Public Benefit of the Partnership- The development and operation of facilities on City-owned
property should advance public use and provide a tangible community benefit. When
evaluating partnerships, the City should consider the organization’s capacity to construct (if
applicable), operate, and maintain the proposed facilities and services throughout the term of
the agreement.
Guiding Principles:
Service Alignment- Programs should align with City Council priorities and community
needs, ensuring that services provided by nonprofit partners directly benefit the public.
Impact-oriented Focus- Partnerships should prioritize unmet community needs and
include clear, measurable outcomes for accountability.
Audit Recommendations:
The actual benefit to the City should serve as a basis for reduction of rent amount when
lease agreements are renewed.
Financial Relationship- The financial structure of each partnership should consider both
monetary and non-monetary contributions to ensure fairness and transparency.
Guiding Principles:
Fairness and Equity: Financial allocations must prioritize accessibility and inclusivity,
particularly for underserved populations.
Encourages transparency and consistency in resource allocation processes.
Audit Recommendations:
Lease agreements with significantly reduced rent amounts should include performance
and reporting requirements for services being provided on the premises.
High-risk agreements should include a project manager for overseeing performance.
Stability of the Partnership- Long-term nonprofit relationships help preserve community
resources while providing stability for both the City and its partners. Multi-year service and
lease agreements promote predictability, support program continuity, and protect public
resources. When considering lease terms, quantitative measures such as rent, appraised value
and cost saving could be considered but should be balanced by the opportunity cost of the
public benefit provided.
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coterminous with the Winter Lodge skating lease, consistent with the City’s real estate lease
policy and present to Council for approval.
5 The separate leases
are a result of property expansion and development of tennis courts, and contract award
through a competitive process. Winter Lodge seeks to make the tennis lease coterminous with
the existing skating site lease, as stated in its original lease (CMR 221.95).6 The tennis courts
are fully maintained by Winter Lodge and are operated by the Kim Grant Tennis Academy,
serving youth and adults of all abilities with a policy of no player is ever turned away. While
Winter Lodge does not pay rent for use of the property, they fully maintain and operate the
rink and courts at no cost to the City.
5 2009 Winter Lodge Tennis Lease: https://www.paloalto.gov//files/assets/public/v/1/city-
manager/misc/la/winter-lodge-tennis-agreement.pdf
6 1995 Winter Lodge Tennis Lease, Section IV, PDF page 53:
https://www.paloalto.gov//files/assets/public/v/1/city-manager/misc/la/winter-lodge-amendment-no.-4-
0221.095-tennis-lease.pdf
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Activity Winter Lodge- one
rate for all
City of Palo Alto-
Resident Rates
Delta
Open Court Use First come-first-
served reservation-
$40/hr
First come-first-
served, no
reservation allowed-
at no cost
Both first-come-first-
served basis
$40/hr cost for WL
courts
Youth Group Lessons $37-$70 (varies by
instructor)
$28-$42 (depending
on level)
24%-40% higher at
Winter Lodge
Adult Group Lessons $37-$70 (varies by
instructor)
$28-$42 (depending
on level)
24%-40% higher at
Winter Lodge
Private Lessons $100-$200 (varies by
instructor)
$100-$125 (varies by
instructor)
0-60% higher at
Winter Lodge
Winter Lodge charges the same rates for Palo Alto residents and non-residents. The City could
request that Winter Lodge adopt separate rates for residents and non-residents. However, this
would likely result in the current all-purpose rate becoming the resident rate and the non-
resident rate being slightly higher, rather than the resident rate being lower than the current
all-purpose rate. While the table shows a price comparison for tennis lessons, it should also be
noted that the City significantly subsidizes its recreation programs at a rate that Winter Lodge
would not be able to meet in order to stay operationally self-sufficient.
Winter Lodge will be undergoing a significant capital expense of resurfacing the courts prior to
its summer season for an estimated cost of $90,000.
Staff seeks the Policy & Services direction on the potential policy updates to the
nonprofit long-term lease framework to ensure optimal public benefit and pricing to
Palo Alto residents.
Nonprofit Partnership Phase I Improvements
The Nonprofit Partnership Workplan Phase I process was developed to establish a structured
framework for Council to evaluate nonprofit budget requests that fall outside of existing City
funding processes. Phase I was not intended to function as a new grant program. At its January
14, 2026 meeting, the Committee acknowledged that the process addressed prior concerns
regarding inconsistent, one-time funding decisions; however, members indicated that
refinements are needed prior to relaunch in FY 2027. Staff presented a series of proposed
improvements, including clarifying application eligibility requirements, establishing funding
priorities, defining nonprofit service categories, enhancing application design and nonprofit
engagement, and clarifying roles between the Finance Committee and the Policy and Services
Committee.
The Committee provided feedback across several of these areas but concentrated its discussion
on two structural elements requiring further refinement: (1) clarifying the purpose of Phase I,
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and (2) defining Phase I’s relationship to the Human Services Resource Allocation Program
(HSRAP).
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
Item 1
Item 1 Staff Report
Item 1: Staff Report Pg. 7 Packet Pg. 11 of 100
No. Nonprofit Organization Name Current Contract Start
DATE Contract End Date Total Contract Amount FY26 Contract Amount Anticipated FY27 Amount Responsible
Department Purpose HSRAP CDBG Phase I Service
Contract
1 AbilityPath 7/1/2025 6/30/2027 $145,245 $67,556 $69,583 Community Services
/Human Services
HSRAP ‐ Disability services. Provides
advocacy, inclusion, and
independence for people with
develo mental disabilities and their
X
2 Ada's Cafe 7/1/2025 6/30/2027 $122,550 $57,000 $58,710 Community Services
/Human Services
HSRAP ‐ Employment opportunities
for adults with developmental X
3 Ada's Cafe 7/1/2025 6/30/2026 $10,000 $10,000 $0 City Manager Nonprofit Phase I grant recipient for
community events x
4 Adolescent Counseling Services 7/1/2025 6/30/2027 $97,019 $45,125 $46,479 Community Services
/Human Services
HSRAP ‐ Services to lesbian, gay,
bisexual, transgender, queer and X
5 Alta Housing 7/1/2025 6/30/2027 $94,338 $43,878 $45,194 Community Services
/Human Services
HSRAP ‐ Various program for low‐
income youth and seniors X
6 Alta Housing (formerly Palo Alto Housing
Corp)5/19/2023 6/30/2025 $356,556 $178,278 $225,300 Planning Administration of the Below Market
Rate program.
7 Avenidas 7/1/2025 6/30/2030 $3,186,528 $598,972 $616,941 Community Services
/Human Services
Senior programs (formerly part of
HSRAP)X
8 Canopy 10/6/2025 10/6/2028 $1,236,366 $400,000 $412,000 Public Works Urban forestry professional services,
outreach, and education x
9 CASSY (Counseling and Support Services
for Youth)7/1/2025 6/30/2027 $51,093 $23,764 $24,477 Community Services
/Human Services
HSRAP ‐ Outreach services for school‐
based mental health counseling for
students in the communit .
X
10 Children's Health Council 7/1/2025 6/30/2027 $21,102 $9,815 $10,109 Community Services
/Human Services
HSRAP ‐Provide transportation to
access in‐person therapy, basic food
needs, and clinician recommended
therapy supplies for families with
children a es 5‐22 with Medi‐Cal
X
11 Children's Health Council 7/1/2025 6/30/2026 $10,000 $10,000 $0 City Manager Nonprofit Phase I grant recipient for
youth mental health services x
12 Environmental Volunteers 7/1/2025 6/30/2026 $10,780 $10,780 $10,780 Community Services Ambassador Program at Foothills
Nature Preserve x x
13 Grassroots Ecology 3/14/2024 3/14/2027 90,000 $30,000 $30,000 Public Works
Irrigation, maintenance, and reporting
x
14 Grassroots Ecology 7/1/2024 6/30/2029 612,027 $115,475 $125,719 Community Services Habitat Restoration at Pearson
Arastradero Preserve x
15 Grassroots Ecology 10/1/2023 9/30/2028 529,459 $102,329 $101,493 Community Services Habitat restoration at Foothills
Nature Preserve & Adobe Creek x
16 Heart & Home Collaborative 7/1/2025 6/30/2027 $121,653 $56,583 $58,280 Community Services
/Human Services
HSRAP ‐ Winter shelter for women
experiencing homelessness X
17 Heart & Home Collaborative 1/1/2024 5/30/2024 $50,000 $23,500 $25,000 Community Services
/Human Services
Shelter staffing for the Overnight
Warming Location (OWL)X
18 JED Foundation 10/1/2025 9/30/2027 $149,000 $87,850 $61,150 City Manager Youth mental health services including
postvention support, youth x
19 JobTrain 7/1/2025 6/30/2026 $45,000 $45,000 $0 City Manager
Nonprofit Phase I grant recipient for
workforce development x
20 Kara 7/1/2025 6/30/2027 $61,275 $28,500 $29,355 Community Services
/Human Services
HSRAP ‐ Grief support X
21 Karat School Project 7/1/2025 6/30/2027 $75,637 $35,180 $36,235 Community Services
/Human Services
HSRAP ‐ outreach to connect families
living in RVs to essential services.X
22 Karat School Project 7/1/2025 6/30/2026 $20,000 $20,000 $0 City Manager Nonprofit Phase I grant recipient for
improved engagement and x
23 La Comida 7/1/2025 6/30/2027 $126,635 $58,900 $60,667 Community Services
/Human Services
HSRAP ‐ Nutrition program for
persons 60 years of age or older.X
24 LifeMoves 7/1/2025 6/30/2027 $101,237 $47,087 $48,500 Community Services
/Human Services
HSRAP ‐ Food services for homeless
and very low‐income Palo Alto X
Nonprofit Service Agreements of $10K or More, as of FY 2026 Funding Source
ATTACHMENT A
Item 1Attachment A - FY 26Nonprofit ServiceAgreements
Item 1: Staff Report Pg. 8 Packet Pg. 12 of 100
No. Nonprofit Organization Name Current Contract Start
DATE Contract End Date Total Contract Amount FY26 Contract Amount Anticipated FY27 Amount Responsible
Department Purpose HSRAP CDBG Phase I Service
Contract
Nonprofit Service Agreements of $10K or More, as of FY 2026 Funding Source
25 LifeMoves 7/1/2023 6/30/2027 $972,377 $251,301 $261,076 Community Services
/Human Services
Staff for the Homeless Outreach Team
(HOT). HOT goes out into the
communit to connect unhoused
X
26 LifeMoves 7/1/2025 6/30/2026 $39,155 $39,155 $39,000
Planning &
Development
Services/CDBG
Opportunity Services Center. Provide
comprehensive, one‐stop, multi‐
service day drop‐in center for critical
homeless services
x
27 LifeMoves 7/1/2025 6/30/2026 $48,366 $48,366 $0 City Manager
Nonprofit Phase I grant recipient for
meals and food resources for
individuals experiencing homelessness x
28 Loaves and Fishes Family Kitchen 7/1/2025 6/30/2027 $51,063 $23,750 $24,463
Community
Services/Human
Services
HSRAP ‐ Meals on Wheels; fully‐
prepared meals delivered to
vulnerable seniors X
29 Magical Bridge Foundataion 7/1/2025 6/30/2026 $150,000 $150,000 $150,000 Community Serivces
Nonprofit Phase I grant recipient for
adaptive programming for people of
all abilities.x
30 MidPen Media Center 3/31/2026 3/31/2029 $800,000 $160,000 $180,000 Administrative Services
Cablecasting, production and
streaming services x
31 Momentum for Health 7/1/2025 6/30/2026 $15,000 $15,000 $0 City Manager
Nonprofit Phase I grant recipient for
cold season protection and hygiene
kits to individuals experiencing
homelessness
x
32 Neighbors Abroad 9/30/2019 12/31/2021 $30,000 $30,000 $45,000 City Manager Neighbors Abroad provides
administrative support to help with x
33 Neighbors Abroad 7/1/2025 6/30/2026 $17,500 $17,500 $0 City Manager Nonprofit Phase I grant recipient for
expanded hosting services x
34 Palo Alto Chamber of Commerce 6/20/2024 6/30/2026 $95,000 $50,000 TBD*City Manager
3rdThursday Support & Economic
Recovery Support to Businesses
x
35 Palo Alto Community Child Care 7/1/2025 6/30/2030 $3,228,146 $606,794 $624,998 Community Services
/Human Services
Management of City's childcare
subsidy program (formerly part of
HSRAP)
X
36 Palo Alto Historical Association (PAHA) 7/1/2025 6/30/2028 $157,500 $51,000 $52,500 Library
Management of the City’s archives
and facilitate public access to
information and materials relating to
Ci hi
x
37 Palo Alto Recreation Foundation TBD 12/31/2026 $40,000 $40,000 $0 City Manager
Monthly activations, previously known
as Third Thursday, from April 2026 to
September 2026 on California Ave to
su ort business vibranc
x
38 Palo Alto Transportation Management
Association 7/1/2023 6/30/2026 Based on annual budget
submitted $242,000 $400,000 Transportation Serving as Transportation
Management Association for Palo Alto x
39 Parents and Advocates of Remarkable
Children and Adults (PARCA)7/1/2025 6/30/2027 $58,211 $27,075 $27,887 Community Services
/Human Services
HSRAP ‐ On‐site support services for
developmentally disabled adults living
in a residential pro ram
X
40 Pathwise (formally DreamCatchers) 7/1/2025 6/30/2027 $122,243 $56,857 $58,563 Community Services
/Human Services
HSRAP ‐ Tutoring for low income
middle school students X
41 Pathwise (formally DreamCatchers) 7/1/2025 6/60/2026 $15,000 $15,000 $0 City Manager
Nonprofit Phase I grant recipient for
tutor training and mentorship and
parent en a ement
x
42 Peninsula Healthcare Connection 7/1/2023 6/30/2025 $268,521 $120,711 $128,530 Community Services
/Human Services
HSRAP ‐ Provide basic needs through
community‐based services that target
the immediate health needs of hard
X
43 Peninsula Healthcare Connection 7/1/2025 6/30/2026 $20,000 $20,000 $0 City Manager
Nonprofit Phase I grant recipient for
access to trauma‐informed healthcare
for mar inalized po ulations includin
x
ATTACHMENT A
Item 1Attachment A - FY 26Nonprofit ServiceAgreements
Item 1: Staff Report Pg. 9 Packet Pg. 13 of 100
No. Nonprofit Organization Name Current Contract Start
DATE Contract End Date Total Contract Amount FY26 Contract Amount Anticipated FY27 Amount Responsible
Department Purpose HSRAP CDBG Phase I Service
Contract
Nonprofit Service Agreements of $10K or More, as of FY 2026 Funding Source
44 Pets In Need 4/1/2024 3/31/2029 7,373,516 $1,370,000 $1,411,100 Community Services
Operating and Management
Agreement to operate the Animal
Shelter
x
45 Project Safety Net 9/1/2020 6/30/2025 $521,604 $100,000 $100,000 Community Services
Resource provider for youth and teen
mental health x
46 Project Sentinel 7/1/2024 6/30/2027 $240,859 $81,561 $84,008 Community Services
/Human Services
Landlord‐Tenant Mediation Program
(formerly part of HSRAP)X
47 Project Sentinel 7/1/2025 6/30/2026 $22,005 $22,005 $20,000 Planning &
Development
Fair Housing Services. Provide fair
housing services including complaint x
48 Ravenswood Family Health Center
(MayView Clinic)7/1/2025 6/30/2027 $145,527 $67,687 $69,718 Community Services
/Human Services
HSRAP ‐ Health services for low
income, uninsured Palo Alto residents X
49 Rebuilding Together Peninsula 7/1/2025 6/30/2026 $73,585 $73,585 $73,000
Planning &
Development
Services/CDBG
Create safe and healthy homes in Palo
Alto allowing the most vulnerable
homeowners, es eciall lower income
x
50 Senior Adults League Assistance (SALA) 7/1/2025 6/30/2027 $49,020 $22,800 $23,484
Community
Services/Human
Services
HSRAP ‐ Legal Assistance to Elders
X
51 Silicon Valley Independent Living Center 7/1/2025 6/30/2026 $20,067 $20,067 $20,000
Planning &
Development
Services/CDBG
Housing and Emergency Services.
Assist low‐income individuals and
families in search for affordable,
accessible housing x
52 Theatre Partner Agreements (West Bay
Opera, Palo Alto Players, TheatreWorks)1/1/2025 6/30/2027 $50,000 $50,000 $55,000 Community Services
Facility agreements for use of Lucie
Stern Theatre and payment of ticket
surcharge to City ($4/ticket sold)
x
53 UNAFF 7/1/2025 6/30/2026 $45,000 $45,000 $0 City Manager
Nonprofit Phase I grant recipient for
film festival focused on human rights
and year‐round screenin s and panels
x
54 Vista Center for the Blind or Visually
Impaired 7/1/2023 6/30/2025 $127,523 $59,313 $61,092
Community
Services/Human
Services
HSRAP ‐ Empowers individuals who
are blind or visually impared to
embrace life through evaluation,
councelin education and trainin
X
55 YMCA of Silicon Valley 7/1/2025 6/30/2027 $36,765 $17,100 $17,613
Community
Services/Human
Services
HSRAP ‐ Senior fitness programming
and financial assistance for senior
membershi s
X
56 Youth Community Services 7/1/2025 6/30/2027 $91,913 $42,750 $44,033
Community
Services/Human
Services
HSRAP ‐ Youth well‐being and
leadership program services through
communit service pro ects
X
57
Youth Community Services (Youth
Connectedness
Initiative)
7/1/2025 6/30/2026 $50,000 $50,000 $50,000 Community Services
/Human Services
Funding for the Youth Connectedness
Initiative x
TOTAL $22,298,966 $6,091,949 $6,117,036
*TBD Pending FY26 Reconciliation
ATTACHMENT A
Item 1Attachment A - FY 26Nonprofit ServiceAgreements
Item 1: Staff Report Pg. 10 Packet Pg. 14 of 100
ATTACHMENT B
DRAFT FY 2027 Phase I Revised Timeline
Date Activity Hearing Body
March 23 Council approval of P&S Phase I
purpose and improvements
City Council
March- early April Phase I website updated: application
timeline and requirements posted
April 14 Nonprofit information session on
FY27 Phase I updates and
requirements
April 13- May 1 Application period open (3 weeks)
April 21 Nonprofit workshop on application
goals and budget
May 4-8 Application intake
May 5-6 FY27 Phase I target budget set Finance Committee
May 14 Application Review and
Recommendations
HRC
May Special
Meeting
Applicant Interviews Policy & Services
Committee
June 9 FY27 Phase I award
recommendations
Policy & Services
Committee
June 15 FY27 Phase I awards approved City Council
Item 1
Attachment B - Draft FY
2027 Phase I Revised
Timeline
Item 1: Staff Report Pg. 11 Packet Pg. 15 of 100
Policy & Services Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: March 10, 2026
Report #:2512-5614
TITLE
Consider Policy Options to Encourage Multi-Family Development in Mixed-Use Districts (2023-
2031 Housing Element Program 3.9(A)) and Potential Recommendation for City Council on Next
Steps. CEQA Status: The Addendum to the Comprehensive Plan Environmental Impact Report
(EIR), approved by the City Council on April 15, 2024, analyzed potential environmental impacts
of the 6th Cycle Housing Element including Program 3.9(A).
RECOMMENDATION
Staff recommends that the Policy & Services Committee discuss policy options and recommend
which, if any, incentives to refine and elevate for City Council consideration.
EXECUTIVE SUMMARY
This report summarizes a variety of approaches the City might use in order to make the
development of new multi-family residential more desirable in certain areas of the City where
both commercial and residential development are allowed, consistent with Housing Element
Program 3.9(A) and 2025 Council Priority No. 52. This report also provides options which are
less likely to spur residential benefits, but which could result in additional benefits to the City
when commercial projects are authorized.
The City is seeking to make progress towards permitting the 6,086 dwelling units assigned to
the City as part of the Sixth Cycle Housing Element Regional Housing Needs Assessment (RHNA),
as well as respond to its jobs/housing imbalance, in part by incentivizing residential and mixed-
use development projects where appropriate. At the time of this report, the City has permitted
635 new units, and the 2023-2031 Housing Element identifies a ratio of 3.19 jobs to employed
residents within the City. The most recent available data, from 2023, shows a ratio of 4.18 jobs
to housing units, significantly higher than the 1.5 regional average.
In many areas, including sites near transit, economic pressures and the current regulatory
framework result in an imbalance in favor of office and research commercial development. The
report commissioned by the City (refer to Attachment A) concludes that there are limited policy
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tools available to the City to influence the relative feasibility of office development in locations
where it currently outperforms residential development. These are:
Fees. Increases to development impact fees (e.g., commercial linkage fee) could raise
the cost of office development and narrow the gap between office and residential
development potential.
Taxes. A construction tax is a one-time tax levied on new construction, typically based
on square footage or project value, which local governments may impose on specific
development types. A high construction tax could add to office development project
costs. A tax on office development would require voter approval.
Building Standards. Elevated building standards for office development, including
enhanced sustainability performance, higher energy requirements, labor requirements
or other obligations that increase construction cost, could marginally decrease office
feasibility.
Land Use Regulation. The City could change zoning regulations or otherwise further
restrict office development allowances. These changes could be limited to areas of the
City where the office market is strongest, such as Downtown, California Ave or the
Research Park.
BACKGROUND
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to a strong preference by developers to pursue office uses, which are frequently seen as more
profitable. Prior to the Sixth Cycle, the City adopted a Housing Incentive Program (HIP) to
increase allowed housing density and relax standards (expanded in 2025), and also instituted an
Office/R&D Development Cap as tools working in unison to incentivize housing. However, the
2023-2301 Housing Element identified that additional regulatory may be needed.
ANALYSIS
Market fundamentals strongly favor office development in core locations. Office
development outperforms multi-family housing (rental units even more so than for-sale
units) in the locations where Palo Alto achieves its highest office values, particularly
Downtown and segments of California Avenue. Achievable office rents in these areas
support land values that exceed rental housing values by a wide margin. This
performance gap reflects underlying market conditions rather than policy choices.
Modest policy interventions that add cost to office development are unlikely to change
these outcomes because office uses are significantly more valuable.
Existing zoning limits office development potential. Although office typically
outperforms housing in terms of value per square foot, office uses are already
meaningfully constrained through density (i.e., Floor Area Ratio) limits. Across the four
study sites, allowable office density is far lower than allowable residential density. In
some cases, office development capacity is half of residential capacity and in one case it
is approximately one quarter. These project size constraints already significantly reduce
office-supported land value and are a disincentive for office development.
Cost-based City disincentives would need to be significant to change highest-and-best
use outcomes in desirable office locations. For the two test sites where office is more
desirable than housing, reducing the appeal of office development by adding cost would
require very large levies. To make housing preferable, one site would require
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approximately double its current commercial linkage fee burden, while another would
require that fees increase by nearly an order of magnitude (1,000%). These magnitudes
are well beyond typical policy adjustments and indicate that fee-based tools alone likely
cannot equalize office and residential feasibility in some Palo Alto locations.
4.Low-density for-sale residential prototypes perform relatively well under current
market conditions. For-sale housing is highly competitive with office outside Palo Alto’s
best office locations. The study finds that townhome format residential development is
preferrable to office development at two sites, where for-sale pricing supports stronger
residual values1 than office. Townhomes are the highest and best uses at these sites
without additional incentives, reflecting strong demand for lower density ownership
housing. This finding suggests that lower density for-sale housing can stimulate
redevelopment, particularly in locations where office is less prevalent.
5.Rental housing faces feasibility challenges in today’s market. Rental residential
prototypes underperform both office and for-sale housing across the study sites. While
the City is seeing a number of for-rent residential and mixed-use residential
applications, particularly projects utilizing State Density Bonus Law or the City’s Housing
Incentive Program in corridors such as San Antonio Road and El Camino Real, these
projects often rely on regulatory incentives and increased density to move forward. High
construction costs, on-site inclusionary housing requirements in the Housing Focus Area,
and tepid regional rent growth all contribute to lower residual land values. Even in the
best locations, rental housing feasibility lags office by a substantial margin and trails for-
sale housing as well. This suggests that current development activity is largely incentive-
driven rather than market-driven, and that additional incentive tools are likely needed
to achieve meaningful production of new multifamily rental units in the near term.
6.Redevelopment incentives in Palo Alto should reflect the notable differences in
development feasibility findings across the City’s distinct submarkets. In the best office
locations, market conditions favor office so strongly that strict limitations on office
development would likely be needed to prioritize housing development. Meanwhile, in
less desirable office locations, lower-density for-sale housing, particularly townhomes,
appear to be the most effective land use to catalyze redevelopment. The study also
finds that rental housing will require additional support to compete with higher-value
alternatives.
Based on the findings summarized above, the following sections explore the four primary policy
tools available to the City which could influence the relative feasibility of office development in
locations where it currently outperforms residential development. Staff is seeking the
Committee’s feedback on these tools to inform the next steps for implementing Housing
Element Program 3.9(A).
1 Estimated completed project value minus the total development cost.
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Potential Policy Tool 1: Fees
The City could choose to increase development impact fees (e.g., commercial linkage fee),
which are paid by commercial development projects and are used to mitigate the impacts of an
increase in housing demand from employee households that require below-market-rate
housing. Revenues from linkage fees are deposited into a housing trust fund for the
construction of affordable housing within the City. Under the California Mitigation Fee Act (Gov.
Code §§ 66000-66025), all development impact fees are required to be based on projected
impacts of the development. In addition, most cities choose to adopt fees lower than they are
able to based on impacts in order to make desired projects more feasible.
In 2015, Strategic Economics and Vernazza Wolfe Associates completed a nexus study for the
City which established maximum commercial linkage fees for office/R&D ($264/square feet)
and hotel ($177/square feet) uses. The City adopted a commercial linkage fee of $39.70
following the nexus study, and increased the fee to $68.50 in 2021. The current fee is still
considerably below the level established by the nexus study.
The City is currently working with a consultant team from Keyser Marston & Associates to
develop a new non-residential affordable housing nexus study. This study will summarize the
methodology, analysis and maximum legally supportable affordable housing impact fees for the
following non-residential land uses: retail, office, industrial, warehouse, lodging and research
and development. Council is expected to review the draft study no later than September 2026
and to adopt any updated impact fees by January 2027.
It is unclear whether an increased non-residential affordable housing impact fee alone would
be enough to persuade developers to pursue residential developments, but it could in some
cases close the gap in land value between project types, as well as generating additional
revenue to the City for affordable housing developments at other sites. The City may also
consider adopting different non-residential affordable housing impact fees for different areas in
the City as long as none of the fees exceed the maximum legally supportable amount
determined by the nexus study. Higher fees could be used to dissuade nonresidential
development in certain parts of the city.
A high construction tax represents a potential approach to increase office development project
costs, making alternative uses more competitive. Like development fee increases, a tax increase
could in some cases close the gap in land value between project types, as well as generating
additional revenue to the City for affordable housing developments at other sites. No nexus
study is required for a tax increase, however, a tax on office development would need to be
voter approved.
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Potential Policy Tool 3: Building Standards
Elevated building standards for office development, including enhanced sustainability
performance, higher energy requirements, labor requirements or other obligations that
increase construction cost could marginally decrease office feasibility. Such standards could
include requiring that commercial development projects obtain LEED Platinum certification and
Energy Star certifications; institute travel demand management plans to ensure no or a low
number of new trips; hire skilled/trained labor for construction; provide increased community
benefit obligations; or others. As mentioned above, it is unclear whether such requirements
alone would incentivize residential development over commercial development, but at a
minimum they would procure community benefits including advancement to the City’s
sustainability goals and creation of higher wage jobs.
The City could change zoning or otherwise further restrict office development allowances
beyond the already limited floor area ratios and square footage caps in place, including
removing office as an allowed use entirely. Land use regulation could be targeted for districts of
the City where the office market is strongest, such as Downtown, California Avenue, El Camino
Real corridor, and the Stanford Research Park. This is likely to have limited impacts, as the City
already heavily restricts new office development both on a per-site basis and through the City’s
overall office cap (both total office space and net new office space per year). Eliminating office
as an allowed use could also have the unintended effect of disincentivizing redevelopment as
property owners could seek to retain a high-value non-conforming use.
While none of these options alone appear to be sufficient to swing the economic advantage
away from commercial development towards residential development, a combination of these
options could have some impact, and at the very least provide some advancement towards
ancillary City goals. It should be noted, however, that outside of the key office corridors, some
types of multi-family residential projects are already preferrable to office development (refer to
Attachment A), therefore whichever policy the City follows should be carefully crafted not to
disincentivize residential projects, which may rely on commercial development to make
projects feasible. Moreover, disincentivizing commercial office does not necessarily translate
into increased housing production. Some property owners may hold on to existing assets until
there is a more favorable development environment.
Receiving this report has no fiscal or resource impacts. This project was funded by a task order
not to exceed $114,993 in consulting fees (for both Program 3.9(A) and Program 3.9(B)) as well
as staff time. As of January 21, 2025, $73,848 of that task order had been spent. The creation of
alternatives for City Council approval (based on this Policy & Services Committee’s
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recommendations) is within scope of the original contract and will not incur additional
consultant fees beyond what has previously been allocated. However, any additional study
would likely require new funding. Adoption of some of these policies could result in changes to
revenue, such as increases to the City’s affordable housing funds, depending on the
mechanisms and policies that City Council ultimately chooses to pursue.
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
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Memorandum
To: , Lexington Planning
lsch, and Kaavya Chhatrapati;
-Use Development;
241108
12, 2026
The City of Palo Alto retained Economic and Planning Systems (EPS) to evaluate the
financial feasibility of real estate development prototypes across four distinct districts
within the city. The City is considering how zoning, development standards, and policy
tools influence the relative economics of office and residential development, particularly in
geographies that may be candidates for reinvestment over the long term. This
memorandum describes a planning-level feasibility assessment of conceptual
development project programs prepared by the Lexington Planning consultant team
(Lexington Planning, Raimi + Associates, and EPS) and applies revenue and cost
assumptions to understand the economic conditions under which redevelopment is likely
to occur.
The purpose of the analysis is to clarify how current market forces and regulatory
frameworks shape redevelopment potential, and to provide a fact-based foundation for
discussions about potential policy options for the City to consider. Palo Alto contains
submarkets with significantly different real estate values, development capacity, parcel
characteristics, and access to transit and amenities. These differences produce distinct
feasibility outcomes, and the City is seeking to understand which prototypical
developments are most viable in each setting, whether there are structural barriers to
desired development patterns, and how policy adjustments may affect feasibility.
This memorandum evaluates scenarios that reflect realistic development projects under
existing zoning. The analysis focuses on the land uses that are most likely to drive
redevelopment: office, rental housing, and for-sale housing. Retail and cultural uses are not
evaluated as standalone prototypes. These uses may be accommodated on ground floors
or integrated into larger projects, but they do not materially shape the core feasibility
questions addressed here.
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The results of this study are intended to inform several policy conversations. First, the City
is exploring how to encourage housing production in areas where office demand has
historically been strong. Second, the City is evaluating whether fee adjustments or zoning
changes can meaningfully shift development outcomes. Third, the City aims to understand
how redevelopment potential varies across submarkets so that planning and land use
strategies can be tailored to the conditions present in each district rather than applied
uniformly.
The analysis uses a stabilized year pro forma framework that compares the value of a
completed project at full occupancy with the full cost of development. This method does
not attempt to predict timing, absorption, or the probability that any specific parcel will
redevelop. Instead, it identifies the conditions under which redevelopment becomes
financially viable and highlights the relative strength of office and residential prototypes
under current market conditions. The analysis incorporates sensitivity testing to evaluate
how changes in rent, fees, land cost, and parking format influence feasibility. This provides
a broad view of how market and policy factors interact and which levers have meaningful
influence on outcomes.
Key Findings
1. Market fundamentals strongly favor office development in core locations. Office
development outperforms rental housing in the locations where Palo Alto achieves its highest
office values, particularly Downtown and segments of California Avenue. Achievable office
rents in these areas support land values that exceed rental housing values by a wide margin.
This performance gap reflects underlying market conditions rather than policy choices.
Modest policy interventions that add cost to office development are unlikely to change these
outcomes because office uses are significantly more valuable.
2. Existing zoning limits office development potential. Although office typically outperforms
housing in terms of value per square foot, office uses are already meaningfully constrained
through density (i.e., Floor Area Ratio) limits. Across the four study sites, allowable office
density is far lower than allowable residential density. In some cases, office development
capacity is half of residential capacity and in one case it is approximately one quarter. These
project size constraints significantly reduce office-supported land value and are a disincentive
for office development.
3. Cost-based City disincentives would need to be significant to change highest-and-best use
outcomes in desirable office locations. For two sites tested where office is more desirable
than housing, reducing the appeal of office development by adding cost would require very
large levies. To make housing preferable, one site would require approximately double its
current commercial linkage fee burden, while another would require that fees increase by
nearly an order of magnitude (1,000%). These magnitudes are well beyond typical policy
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adjustments and indicate that fee-based tools alone likely cannot equalize office and
residential feasibility in some Palo Alto locations.
4. Low-density for-sale residential prototypes perform relatively well under current market
conditions. In fact, for-sale housing is highly competitive with office outside Palo Alto’s best
office locations. The study finds that townhome format residential development is preferrable
to office development at two sites, where for-sale pricing supports stronger residual values
than office. Townhomes are the highest and best uses at these sites without additional
incentives, reflecting strong demand for lower density ownership housing. This finding
suggests that lower density for-sale housing can stimulate redevelopment, particularly in
locations where office is less prevalent.
5. Rental housing faces feasibility challenges in today’s market. Rental residential prototypes
underperform both office and for-sale housing across the study sites. While the City is seeing a
number of for-rent residential and mixed-use residential applications, particularly projects
utilizing State Density Bonus Law or the City’s Housing Incentive Program in corridors such as
San Antonio Road and El Camino Real, these projects often rely on regulatory incentives and
increased density to move forward. High construction costs, on-site inclusionary housing
requirements in the Housing Focus Area, and tepid regional rent growth all contribute to
lower residual land values. Even in the best locations, rental housing feasibility lags office by a
substantial margin and trails for-sale housing as well. This suggests that current development
activity is largely incentive-driven rather than market-driven, and that additional incentive
tools are likely needed to achieve meaningful production of new multifamily rental units in the
near term.
6. Redevelopment incentives in Palo Alto should reflect the notable differences in
development feasibility findings across the city’s distinct submarkets. In the best office
locations, market conditions favor office so strongly that strict limitations on office
development would likely be needed to prioritize housing development. Meanwhile, in less
desirable office locations, lower-density for-sale housing, particularly townhomes, appear to
be the most effective land use to catalyze redevelopment. The study also finds that rental
housing will require additional support to compete with higher-value alternatives.
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Development Sites and Submarket Context
The feasibility analysis evaluates redevelopment potential across four sites selected to
capture the range of market conditions present in Palo Alto. Figure 1 illustrates that the
studied locations span transit-served mixed-use districts, commercial corridors, and
lower-intensity suburban environments. Table 1 summarizes the submarket context for
each site, illustrating how development economics vary across the city’s major
employment and housing submarkets.
Site 1 - Mayfield (Test Site: 123 Sherman Avenue)
Mayfield sits immediately adjacent to the California Avenue Caltrain Station and benefits
from a walkable environment with access to neighborhood retail, transit, and proximity to
Stanford Research Park. The area functions as a transitional zone between established
residential neighborhoods and a major employment district. Office market performance in
Mayfield falls between the premium conditions observed Downtown and those seen in
Research Park.
Site 2 - Research Park (Test Site: 901 South California Avenue)
Research Park is characterized by a stable daytime population, a strong concentration of
professional services tenants, and, at this site, proximity to an established neighborhood
shopping street with high foot traffic (California Avenue). Residential demand is robust in
this area due to its transit accessibility, centralized location, and proximity to Stanford.
This submarket represents a balanced environment where both residential and office uses
may be financially viable depending on site characteristics and zoning.
Site 3 - Downtown (Test Site: 901 High Street)
Downtown Palo Alto represents the city’s most valuable commercial district. Premium
office rents, strong retail foot traffic, a dense mix of uses, and direct Caltrain access create
exceptional market value. This location consistently attracts tenants with high willingness
to pay, supporting land values far above those of other Palo Alto submarkets. Residential
demand is also strong downtown, but housing values are relatively less than those
generated by the office market, and limited opportunities for larger buildings contribute to
the challenge of building residential projects.
Site 4 - Bayshore (Test Site: 2850 West Bayshore Road)
The Bayshore functions as a lower density district of Palo Alto with good automobile
access, limited walkability, and materially lower rent levels than other Palo Alto
submarkets. For-sale housing performs well here, although overall development feasibility
remains highly sensitive to cost. The test site provides an office market counterpoint to the
premium conditions seen downtown and illustrates how office development potential is
limited outside of well-amenitized office clusters.
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Figure 1 – Mapping Development Test Sites
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Table 1 – Submarket Summary
Office Market Geography and Value Patterns
Office values in Palo Alto are highly location-specific and follow a recognizable spatial
hierarchy. As illustrated in Figure 2, higher office rents and sale prices are concentrated
along a series of linear commercial corridors, including University Avenue, El Camino Real,
California Avenue, and Page Mill Road. These corridors align with transit access, walkable
amenities, and concentrations of professional services tenants. They represent locations
where firms demonstrate the highest willingness to pay for visibility, proximity to peers,
and regional accessibility.
The highest value areas occur where these corridors overlap, forming premium office
zones near the Downtown Caltrain Station and the California Avenue commercial district,
consistent with the sales data shown in Table 2. Properties within these commercial nodes
regularly achieve sale prices exceeding $1,600 per square foot. Meanwhile, values fall
sharply even a few blocks outside these boundaries, reflecting the importance of access,
amenities, walkability, and tenant clustering in the Palo Alto market.
This corridor-based value geography helps inform and explain the financial feasibility
results of this analysis. Office development exhibits strong performance Downtown and
near California Avenue because these locations achieve substantial market premiums that
offset density limitations and high construction costs. Outside these zones, office
development feasibility is significantly weaker, as is found at the Bayshore site. In those
Site #Address Submarket Context and Key Characteristics
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areas, this analysis finds that achievable rents do not justify new Class A office
construction even under favorable cost assumptions.
The spatial market dynamics observed in Palo Alto directly affect land values. Office
development potential aligns closely with the corridor zones. These higher value locations
support office development even at constrained densities, while lower value office
locations are more competitive for residential, though rental housing appears largely
infeasible under current market conditions and development policies.
Figure 2 - Office Market Premium Corridors
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Table 2 - Office Sale Prices in Palo Alto
Site #Address Sale Price Per Square
Foot1
Sale
Year1
1 206 California Ave $812 2024
2 3401 El Camino Real $1,600 2024
3 540 University Ave $828 2024
5 250 University Ave $1,969 2025
6 490 California Ave $516 2025
7 3950 Fabian Way $572 2025
8 1870 Embarcadero Rd $202 2025
9 3176 Porter Dr $578 2024
10 2882 Sand Hill Rd $1,632 2024
[1] CoStar Group Data; Sales Post 2024
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Prototype Development Approach
Raimi + Associates (R+A) prepared zoning-compliant development prototypes for each
study test site to establish realistic site yield estimates for feasibility testing. As
summarized in Table 3 and Table 4, the study approach relied on a detailed review of
allowable floor area, height limits, open space requirements, and parking ratios across the
relevant zoning districts. The resulting real estate development “prototypes” reflect the
scale, massing, and construction types that a developer could realistically pursue under
current City regulations.
For residential prototypes, R+A developed a range of building forms appropriate to each
submarket, including ownership townhomes, mid-rise multifamily projects with parking
podiums, and for-sale condominiums. Table 3 presents the residential program developed
for each test site. The development programs incorporate typical dwelling unit
characteristics, efficiency assumptions, amenity programs, and parking configurations
consistent with development norms for the area and the differences between rental and
ownership formats.
For the office development prototypes, R+A designed low- and mid-rise Type I buildings
that match Palo Alto’s limited density allowances. Table 4 outlines the office programs
studied, which range from one to three stories depending on zoning. Parking layouts vary
by site and include structured parking, integrated garages, and limited surface spaces
consistent with site geometry and standards.
Construction Types Used in the Prototypes
The study’s real estate development prototypes rely on two primary construction types
most likely to be feasible for residential and office development in Palo Alto.
Type V residential construction is wood frame construction used for townhomes,
which follow a lighter structural system and remain within the height and scale
typically permitted in neighborhood contexts. Type V construction is also common
for the upper stories of rental apartment buildings. In these multifamily prototypes,
the residential floors are constructed with wood framing that sits above a concrete
parking podium. This configuration is common in midrise residential development
because it allows the project to achieve additional stories, with required parking
housed in a durable podium level while keeping the upper stories in a more cost-
efficient wood frame system.
Type I construction is concrete or steel structural construction that provides the
strength, fire rating, and structural spans needed for podium levels and for office
buildings. In the residential prototypes, Type I construction forms the concrete
parking podiums and any associated ground floor spaces that require higher load
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capacity or enhanced fire separation. In the office prototypes, Type I construction
is used for the full building structure, which ranges from one to three stories
depending on the zoning requirements for each site. This construction type
supports larger open floor plates, greater floor to floor heights, and higher
occupancy standards than can be accommodated in wood frame structures.
The financial feasibility analysis relies on the R+A development programs to establish
quantitative inputs to the pro forma model. Key analytical inputs informed by the R+A
work include gross and net square footage, unit counts, parking supply, and construction
typology. EPS prepared associated revenues and operating costs assumptions.
Table 5 provides a consolidated summary of these prototype development programs
across the four sites. The prototypes form the foundation for the feasibility testing and
sensitivity analysis. Prototypes generally reflect baseline zoning conditions with the
exception of the Downtown Scenario, which assumes waivers for FAR and height. These
waivers did not materially alter relative feasibility outcomes. The analysis provides a
consistent framework for comparing office and residential performance across sites with
distinct land use patterns and market conditions.
Table 3 - Residential Prototype Programs and Construction Types by Site
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Table 4 - Office Prototype Programs and Construction Types by Site
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Table 5 - Summary of Prototype Development Programs by Site
Analytical Approach
This analysis applies a stabilized-year pro forma framework to estimate the land value that
each prototype can support. The method compares the value of a completed project at
stabilization (i.e., full occupancy) with total development cost, expressed in constant 2025
dollars. Stabilized value is derived from assumptions about market-supportable rents or
sale prices, operating costs, and capitalization rates. This approach provides an initial
indication of feasibility and not to model absorption, phasing, or other time-based cash
flows.
For each prototype, the analysis calculates a residual land value by subtracting total
development cost from the estimated value. The resulting “residual land value” represents
the price a project could theoretically pay for land acquisition while still meeting required
investment returns. Feasibility is evaluated by comparing the residual land values of office
and residential prototypes on the same site, which allows for a direct assessment of which
use is more competitive (i.e., “highest and best use”) under current market and cost
conditions.
Site Site Area
(Acres)
Prototype
Type GSF FAR Units Parking Spaces Parking Ratio
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The analysis tests the residential and office prototypes prepared by R+A for each of the
four study sites. Feasibility outcomes reflect assumptions about building size, efficiency,
construction type, revenue performance, and parking configuration. Sensitivity tests on
rent, fees, density, and parking formats provide additional insight into how market and
policy factors influence the relative competitiveness of office and residential development
Summary of Key Terms
• Market Value – The estimated sale price of a real estate asset under current
market conditions, assuming a willing buyer and seller.
• Per-NSF Rent and Sale Price Assumptions – Rental rates and sale prices
expressed on a per-net-square-foot basis, informed by market data from
CoStar, Redfin, Zillow, and comparable high-quality new construction in Palo
Alto.
• NSF (Net Square Feet) – Interior usable space within a building, excluding
common areas, walls, and building service spaces.
• Hard Costs – Direct construction costs, including site work, labor, materials,
and contractor overhead.
• Soft Costs – Indirect development costs such as architecture, engineering,
permits, legal fees, financing costs, and other professional services.
• Other Costs – Costs not captured in hard or soft costs, including contingency
and development cost provisions for unforeseen conditions.
• Net Operating Income (NOI) – Annual operating revenue minus operating
expenses, excluding debt service, depreciation, and income taxes.
• Cap Rate (Capitalization Rate) – The investor’s required stabilized annual
return, calculated as net operating income divided by project value.
• Development Spread / Yield on Cost Premium – The additional return,
expressed in basis points, required to compensate for construction, entitlement,
and lease-up risk above the stabilized cap rate.
• ROC (Return on Cost) – An unlevered return metric comparing stabilized net
operating income to total development cost, commonly used to evaluate
development feasibility.
• Residual Land Value (RLV) – The difference between capitalized project
revenue and total development cost, representing the estimated value available
to support land acquisition given the assumed program and financial inputs.
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Key Assumptions
Revenue Assumptions
Revenue assumptions establish the valuation of each prototype and are central to
calculating residual land value. The categories below describe the key components of
revenue, including market rents and sale prices, capitalization rates, and investment return
expectations.
Market Rents and Sale Prices
Market rents and sale pricing reflect current achievable levels for newly delivered
products in each submarket. The assumptions utilized in this analysis are summarized in
Table 6.
Rental housing value is calculated using net square-foot monthly rents derived from the
observed performance of high-quality Class A buildings based on data from CoStar. Among
the test sites, Downtown achieves the highest apartment rents, owing to its walkability,
concentration of services, and immediate access to the University Avenue Caltrain station.
Rent in the Research Park and Mayfield remain strong but do not reach Downtown levels.
In contrast, Bayshore supports more moderate rents, reflecting its relative distance from
transit, services, and other neighborhood amenities.
For ownership housing, revenues are based on sale prices per net square foot for attached
residences built with Type V construction, based on data from Redfin, Zillow, CoStar, and
other sources. Townhomes in the Research Park and Bayshore benefit from substantial
demand among households seeking ownership opportunities in Palo Alto—one of the
region’s most supply-constrained for-sale housing markets. Prices reflect both the strong
purchasing power of local households and scarcity of new for-sale home inventory in the
city. While townhome prototypes are financially viable under current assumptions, recent
zoning amendments have increasingly sought to encourage higher-density forms of
ownership housing, such as through raising minimum density requirements and increasing
allowable heights and maximum densities.
Office rents are based on triple net (NNN) lease structures in which taxes, insurance, and
maintenance are paid by the tenant. The strongest office market rents are seen in
Downtown.
Capitalization Rates
Capitalization rates (“cap rates”) are a market factor that inform the relationship between
a building’s net operating income and property value. This relationship between property
income and value is central to feasibility calculations for income-generating commercial
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properties. Rental housing and office pro formas use cap rates that reflect current investor
expectations and the risk profile of each product type to estimate market value.
Rental housing analysis assumes a 4.0% cap rate, which is consistent with the long-term
stability of multifamily assets in supply constrained cities such as Palo Alto. Multifamily has
historically exhibited relatively low volatility due to consistently high demand and the
predictability of the income streams.
Office analysis assumes a 5.5% cap rate to reflect the greater volatility of the office market
and the higher perceived risk associated with tenant rollover (a higher cap rate indicates a
greater level of risk), leasing downtime, and changing workplace patterns. Office income is
more sensitive to macroeconomic cycles, company expansions and contractions, and
location-specific desirability. As a result, investors require a higher yield relative to
multifamily.
Yield Premiums for New Development
The spread between market cap rates for built and stabilized buildings and the developer’s
required return yield represents the investment premium necessary to justify the risk
associated with new development. This premium compensates the developer for taking on
construction risk, entitlement risk, lease-up uncertainty, and broader market fluctuations.
In this analysis, both office and rental housing require a single percentage point spread
above the market cap rate to justify new development. This means that in a market where
stabilized apartment buildings exhibit a 4.0 percent cap rate, developers need to achieve a
5.0 percent yield on cost for the project to be attractive. The same logic applies to office,
where the required development yield is 6.5 percent. These investment return thresholds
reflect the minimum profitability necessary to attract capital.
Return on Cost Expectations for Ownership Housing
Unlike rental housing and office, cap rates are not utilized in estimating potential values of
for-sale housing. Market value is established through review of market transactions.
Residual land values are then estimated by comparing sales revenue with development
cost, including a return on cost factor.
Townhome prototypes in this analysis require a 15 percent unlevered return on
development cost. This threshold is consistent with typical expectations for attached
ownership product in high cost, high entitlement complexity jurisdictions. It accounts for
construction risk, sales absorption risk, and the absence of recurring income. The 15
percent requirement reflects a typical investment threshold for ownership housing in the
Bay Area.
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Table 6 – Revenue Assumption Summary
Cost Assumptions
Real estate development cost assumptions include hard costs (i.e., direct construction
costs), soft costs, and other project costs such as developer return requirements.
Construction cost assumptions draw on published Bay Area cost benchmarks, including
from Marshall and Swift, as well as EPS experience on comparable development projects.
These costs vary by construction type, scale, and prototype.
Hard Costs
Hard costs include site work and vertical building construction expenses. For residential
prototypes, these costs also include required furniture, fixtures, and equipment.
Construction types differ across prototypes, ranging from Type V townhomes at lower
cost levels to Type I podium and Type I office structures with substantially higher per-
square-foot costs. Parking format is a major factor influencing overall construction costs.
Podium and subterranean parking involve significantly higher per-space costs than
integrated Type V garages or surface parking. Table 7 summarizes cost assumptions for
each site.
Site Use Avg Unit Size or
Office NSF Revenue Assumption Yield / Return
Assumption
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Soft Costs
Soft costs include design, engineering, entitlement, and administrative costs, as well as
estimates for taxes, insurance, and financing. Permit and fee estimates incorporate the
City of Palo Alto’s current development impact fees, including the affordable housing
impact fee. City staff derived fee estimates based on the R+A development programs using
the City’s current fee schedule. The analysis assumes that required below-market-rate
units are delivered on-site in both rental and ownership prototypes.
Other Project Costs
Other project costs include a development contingency allowance that applies to total
hard and soft costs, along with the required developer returns. For income-generating
uses such as office and rental housing, returns are modeled as a stabilized yield on cost. For
ownership housing, the return requirement is modeled as a one-time return on cost at time
of sale, reflecting the absence of ongoing operating income. These return expectations
reflect typical investor requirements in Bay Area markets.
Table 7 – Cost Assumptions Summary
Site Use Construction
Type
Direct
Construction Cost1 Parking Format Parking Cost
Assumption
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Developer Interviews
EPS conducted interviews in November with several development firms active or recently
active in Palo Alto, including Sand Hill Property Company (November 11), Sobrato
(November 5), and Sares Regis Group (November 13). These discussions were intended to
validate the assumptions used in the financial analysis, understand current market
conditions from practitioners operating in the city, and gather insight into how developers
interpret redevelopment potential under existing zoning and market constraints.
Across all interviews, firms stated that the key findings of the financial analysis reasonably
reflect current conditions in the Palo Alto market. They noted that revenue assumptions
for office, rental housing, and ownership housing align with pricing observed in recent
projects, and that construction cost assumptions are generally consistent with recent bids
and contracts. The only meaningful point of divergence is related to for-sale townhomes.
Multiple firms indicated that townhome sale prices assumed in the analysis may be
conservative relative to actual market potential. To maintain a cautious approach
appropriate for long-range planning, the analysis retains conservative sale pricing.
However, the sensitivity testing discussed below illustrates the effect of stronger pricing
on feasibility outcomes.
Firms also offered perspective on the policy implications of the feasibility scenarios. In
general, interviewees emphasized that Palo Alto’s premier office locations, particularly
Downtown, California Avenue, and Research Park, command exceptional rents and
maintain strong tenant demand despite limited density allowances. They noted that these
districts are prestige office markets with deep regional appeal, which means that the
inherent value of office in these locations is not easily diminished through straightforward
disincentives such as increased fees, taxes, or regulatory burdens. In their view, efforts to
suppress office demand directly are unlikely to shift development patterns in a meaningful
way.
Interviewees broadly indicated that policies that improve the feasibility of housing would
likely be more effective at shifting development outcomes toward housing over other uses.
They highlighted several suggestions to make residential projects more competitive
relative to office, including lower density allowances that better match demand and
construction economics, more predictable entitlement pathways, and adjustments to
parking requirements. A notable refrain was the desire for streamlined entitlements and
lower minimum density requirements for housing, specifically to allow townhome
development. Interviewees also observed that the relative competitiveness of office on
the highest-value sites reflects structural market conditions, rather than analytical
assumptions.
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Feasibility Findings
The feasibility results for the four study test sites show clear patterns in how office, rental
housing, and for-sale housing perform under current market conditions and zoning
requirements. Test fits represent current zoning, including allowed density increases
through the City’s Housing Incentive Program and State Density Bonus Law. Outcomes
vary across submarkets, but the key drivers are consistent: achievable rent and sale prices,
construction costs, and zoning. The findings below summarize how each prototype
performs relative to these factors. Table 8 shows estimated residual land value per acre
for office and residential prototypes across the four test sites. Note that the Site 1
scenarios are mixed-use prototypes that include a ground-floor retail component. The
residential and office RLV/acre values shown in Table 8 are derived based on the sum of
the component pro formas (e.g., residential RLV + retail RLV), translated to a per-acre
basis. See proformas in Appendix A for detailed calculations for each use component.
Office Development
Office results in a positive land value in all four locations and remains the highest and best
use in the more desirable commercial locations, Downtown and in Mayfield. Downtown,
monthly achievable rents approach $8.50 per net square foot, producing a residual land
value of nearly $13.1 million per acre, the highest in the study. Office also outperforms
residential at the Mayfield site, with supportable residual land value estimated at $3.6
million per acre. At these sites, the land value gap between office and residential appears
to exceed what cost-based policy interventions typically seek to solve.
Multifamily Rental Housing
Multifamily rental housing is the most challenged of the tested uses and is marginally
viable only in the highest-value locations under current market conditions. At Mayfield,
the rental prototype appears infeasible, generating negative residual land value due to
modest achievable rents and the cost structure of a mid-rise podium building. Among the
locations tested, Downtown is the only area where rental housing generates a positive
residual land value; however, at approximately $1.9 million per acre, this outcome would
require site acquisition costs well below prevailing market levels to achieve near-term
feasibility.
Taken together, the results indicate that today’s rent levels, combined with podium
construction costs and parking obligations, create a substantial near-term feasibility
barrier for rental housing across much of the city. Importantly, these findings represent a
snapshot in time rather than a long-term constraint on multifamily development. The
City currently has a broader development pipeline of over 3,000 multifamily units
proposed or entitled, including projects advancing within the Housing Focus Area along El
Camino Real, increased zoning capacity in other areas such as San Antonio Road,
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developments such as Fabian Way that are proceeding under base zoning rather than
through Builder’s Remedy, and projects leveraging state density bonus incentives. With
the exception of a small-scale project of approximately eight units, no multifamily
developments are currently under construction in the city as of February 12, 2026. This is
consistent with cyclical development patterns in which developers prioritize entitlements
during weaker market conditions in order to be positioned to deliver housing once capital
markets and rental fundamentals improve.
For-Sale Townhomes
For-sale townhomes are consistently feasible and, in some cases, outcompete office. At
Research Park and Bayshore, townhomes generate residual land values of $10.7 million
and $11.4 million per acre, respectively. These figures reflect strong demand for
townhome development in Palo Alto. Townhomes are the only residential product that
outperforms office, indicating that lower-density ownership housing formats can be the
highest and best land use in some locations, absent any additional policy intervention.
Downtown For-Sale Multifamily
The financial analysis also tested a Downtown condominium concept. Findings from this
test suggest that a mid-rise for-sale multifamily project could support $8 million or more in
residual land value per acre, outperforming the rental prototype on the same site. The
finding indicates that a mid-rise condominium product could be viable Downtown, though
the office use still appears preferable.
Table 8 – Summary of Feasibility Findings
SITE HOUSING
TYPE
RESIDENTIAL
RLV/ ACRE
OFFICE
TYPE
OFFICE
RLV/ ACRE
[1] Site 1 projects include groundfloor retail. RLV values shown here for Site 1 combine RLV outputs
from the primary uses (residential or office) with RLV outputs from their respective retail uses, and
converts the sums to a per-acre value.
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Sensitivity Analysis
Sensitivity analysis evaluates how key inputs to the financial analysis influence the relative
feasibility of office and residential development across the four Palo Alto study test sites.
The sensitivity analysis considers the impact of market conditions and potential policy
options. Consistent with other study results, residual land value determines which land use
is more competitive at each site as key inputs are evaluated.
In the tables that accompany this section, grey shading indicates that the residual land
value for office falls below the residential alternative, meaning residential becomes the
highest and best land use at the test site. The shading allows readers to see where shifts in
rent or fee levels meaningfully alter development feasibility outcomes.
Commercial Linkage Fee Sensitivity
A key policy consideration is whether the City of Palo Alto should add to the cost of office
development in an effort to disincentivize that use. This might be done through fees, taxes,
or other measures. The analysis considers increases to the City’s commercial linkage fee,
though any City-controlled mechanism that adds to the cost of office development without
adding to the cost of housing development could serve the same purpose. The analysis
tested a wide range of commercial linkage fee levels for each office prototype, including
values both below and above the current fee of $80 per square foot. The goal is to
understand whether fee adjustments could realistically shift feasibility away from office
and toward residential development.1
The results show that marginal changes to fees produce only modest movement in
feasibility. Office performance in Palo Alto is shaped primarily by achievable rent and the
cost efficiency of low- and mid-rise office formats. At two of the study sites, office is
already less competitive than residential, so fee changes have no effect. At the remaining
sites where office continues to outperform residential, the fee would need to increase to
levels well above normal policy practice before office would no longer be the highest and
best use. In Mayfield, the fee would need to approximately double. In Downtown, it would
need to increase by almost an order of magnitude (1,000%). These levels may not be
realistic from a policy perspective and any changes to development impact fees would
need to be evaluated for compliance with applicable state and local laws.
1 Note that while the study contemplates changes to the commercial linkage fee, the sensitivity testing examines fee levels
that may not be supportable by “nexus” analysis required to substantiate legal impact fees in California.
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Rent Sensitivity
The rent sensitivity analysis tested office rents in increments of 25 cents per square foot.
These increments reflect realistic movement within Palo Alto’s office submarkets. Rent
changes have a strong influence on feasibility because rent directly influences project
value. Importantly, the City has no control over private lease rates, yet shifting rent levels
determine whether office development remains viable. In high value locations such as the
downtown core, even small rent changes produce visible shifts in competitiveness. In
lower value areas such as Bayshore, office rents are likely to remain too low for office to
outperform residential. These results highlight that development feasibility is primarily
market driven and that policy interventions typically only influence outcomes at the
margin.
Sensitivity Test Results
At Site 1, the residual land value for office is $3.57 million per acre compared with a
residual land value of residential estimated at negative $0.58 million per acre, indicating
that office development is substantially more feasible under current conditions. Table 9
shows how office rents and the commercial linkage fee would need to shift for office
feasibility to fall such that residential becomes the highest and best use. If office rents
remain at today’s levels, the commercial linkage fee would need to roughly double for
office to underperform residential. If the fee remains unchanged, office rents would need
to decline by about fifty cents, to roughly $7 per square foot, for residential development
to be a competitive option.
Table 9 - Site 1 – Mayfield Residual Land Value (in Millions) Sensitivity: Commercial Linkage Fee
and Office Market Rent
$3.57 $0 $40 $80 $120 $160 $200 $240 $280 $700
$6.75 $3.04 $0.20 ($2.84)($5.46) ($8.30) ($11.13) ($13.97) ($16.80) ($46.57)
$7.00 $5.18 $2.34 ($0.70)($3.33) ($6.16) ($9.00) ($11.83) ($14.67) ($44.43)
$7.25 $7.32 $4.48 $1.44 ($1.19) ($4.02) ($6.86) ($9.69) ($12.53) ($42.29)
$7.50 $9.45 $6.62 $3.57 $0.95 ($1.88) ($4.72) ($7.55) ($10.39) ($40.16)
$7.75 $11.59 $8.76 $5.71 $3.09 $0.25 ($2.58) ($5.42) ($8.25) ($38.02)
$8.00 $13.73 $10.90 $7.85 $5.23 $2.39 ($0.44) ($3.28) ($6.11) ($35.88)
$8.25 $15.87 $13.03 $9.99 $7.36 $4.53 $1.70 ($1.14) ($3.97) ($33.74)
$8.50 $18.01 $15.17 $12.13 $9.50 $6.67 $3.83 $1.00 ($1.84) ($31.60)
Commercial Linkage Fee/ SF
Rent/SF
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At Site 2, office residual land value is already below residential residual land value. Office is
valued at $8.12 million per acre while residential is valued at $10.7 million per acre as
shown in Table 10. This outcome reflects the favorable development economics of the
townhome prototype, which are more feasible than rental housing in today’s market. It
also reflects that Site 2 is not a premium office location and office development density is
constrained.
Table 10 – Site 2 – Research Park Residual Land Value (in Millions) Sensitivity: Commercial
Linkage Fee and Office Market Rent
Site 3 is the highest value office project tested by the study. The residual land value for an
office project is estimated at $13.3 million per acre, compared with a residential residual
land value of $1.86 million per acre, as shown in Table 11. Bringing office land value down
to residential rental levels would require nearly a 10-fold increase in fees comparable cost
increase achieved through other means.
Table 11 – Site 3 – Downtown Residual Land Value (in Millions) Sensitivity: Commercial Linkage
Fee and Office Market Rent
$8.12 $0 $40 $80 $120 $160 $200 $240 $280 $700
$6.25 $7.45 $6.69 $5.92 $5.15 $4.39 $3.62 $2.86 $2.09 ($5.95)
$6.50 $8.19 $7.42 $6.65 $5.89 $5.12 $4.36 $3.59 $2.83 ($5.22)
$6.75 $8.92 $8.16 $7.39 $6.62 $5.86 $5.09 $4.33 $3.56 ($4.48)
$7.00 $9.66 $8.89 $8.12 $7.36 $6.59 $5.83 $5.06 $4.30 ($3.75)
$7.25 $10.39 $9.63 $8.86 $8.09 $7.33 $6.56 $5.80 $5.03 ($3.01)
$7.50 $11.13 $10.36 $9.60 $8.83 $8.06 $7.30 $6.53 $5.77 ($2.27)
$7.75 $11.86 $11.10 $10.33 $9.56 $8.80 $8.03 $7.27 $6.50 ($1.54)
$8.00 $12.60 $11.83 $11.07 $10.30 $9.53 $8.77 $8.00 $7.24 ($0.80)
Commercial Linkage Fee/ SF
Rent/SF
$13.13 $0 $40 $80 $120 $160 $200 $240 $280 $700
$7.75 $12.38 $11.65 $10.92 $10.19 $9.46 $8.73 $8.00 $7.27 ($0.39)
$8.00 $13.11 $12.38 $11.66 $10.93 $10.20 $9.47 $8.74 $8.01 $0.35
$8.25 $13.85 $13.12 $12.39 $11.66 $10.94 $10.21 $9.48 $8.75 $1.09
$8.50 $14.59 $13.86 $13.13 $12.40 $11.67 $10.94 $10.21 $9.49 $1.83
$8.75 $15.33 $14.60 $13.87 $13.14 $12.41 $11.68 $10.95 $10.22 $2.56
$9.00 $16.07 $15.34 $14.61 $13.88 $13.15 $12.42 $11.69 $10.96 $3.30
$9.25 $16.81 $16.08 $15.35 $14.62 $13.89 $13.16 $12.43 $11.70 $4.04
$9.50 $17.55 $16.82 $16.09 $15.36 $14.63 $13.90 $13.17 $12.44 $4.78
Rent/SF
Commercial Linkage Fee/ SF
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At Site 4, office is found to be less feasible than residential development, as shown in Table
12. Bayshore is the weakest office submarket among the four sites given its location a
distance from the city’s strongest office districts. This compares with a residential
townhome prototype that performs very well. Across the full range of rent and fee
combinations tested in the sensitivity analysis, office never outperforms residential, and
there is no sensitivity scenario evaluated in which office becomes the higher value use.
Table 12 - Site 4 – Bayshore Residual Land Value (in Millions) Sensitivity: Commercial Linkage
Fee and Office Market Rent
$0.75 $0 $40 $80 $120 $160 $200 $240 $280 $700
$3.50 ($0.01) ($0.75)($1.48)($2.21) ($2.94) ($3.67) ($4.40) ($5.13) ($12.82)
$3.75 $0.73 ($0.00)($0.74)($1.47) ($2.20) ($2.93) ($3.66) ($4.39) ($12.07)
$4.00 $1.47 $0.74 $0.00 ($0.73) ($1.46) ($2.19) ($2.92) ($3.65) ($11.33)
$4.25 $2.21 $1.48 $0.75 $0.01 ($0.72) ($1.45) ($2.18) ($2.91) ($10.59)
$4.50 $2.95 $2.22 $1.49 $0.75 $0.02 ($0.71) ($1.44) ($2.17) ($9.85)
$4.75 $3.69 $2.96 $2.23 $1.50 $0.76 $0.03 ($0.70) ($1.43) ($9.11)
$5.00 $4.43 $3.70 $2.97 $2.24 $1.50 $0.77 $0.04 ($0.69) ($8.37)
$5.25 $5.17 $4.44 $3.71 $2.98 $2.25 $1.51 $0.78 $0.05 ($7.63)
Commercial Linkage Fee/ SF
Rent/SF
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Item 2: Staff Report Pg. 31 Packet Pg. 46 of 100
Economic & Planning Systems, Inc.
Page 25
Conclusion
The feasibility analysis shows that office development in Palo Alto is highly location
dependent and that market forces play a large role in shaping development potential, as
compared with marginal policy interventions. In the highest value office areas, such as
Downtown, offices are likely to continue to outperform both rental and for-sale residential
by a wide margin. These districts command strong rents and benefit from inherent
locational advantages that fee adjustments or minor regulatory changes cannot
meaningfully counteract.
The analysis also demonstrates that there are several locations in which residential
development is currently more feasible than office, especially when modeled as ownership
townhomes. This pattern is most pronounced in mid-value and lower-value office markets
such as Bayshore, where ownership housing achieves high residual land values and, in
some cases, outperforms offices under current zoning. These findings reveal that
ownership-based residential formats represent a viable and competitive development
option in many parts of the city.
Rental housing faces the greatest feasibility challenges across the study area. Podium
construction costs, moderate achievable rents outside Downtown, and inclusionary
housing requirements all contribute to estimated residual land values that generally fall
below those of office or ownership housing.
Any City development incentives or policy options to incentivize housing over office
should seek to target unique submarket characteristics in Palo Alto, reflective of the
economic conditions present in each area. Most likely, high-value office districts will
remain dominated by office unless zoning capacity changes. It is unlikely cost-adding
measures can meaningfully shift outcomes in favor of housing. In some areas, it may be
that adjusting zoning to reduce minimum density could be a meaningful incentive to
promote housing.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 32 Packet Pg. 47 of 100
Page 26
Policy Considerations and Recommendations
Policy tools are available if the City wishes to influence the relative feasibility of office
development in locations where its use currently outperforms residential. Impact fees,
taxes, and building standards are the most likely tools to add cost to office development in
an effort to disincentivize it. Zoning changes are also an option to reduce office
development.
Fees. Increases to development impact fees (e.g., commercial linkage fee), subject to
Council approval, could raise the cost of office development and narrow the gap between
office and residential development potential.
Taxes. A high construction tax represents a potential approach to adding to office
development project costs. A tax on office development would need to be voter approved.
Building Standards. Elevated building standards for office development, including
enhanced sustainability performance, higher energy requirements, labor requirements or
other obligations that increase construction cost could marginally decrease office
feasibility.
Land Use Regulation. The City could change zoning or otherwise further restrict office
development allowances, although since most districts already limit commercial densities
to relatively low standards there may not be the ability to lower them further (most
districts only allow 0.4 FAR of commercial). In areas with higher allowances, some
additional reduction in office density may discourage development (zones with 1.0-2.0
FAR zones often require ground-floor retail).
These and other related policy approaches would reduce office feasibility. However, such
tools are likely most effective in marginal office locations where residual land value is near
residential levels. In the highest-value districts such as Downtown, even aggressive fees or
cost-increasing requirements may not be sufficient to overcome strong market
fundamentals.
Developer interviews also emphasized that while disincentives can shift outcomes at the
margin, the City would be better served focusing on incentives for residential
development. Streamlined approvals that reduce project risk, lower minimum densities
that promote townhomes, and flexibility around parking site planning may ultimately have
a greater impact on housing production. A balance between incentives and disincentives
will be essential to ensuring that policy interventions align with both market realities and
the City’s long-term land use goals.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 33 Packet Pg. 48 of 100
Appendix A. Office and Residential
Development Proformas by Site
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 34 Packet Pg. 49 of 100
Site 1: Mayfield
Use: Mid-Rise Market Rate Residential Rental
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet)34,286
Dwelling Units 102 DU / Acre 80
Gross Building Area (Square Feet)1,052 GBA / DU 84,149
Net Rentable Square Feet 79%Efficiency Factor 66,721
Total Parking Spaces 1.1 Spaces / DU 90
Podium Parking Spaces 100%of total parking 90
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $5.50 per SF/Month $52 $4,403,586
Gross Potential Parking Income $0.00 per Space/Month $0 $0
Losses to Vacancy 5.00%of Gross Income -$3 -$220,179
Gross Residential Revenue $50 $4,183,407
Operating Expenses 30%of Gross Revenue -$15 -$1,255,022
Net Operating Income (NOI)$35 $2,928,385
Market Value 4.00%Capitalization Rate $870 $73,209,617
Development Spread 100 Basis Points -$174 -$14,641,923
Supportable Development Value 5.00%Project Yield Rate (on NOI)$696 $58,567,694
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 per SF (Site)$8 $685,720
Building Direct Cost $429 Cost/SF (GBA)$429 $36,099,921
Parking Direct Cost
Podium w/ Puzzle System Parking Cost $65,000 per Space $70 $5,850,000
Total Construction Cost $507 $42,635,641
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $20 $1,705,426
Other Soft Costs 2.0%of Construction Cost $10 $852,713
Permits and Fees 2.0%of Construction Cost $10 $852,713
Development Impact Fees $39,794 per DU $38 $3,183,535
Public Art In-Lieu Fee 1.0%of Construction Cost $4,737 $426,356
Housing Impact Fee $26 per SF $21 $1,734,746
Taxes and Insurance 2.0%of Construction Cost $10 $852,713
Financing 7.0%of Construction Cost $35 $2,984,495
Marketing/Leasing 2.0%of Construction Cost $10 $852,713
Developer Fee 4.0%of Construction Cost $20 $1,705,426
Total Soft Costs 35.5%$180 $15,150,835
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $34 $2,889,324
Total Project Cost $721 $60,675,800
Residual Land Value -$2,108,106
per net acre -$2,678,327
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 35 Packet Pg. 50 of 100
Site 1: Mayfield
Use: Ground-Floor Retail (component of Residential Scenario)
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Gross Building Area (Square Feet)4,593
Rentable Building Area (Square Feet)100%of GBA 4,593
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $4.81 per SF/Month (NNN)$58 $265,016
Losses to Vacancy 5.00%of GPR -$3 -$13,251
Gross Office Revenue $55 $251,765
Operating Expenses 3%of Gross Revenue -$2 -$7,553
Net Operating Income $53 $244,212
Market Value 4.00%Capitalization Rate $1,329 $6,105,308
Development Spread 100 Basis Points -$266 -$1,221,062
Supportable Development Value 5.00%Project Yield Rate (on NOI)$1,063 $4,884,247
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Building Direct Cost $505 Cost/SF (GBA)$505 $2,319,465
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Total Construction Cost $505 $2,319,465
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $20 $92,779
Other Soft Costs 2.0%of Construction Cost $10 $46,389
Permits and Fees 2.0%of Construction Cost $10 $46,389
Development Impact Fees*$44 per SF (GBA)$44 $203,204
Public Art In-Lieu Fee 1.0%of Construction Cost $5 $23,195
Taxes and Insurance 2.0%of Construction Cost $10 $46,389
Financing 7.0%of Construction Cost $35 $162,363
Marketing/Leasing 2.0%of Construction Cost $10 $46,389
Developer Fee 4.0%of Construction Cost $20 $92,779
Total Soft Costs 32.8%of Construction Cost $165 $759,876
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $34 $153,967
Total Project Cost $704 $3,233,308
Residual Land Value $1,650,939
*Impact Fees apportioned to retail use based on retail's percent of total scenario's square footage.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 36 Packet Pg. 51 of 100
Site 1: Mayfield
Use: Class A Office
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Net Development Site (Square Feet)34,286
FAR 1.4
Gross Building Area (Square Feet)48,400
Rentable Building Area (Square Feet)82%of GBA 39,573
Total Parking Spaces 3.8 per 1,000 SF 149
Structured Parking Spaces 23%of total parking 35
Subterranean Parking Spaces 77%of total parking 114
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $7.50 per SF/Month (NNN)$74 $3,561,532
Gross Potential Parking Income $150 per Space/Month $6 $268,200
Losses to Vacancy 5.00%of GPR -$4 -$191,487
Gross Office Revenue $75 $3,638,245
Operating Expenses 3.00%of Gross Revenue -$2 -$109,147
Net Operating Income $73 $3,529,098
Market Value 5.50%Capitalization Rate $1,326 $64,165,416
Development Spread 100 Basis Points -$204 -$9,871,602
Supportable Development Value 6.50%Project Yield Rate (on NOI)$1,122 $54,293,814
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 Cost/SF (Site)$14 $685,720
Building Direct Cost $505 Cost/SF (GBA)$505 $24,441,756
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Parking Direct Cost
Podium Parking Cost $50,000 per Space $36 $1,750,000
Subterranean Parking Cost $85,000 per Space $200 $9,690,000
Total Construction Cost $756 $36,567,476
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $30 $1,462,699
Other Soft Costs 2.0%of Construction Cost $15 $731,350
Permits and Fees 2.0%of Construction Cost $15 $731,350
Development Impact Fees $83 per SF (GBA)$83 $4,015,613
Public Art In-Lieu Fee 1.0%of Construction Cost $8 $365,675
Taxes and Insurance 2.0%of Construction Cost $15 $731,350
Financing 7.0%of Construction Cost $53 $2,559,723
Marketing/Leasing 2.0%of Construction Cost $15 $731,350
Developer Fee 4.0%of Construction Cost $30 $1,462,699
Total Soft Costs 35.0%of Construction Cost $264 $12,791,807
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $51 $2,467,964
Total Project Cost $1,071 $51,827,247
Residual Land Value $2,466,566
per net acre $3,133,746
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 37 Packet Pg. 52 of 100
Site 1: Mayfield
Use: Ground-Floor Retail (component of Office Scenario)
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Gross Building Area (Square Feet)4,728
Rentable Building Area (Square Feet)100%of GBA 4,728
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $4.81 per SF/Month (NNN)$58 $272,806
Losses to Vacancy 5.00%of GPR -$3 -$13,640
Gross Office Revenue $55 $259,165
Operating Expenses 3%of Gross Revenue -$2 -$7,775
Net Operating Income $53 $251,390
Market Value 5.50%Capitalization Rate $967 $4,570,734
Development Spread 100 Basis Points -$149 -$703,190
Supportable Development Value 6.50%Project Yield Rate (on NOI)$818 $3,867,544
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Construction Costs
Building Direct Cost $505 Cost/SF (GBA)$505 $2,387,640
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Total Construction Cost $505 $2,387,640
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $20 $95,506
Other Soft Costs 2.0%of Construction Cost $10 $47,753
Permits and Fees 2.0%of Construction Cost $10 $47,753
Development Impact Fees*$83 per SF (GBA)$83 $392,273
Public Art In-Lieu Fee 1.0%of Construction Cost $5 $23,876
Taxes and Insurance 2.0%of Construction Cost $10 $47,753
Financing 7.0%of Construction Cost $35 $167,135
Marketing/Leasing 2.0%of Construction Cost $10 $47,753
Developer Fee 4.0%of Construction Cost $20 $95,506
Total Soft Costs 40.4%of Construction Cost $204 $965,306
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $35 $167,647
Total Project Cost $745 $3,520,594
Residual Land Value $346,950
*Impact Fees apportioned to retail use based on retail's percent of total scenario's square footage.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 38 Packet Pg. 53 of 100
Site 2: Research Park
Use: Townhouse Ownership Residential
DEVELOPMENT PROGRAM ASSUMPTIO ASSUMPTION/FACTOR
Development Site (Square Feet)138,956
Dwelling Units 21 DU / Acre 68
Market Rate Units 58
Affordable Units 10
Gross Building Area (Square Feet)2,128 GBA / DU 144,720
Net Saleable Square Feet 75%Efficiency Factor 108,624
Market Rate NSF 92,650
Affordable NSF 15,974
Total Parking Spaces 2.0 Spaces / DU 136
Integrated Garage Parking Spaces 100%of total parking 136
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Sale Value
Market Rate Sale Value $1,100 per NSF $704 $101,914,871
Affordable Sale Value $678,152 per DU $47 $6,781,518
Overall Sale Value $751 $108,696,388
Sale Cost 5.00%of Sale Value -$38 -$5,434,819
Net Building Value $103,261,569
Supportable Development Value 15.00%Return on Cost (Unlevered)$620 $89,792,669
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 per SF (Site)$19 $2,779,120
Building Direct Cost $320
Total Construction Cost $273 $39,442,800
Soft Costs
Total Soft Costs 34.1%$93 $13,443,578
Other Project Costs
Total Project Cost $384 $55,530,697
Residual Land Value $34,261,971
per net acre $10,740,461
a separate hard cost line item.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 39 Packet Pg. 54 of 100
Site 2: Research Park
Use: Class A Office
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Net Development Site (Square Feet)138,956
FAR 0.4
Gross Building Area (Square Feet)58,164
Rentable Building Area (Square Feet)95%of GBA 55,141
Total Parking Spaces 3.4 per 1,000 SF 185
Surface Parking Spaces 100%of total parking 185
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $7.00 per SF/Month (NNN)$80 $4,631,844
Gross Potential Parking Income $150 per Space/Month $6 $333,000
Losses to Vacancy 5.00%of GPR -$4 -$248,242
Gross Office Revenue $81 $4,716,602
Operating Expenses 3.00%of Gross Revenue -$2 -$141,498
Net Operating Income $79 $4,575,104
Market Value 5.50%Capitalization Rate $1,430 $83,183,704
Development Spread 100 Basis Points -$220 -$12,797,493
Supportable Development Value 6.50%Project Yield Rate (on NOI)$1,210 $70,386,211
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Construction Costs
Basic Site Work $20 Cost/SF (Site)$48 $2,779,120
Building Direct Cost $459 Cost/SF (GBA)$459 $26,697,276
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Parking Direct Cost
Surface Parking Cost $5,000 per Space $16 $925,000
Total Construction Cost $523 $30,401,396
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $21 $1,216,056
Other Soft Costs 2.0%of Construction Cost $10 $608,028
Permits and Fees 2.0%of Construction Cost $10 $608,028
Development Impact Fees $80 per SF (GBA)$80 $4,653,120
Public Art In-Lieu Fee 1.0%of Construction Cost $5 $304,014
Taxes and Insurance 2.0%of Construction Cost $10 $608,028
Financing 7.0%of Construction Cost $37 $2,128,098
Marketing/Leasing 2.0%of Construction Cost $10 $608,028
Developer Fee 4.0%of Construction Cost $21 $1,216,056
Total Soft Costs 39.3%of Construction Cost $205 $11,949,455
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $36 $2,117,543
Total Project Cost $765 $44,468,394
Residual Land Value $25,917,818
per net acre $8,124,731
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 40 Packet Pg. 55 of 100
Site 3: Downtown
Use: Mid-Rise Market Rate Residential Rental
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet)21,529
Dwelling Units 67 DU / Acre 33
Market Rate Units 30
Affordable Units 10%Percent Affordable 3
Gross Building Area (Square Feet)1,130 GBA / DU 37,295
Net Rentable Square Feet 74%Efficiency Factor 27,769
Market Rate NSF 25,245
Affordable NSF 2,524
Total Parking Spaces 0.4 Spaces / DU 14
Surface Parking Spaces 71%of total parking 10
Integrated Garage Parking Spaces 29%of total parking 4
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent
Market Rate Rent $6.25 per SF/Month $51 $1,893,341
Affordable Rent $1,941 per DU $0 $5,823
Gross Potential Rent $51 $1,899,164
Gross Potential Parking Income $0.00 per Space/Month $0 $0
Losses to Vacancy (Market Only)5.00%of Gross Income -$3 -$94,667
Gross Residential Revenue $48 $1,804,497
Operating Expenses -$18,933 per DU -$17 -$624,803
Net Operating Income (NOI)$32 $1,179,694
Market Value 4.00%Capitalization Rate $983,079 $29,492,359
Development Spread 100 Basis Points -$196,616 -$5,898,472
Supportable Development Value 5.00%Project Yield Rate (on NOI)$786,463 $23,593,887
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 per SF (Site)$12 $430,580
Building Direct Cost $423 Cost/SF (GBA)$423 $15,775,785
Parking Direct Cost
Surface Parking Cost $5,000 per Space $1 $50,000
Integrated Garage Cost $14,000 per Space $4 $140,000
Total Construction Cost $440 $16,396,365
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $18 $655,855
Other Soft Costs 2.0%of Construction Cost $9 $327,927
Permits and Fees 2.0%of Construction Cost $9 $327,927
Development Impact Fees $36,273 per DU $32 $1,197,019
Public Art In-Lieu Fee 1.0%of Construction Cost $4 $163,964
Housing Impact Fee $26 per SF (Fractional Aff. Unit)$2 $65,636
Taxes and Insurance 2.0%of Construction Cost $9 $327,927
Financing 7.0%of Construction Cost $31 $1,147,746
Marketing/Leasing 2.0%of Construction Cost $9 $327,927
Developer Fee 4.0%of Construction Cost $18 $655,855
Total Soft Costs 31.7%$139 $5,197,782
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $29 $1,079,707
Total Project Cost $608 $22,673,854
Residual Land Value $920,033
per net acre $1,861,519
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 41 Packet Pg. 56 of 100
Site 3: Downtown
Use: Class A Office
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Net Development Site (Square Feet)21,529
FAR 0.4
Gross Building Area (Square Feet)8,584
Rentable Building Area (Square Feet)100%of GBA 8,584
Total Parking Spaces 3.5 per 1,000 SF 26
Surface Parking Spaces 100%of total parking 26
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $8.50 per SF/Month (NNN)$102 $875,568
Gross Potential Parking Income $150 per Space/Month $5 $46,354
Losses to Vacancy 5.00%of GPR -$5 -$46,096
Gross Office Revenue $102 $875,826
Operating Expenses 3.00%of Gross Revenue -$3 -$26,275
Net Operating Income $99 $849,551
Market Value 5.50%Capitalization Rate $1,799 $15,446,377
Development Spread 100 Basis Points -$277 -$2,376,366
Supportable Development Value 6.50%Project Yield Rate (on NOI)$1,523 $13,070,012
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 Cost/SF (Site)$50 $430,580
Building Direct Cost $459 Cost/SF (GBA)$459 $3,940,056
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Parking Direct Cost
Surface Parking Cost $5,000 per Space $15 $128,760
Total Construction Cost $524 $4,499,396
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $21 $179,976
Other Soft Costs 2.0%of Construction Cost $10 $89,988
Permits and Fees 2.0%of Construction Cost $10 $89,988
Development Impact Fees $80 per SF (GBA)$80 $686,720
Public Art In-Lieu Fee 1.0%of Construction Cost $5 $44,994
Taxes and Insurance 2.0%of Construction Cost $10 $89,988
Financing 7.0%of Construction Cost $37 $314,958
Marketing/Leasing 2.0%of Construction Cost $10 $89,988
Developer Fee 4.0%of Construction Cost $21 $179,976
Total Soft Costs 39.3%of Construction Cost $206 $1,766,575
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $36 $313,299
Total Project Cost $766 $6,579,270
Residual Land Value $6,490,742
per net acre $13,132,831
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 42 Packet Pg. 57 of 100
Site 4: Bayshore
Use: Townhouse Ownership Residential
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Development Site (Square Feet)101,786
Dwelling Units 21 DU / Acre 48
Market Rate Units 41
Affordable Units 7
Gross Building Area (Square Feet)2,201 GBA / DU 105,628
Net Rentable Square Feet 78%Efficiency Factor 81,904
Market Rate NSF 69,960
Affordable NSF 11,944
Total Parking Spaces 2.1 Spaces / DU 100
Surface Parking Spaces 4%of total parking 4
Integrated Garage Parking Spaces 96%of total parking 96
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Sale Value
Market Rate Sale Value $1,100 per SF $729 $76,955,633
Affordable Sale Value $803,112 per DU $53 $5,621,783
Overall Sale Value $782 $82,577,417
Sale Cost 5.00%of Sale Value -$39 -$4,128,871
Net Building Value $78,448,546
Supportable Development Value 15.00%Return on Cost (Unlevered)$646 $68,216,127
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 per SF (Site)$19 $2,035,720
Building Direct Cost $320
Total Construction Cost $280 $29,609,000
Soft Costs
Total Soft Costs 33.9%$95 $10,039,679
Other Project Costs
Total Project Cost $394 $41,631,113
Residual Land Value $26,585,014
per net acre $11,377,235
separate hard cost line item.
Item 2
Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
Item 2: Staff Report Pg. 43 Packet Pg. 58 of 100
Site 4: Bayshore
Use: Class A Office
DEVELOPMENT PROGRAM ASSUMPTIONS ASSUMPTION/FACTOR
Net Development Site (Square Feet)101,786
FAR 0.4
Gross Building Area (Square Feet)40,700
Rentable Building Area (Square Feet)100%of GBA 40,700
Total Parking Spaces 3.5 per 1,000 SF 142
Surface Parking Spaces 100%of total parking 142
BUILDING VALUE ASSUMPTION/FACTOR PER GBA TOTAL
Gross Potential Rent $4.25 per SF/Month (NNN)$51 $2,075,700
Gross Potential Parking Income $150 per Space/Month $6 $256,410
Losses to Vacancy 5.00%of GPR -$3 -$116,606
Gross Office Revenue $54 $2,215,505
Operating Expenses 3.00%of Gross Revenue -$2 -$66,465
Net Operating Income $53 $2,149,039
Market Value 5.50%Capitalization Rate $960 $39,073,443
Development Spread 100 Basis Points -$148 -$6,011,299
Supportable Development Value 6.50%Project Yield Rate (on NOI)$812 $33,062,144
PROJECT DEVELOPMENT COSTS ASSUMPTION/FACTOR PER GBA TOTAL
Hard Costs
Basic Site Work $20 Cost/SF (Site)$50 $2,035,720
Building Direct Cost $459 Cost/SF (GBA)$459 $18,681,300
Tenant Improvement Cost $0 Cost/SF (RBA)$0 $0
Parking Direct Cost
Surface Parking Cost $5,000 per Space $18 $712,250
Total Construction Cost $527 $21,429,270
Soft Costs
Architecture and Engineering 4.0%of Construction Cost $21 $857,171
Other Soft Costs 2.0%of Construction Cost $11 $428,585
Permits and Fees 2.0%of Construction Cost $11 $428,585
Development Impact Fees $80 per SF (GBA)$80 $3,256,000
Public Art In-Lieu Fee 1.0%of Construction Cost $5 $214,293
Taxes and Insurance 2.0%of Construction Cost $11 $428,585
Financing 7.0%of Construction Cost $37 $1,500,049
Marketing/Leasing 2.0%of Construction Cost $11 $428,585
Developer Fee 4.0%of Construction Cost $21 $857,171
Total Soft Costs 39.2%of Construction Cost $206 $8,399,025
Other Project Costs
Development Contingency 5.0%of Construction & Soft Costs $37 $1,491,415
Total Project Cost $770 $31,319,710
Residual Land Value $1,742,435
per net acre $745,687
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Attachment A - HE Program
3.9(A) Memo - Conversion
of Commercial Uses to
Mixed-Use Development
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Policy & Services Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: March 10, 2026
Report #:2508-5120
TITLE
Discussion of the Rental Registry Program First Year Report and Rent Stabilization Analysis,
Including Recommendations to the City Council to Not Expand the Rental Registry Program to
Properties with Two or Fewer Units and to Defer Further Consideration of a Possible Rent
Stabilization Ordinance.CEQA: Exempt pursuant to CEQA Guidelines Section 15061(b)(3).
RECOMMENDATION
Staff recommend that the Policy and Services Committee discuss and provide feedback on the
findings from the first year of the rental registry program andthe related rent stabilization
analysis, and recommend the Council defer indefinitely:
a) an expansion of the rental registry program to properties with two and fewer units, and
b) further analysis or preparation of a draft ordinance related to possible implementation
of a local rent stabilization policy.
EXECUTIVE SUMMARY
This report presents the Rental Registry Program's first year findings andresponds to Council
direction to analyze the feasibility of a local rent stabilization ordinance and evaluate expanding
the Rental Registry Program to properties with two or fewer units.
The Rental Registry Program registered 95.4% of covered properties and 97.9% of covered units
in its inaugural year, with 414 properties and 7,653 unitsregistered. Key findings based on
landlords’ self-reported data include a 5.21% vacancy rate, median monthly rents for non-
discounted market rate unitsranging from $2,095 (studio) to $4,495 (three-bedroom), and
moderate rent increase activity with almost two thirds of market rateunits reporting no change
in rent.Detailed Program Year 1data is provided in Attachment A.
Regarding rent stabilization, thisreport examines state legal protections and constraints, the
effects of local rent stabilization measures in peer cities, and resource requirements. The Costa-
Hawkins Rental Housing Act significantly limits which units a local ordinance could regulate, and
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the Tenant Protection Act already caps rent increases for most of those units. A local program
would require a conservatively estimated $2 million annual budget, including five new full-time
employees, in direct costs, which may eventually be cost recovered in part or in full through
higher rental program fees. Staff do not recommend pursuing a rent stabilization ordinance at
this time given the other competing priorities and the significant implementation resource
needs.
Staff similarly recommend deferring expansion of the Rental Registry Program to properties
with two or fewer units, pending further program maturation and improved fiscal conditions.
BACKGROUND
In November 2021, City Council directed staff to bring a proposal and discussion on “expanding
anti-gouging measures to address loopholes” to the Policy and Services Committee, referencing
gaps in coverage from California’s Tenant Protection Act of 2019, which introduced statewide
rent stabilization.1 In 2024, Council directed staff to prepare an analysis for a possible anti rent-
gouging policy.2
On December 9, 2024, staff held a preliminary discussion on this topic with the Housing Ad Hoc
Committee. Staff reviewed state law with the Housing Ad Hoc Committee and explained the
limits on local regulation imposed by the Costa-Hawkins Rental Housing Act of 1995 (Costa-
Hawkins), which precludes the City from implementing the kind of expansive local rent
stabilization program that would cover all units not regulated by the Tenant Protection Act. The
Housing Ad Hoc Committee discussed and deferred the matter until the first year Rental
Registry Program data was able to help inform the discussion. The Housing Ad Hoc has since
disbanded, and Council directed staff to engage the Policy and Services Committee for
additional consideration.
City Council established the Rental Registry Program (PAMC Chapter 9.65) to collect data on
Palo Alto's residential rental landscape, support data-informed policy decisions, promote
awareness of renter protections, and advance the City's Housing Element goals. The inaugural
registration period opened October 1, 2024, and focused on rental properties with three or
more units.
The program achieved a 95.4% property registration rate (414 of 434 properties) and a 97.9%
unit registration rate (7,653 of 7,821 units) by the close of the extended grace period on April 6,
1 See action minutes from November 29, 2021 Council meeting for details and other direction from Council on
renter protection policies:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=42829&dbid=0&repo=PaloAlto
2 See 2024 Council Objective #55: https://www.paloalto.gov/files/assets/public/v/1/2024-council-priorities-
objectives-4-30_final.pdf
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2025. Registration fees were waived for Program Year 1; the Program Year 2 fee is $35.00 per
unit, with exemptions for owner-occupied units and 100% affordable housing properties.
Key findings from registered properties include: an occupancy rate of 94.8% and a vacancy rate
of 5.21%; a rental stock comprised of more studio and one-bedroom units (58.89% combined)
than larger units, with units of three or more bedrooms comprising just 5.97% of inventory; and
a building stock where nearly half of units (49.52%) were constructed between 1960 and 1979.
Over half of current renters (53.73%) began their tenancy within the prior three years. Median
monthly rents for non-discounted market rate units ranged from $2,095 for a studio to $4,495
for a three-bedroom unit. Almost two thirds of market rate units (62.85%) reported no change
in rent, while approximately one quarter of renters (25.57%) experienced a rent increase of
between 0% and 5% and one tenth of renters (10.94%) experienced a rent increase above 5%.
Detailed program data and administrative implementation notes from Program Year 1 are
provided in Attachment A. Data and analysis from Program Year 2 are forthcoming.
In addition to directing the Program Year 1 focus on properties with three or more units,
Council's November 27, 2023 action establishing the Rental Registry Program included direction
for staff to return with an evaluation of potentially expanding the program to all rental
properties, including single-family homes and properties with two or fewer rental units. The
American Community Survey estimates approximately 4,305 rental units on such properties in
Palo Alto, with roughly 4,116 being single-family residences 3. Staff's assessment of this
direction is discussed in the analysis section below.
ANALYSIS
State law protects many renters from certain rent increases under the Tenant Protection Act of
2019 (TPA). At the same time, Costa-Hawkins significantly limits the City’s ability to impose local
rent stabilization.
For covered units, the TPA restricts annual rent increases for units to either 10% or 5% plus the
percentage change in the cost of living (whichever is lower). Notable exemptions include units
built in the last 15 years, units already protected by affordability restrictions, and certain single-
family homes.
Costa-Hawkins places significant limitations on the scope of local rent stabilization programs.
Specifically, it prevents local governments from regulating the residential rent of single-family
homes, condos, or any units built after February 1, 1995.
3 U.S. Census Bureau, U.S. Department of Commerce. "Tenure by Units in Structure." American Community Survey,
ACS 5-Year Estimates Detailed Tables, Table B25032,
https://data.census.gov/table/ACSDT5Y2023.B25032?t=Units+and+Stories+in+Structure&g=160XX00US0655282.
Accessed on 24 Feb 2026
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Costa-Hawkins also requires local rent stabilization programs to include vacancy decontrol –
that is, when a tenancy ends, a landlord must be allowed to set the initial rent for the next
renter notwithstanding local caps.
There were three unsuccessful ballot initiative attempts (2018, 2020 and 2024) to repeal Costa-
Hawkins and therefore reduce barriers to local rent stabilization policies. Meanwhile, the TPA
was enacted in 2019 and expanded in 2023.
If Palo Alto were to establish a local rent stabilization program, it would be limited to following
protections for rental households:
1) Lowering allowed annual rent increases and/or establishing a tenant-initiated rent
increase petition program for units already protected under existing state law, such as:
x Units on market-rate, multi-family properties built before February 1, 1995.
2) Expanding rent stabilization protections to units not protected by existing state law,
such as:
x Affordable housing units not covered by AB 846;
x Duplexes built before February 1, 1995 where one unit is owner-occupied;
x Mobile homes; and/or
x Dorms built before February 1, 1995 (N/A in Palo Alto).
Effects of Local Rent Stabilization Measures
Public and academic opinions on the effects of local rent stabilization measures are mixed.
Furthermore, findings on the effects (positive and negative) of rent stabilization programs vary
by program and by source.
Supporters highlight that those living in units which can be regulated under local rent
stabilization programs benefit generally from increased predictability in housing expenses,
reduced displacement risk, and the promotion of lasting community connections. There is data
that confirms that cities with local rent stabilization policies have lower citywide rates of
residential mobility, however it remains unclear how reduced mobility may affect tenant
welfare.4 In some cases, it may prevent displacement, in others it may limit housing choices
and/or necessitate long commutes.5
Local rent stabilization programs can also provide renters with more direct benefits and
services. For example, Alameda’s rent program refunded $125,918 in invalid rent increases to
4 Chris Alvarez Campbell, Derek Hyra & David J. Schwegman (21 Nov 2025): Evaluating Rent Control Intensity in
California Cities, 2010–2019, Housing Policy Debate, DOI: 10.1080/10511482.2025.2582717
5 Chris Alvarez Campbell, Derek Hyra & David J. Schwegman (21 Nov 2025): Evaluating Rent Control Intensity in
California Cities, 2010–2019, Housing Policy Debate, DOI: 10.1080/10511482.2025.2582717
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80 different rental households in 2024.6 Similarly, Mountain View’s expansive Rent Stabilization
Program reported offering free legal assistance to 51 households through their Housing and
Eviction Help Center in 2022-2023.7 Palo Alto could offer similar direct benefits to those in
covered units, if it were to adopt a local rent stabilization program.
Opponents argue that local rental stabilization programs can have many unintended, negative
consequences. A 2018 policy brief developed by the Terner Center for Housing Innovation at UC
Berkeley confirmed that there is a significant body of literature showing rent controls without
vacancy decontrols – such as those established before Costa-Hawkins was passed in 1995 –
constrain new housing supply and lead to the removal of existing units from the market 8.
However, the data related to the negative consequences of programs with vacancy decontrol is
less clear. A 2025 study of multiple California cities with local rent stabilization programs with
vacancy decontrol found no consistent or significant relationships between the intensity of local
rent stabilizations measures and the citywide rental supply.9 On the other hand, the same study
did find evidence that cities with local rent stabilization policies had median rents $39 higher
than similar cities without these policies, but the relationship was not statistically significant.10
In some cases, there seems to be conflicting data around the potential negative consequences
of rent stabilization. For example, opponents argue that limited income potential may
disincentivize property owners from investing in maintaining or improving their rental units.11,12
Findings from a recent mail survey in Berkeley seem to support this argument with 65% of
renters in rent-stabilized units reporting that their unit was in the same condition as when they
moved in and 62% of renters considering their unit to be in good or excellent condition.13
However, a 1994 report conducted by the City of Berkeley’s Planning and Development
department analyzed the number and value of permits obtained before and during a period of
6 City of Alameda, City Attorney’s Office. Rent Program Annual Report 2024.
2024. https://www.alamedarentprogram.org/files/sharedassets/housingauth/v/1/resources/2024-rent-program-
annual-report.pdf (accessed February 19, 2026).
7 City of Mountain View Rent Stabilization Program. Annual Report FY 2022–23. January 26,
2024. https://issuu.com/mountainviewrentstabilization/docs/2024.1.26_annual_report_fy_22-23_pdf (accessed
February 19, 2026).
8 “Finding Common Ground on Rent Control: A Terner Center Policy Brief.” Terner Center for Housing Innovation at
UC Berkeley. May 2018. https://ternercenter.berkeley.edu/wp-
content/uploads/pdfs/Rent_Control_Paper_053018.pdf (accessed February 25, 2026).
9 Campbell, C. A., Hyra, D., & Schwegman, D. J. (2025). Evaluating Rent Control Intensity in California Cities, 2010–
2019. Housing Policy Debate, 1–25. https://doi.org/10.1080/10511482.2025.2582717
10 Campbell, C. A., Hyra, D., & Schwegman, D. J. (2025). Evaluating Rent Control Intensity in California Cities, 2010–
2019. Housing Policy Debate, 1–25. https://doi.org/10.1080/10511482.2025.2582717
11 “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.”
Diamond, Rebecca, McQuade, Tim, & Qian, Franklin. 4 March, 2019.
12 National Apartment Association. “10 Unintended Consequences of Rent Control Policies.”
https://naahq.org/news/10-unintended-consequences-rent-control-policies (accessed February 19, 2026).
13City of Berkeley Rent Stabilization Board. 2022 Tenant Survey: Presentation and Results.
2022. https://rentboard.berkeleyca.gov/sites/default/files/documents/2022%20Tenant%20Survey%20Presentatio
n%20and%20Results.pdf (accessed February 19, 2026).
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strong rent controls from 1979 to 1991 and found that there was no evidence that rent controls
reduced expenditures on repairs below pre-rent control levels.14
It is important to note that vacancy decontrol requirements under Costa-Hawkins may also
create incentives that work against the goals of many rent stabilization programs. Specifically,
to regain access to market rents, property owners may be incentivized to threaten or pursue
evictions of long-standing tenants.15 A study of San Francisco eviction filing rates from 2003 to
2013 found that living in a rent-controlled unit increases the likelihood of a tenant’s eviction by
approximately 127% per year.16 According to this study’s authors, this “finding is best
understood not as an inherent characteristic of rent control policy in general, but rather as the
result of specific state-wide laws, passed in the years following the adoption of rent control in
San Francisco, which granted rent-controlled property owners an economic incentive to evict
and the legal means to do so.”17 A local rent stabilization program in Palo Alto would be subject
to the same state-wide laws.
In conclusion, numerous arguments exist both for and against local rent stabilization, but most
lack strong, conclusive data to support them.
Resource Requirements
Staff reviewed recent rent stabilization program operating data from a variety of cities to
determine the resources required to administer different programs. Based on published data
from the peer cities of San Leandro, Mountain View, Alameda and Berkeley, local rent
stabilization programs required dedicated teams of anywhere from six to 29 full-time
employees and total program budgets up to and over $9 million annually. These programs
provided varying levels of services to up to 40,000 units and all had program fees to offset the
program costs at least partially. Staff estimates that expanding Palo Alto’s Rental Registry
Program to include rent stabilization would require approximately five additional full-time staff,
approximately $2 million in additional funding. Net program cost would depend on fees
assessed and based on other organizations, cost recovery is estimated to ramp up over 2-6
years.
14 City of Berkeley Planning Department. Historical Berkeley Rent Control, 1978–1994 (Planning Department
report). 1998. https://rentboard.berkeleyca.gov/sites/default/files/2022-
01/Historical_Berkeley_Rent_Control_1978-1994_1998_Planning_Dept_report%20%281%29.pdf (accessed
February 19, 2026).
15 Gardner, M., & Asquith, B. (2025). The Effect of Rent Control Status on Eviction Filing Rates: Causal Evidence
From San Francisco. Housing Policy Debate, 35(2), 334–354. https://doi.org/10.1080/10511482.2024.2393629
16 Gardner, M., & Asquith, B. (2025). The Effect of Rent Control Status on Eviction Filing Rates: Causal Evidence
From San Francisco. Housing Policy Debate, 35(2), 334–354. https://doi.org/10.1080/10511482.2024.2393629
17 Gardner, M., & Asquith, B. (2025). The Effect of Rent Control Status on Eviction Filing Rates: Causal Evidence
From San Francisco. Housing Policy Debate, 35(2), 334–354. https://doi.org/10.1080/10511482.2024.2393629
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The need for additional funding for a potential rent stabilization program should be balanced
against the City's current fiscal constraints and its efforts to prioritize resources. While program
costs could eventually be recovered, doing so comes at the expense of the landlord, who may
pass these costs through to the tenant despite anticipated local efforts to limit such pass-
throughs. Establishing a rent stabilization program is a significant undertaking requiring
specialized functions, administrative procedures, adjudication, and enforcement. Standing up
the program would require considerable staff time across several city departments, diverting
resources from other priorities at a time when the City is focused on reducing rather than
expanding its workforce.
A brief summary of peer jurisdiction’s rent stabilization programs and commensurate resource
needs are below.
Summary of Peer Program Resourcing
San Leandro established a new rent stabilization and registry program in February 2026. The
program will have six full-time employees in addition to the City’s existing five-person Rent
Board.18 The program requires a $1.3 to $2.2M General Fund loan to initiate both the rent
stabilization and rent registry portions of the program.19 The program will register and
regulate rents for approximately 7,700 units beginning this year.20 San Leandro staff
anticipate the program will achieve full cost recovery though collected program fees over the
next three to six years.21
Mountain View offers another relevant case study. The Rent Stabilization Division of the
Housing Department has 8 full-time employees and supports the City’s five-person Rental
Housing Commission. The Division currently has an approved annual budget of approximately
$2.6M, with recent annual revenues totaling $1.8M.22 Mountain View’s program registers
and regulates rents for approximately 14,500 units.23
18 City of San Leandro, Community Development Department, First Reading of an Ordinance to Amend the San
Leandro Municipal Code by Adding Chapter 4-46 to Establish Residential Rent Stabilization,
https://sanleandro.legistar.com/ViewReport.ashx?M=R&N=Text&GID=191&ID=6605505&GUID=BB2A856A-77CB-
4893-885E-603BADCC2F95&Title=Legislation+Text (accessed February 19, 2026).
19 ibid
20 City of San Leandro, Community Development Department, Draft Residential Rent Stabilization Ordinance and
Preliminary Cost Options, https://www.sanleandro.org/DocumentCenter/View/14185/Powerpoint_101325_Draft-
Rent-Stabilization-Ordinance?bidId= (accessed February 19, 2026).
21 City of San Leandro, Community Development Department, First Reading of an Ordinance to Amend the San
Leandro Municipal Code by Adding Chapter 4-46 to Establish Residential Rent Stabilization,
https://sanleandro.legistar.com/ViewReport.ashx?M=R&N=Text&GID=191&ID=6605505&GUID=BB2A856A-77CB-
4893-885E-603BADCC2F95&Title=Legislation+Text (accessed February 19, 2026).
22 City of Mountain View, City Manager, Adopted Budget Fiscal Year 2025-26,
https://www.mountainview.gov/home/showpublisheddocument/12247/638950076197470000 (accessed
February 19, 2026).
23 City of Mountain View, Rent Stabilization Division, Activity Report Fiscal Year 2025-26,
https://issuu.com/mountainviewrentstabilization/docs/rent_stabilization_division_report_fy_25-26 (accessed
February 19, 2026).
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Alameda’s rent program registers and regulates rents for approximately 16,500 units.24 The
program has five full-time staff housed in the City Attorney’s Office. The current annual
expenses associated with the program total $2M.25 Alameda collected $1.8M in Rent Review
Fee revenue in 2022.26 Petitions and similar issues are resolved by hearing officers and/or the
program administrator.
Berkeley’s Rent Board is supported by 29 full-time employees.27 The program registers and
regulates rents for 40,000 units 28 with a FY 2025-2026 annual budget of just over $9M.29 The
Rent Board reported revenue of just under $7M in FY 2023-2024.30 Berkeley’s Rent Board is
made up of nine elected commissioners.31
Program Considerations
By law, any rent stabilization program must allow a landlord to make a fair return on their
investment. The following program components ensure landlords can make a fair return, as
required:
x Annual general adjustments: Automatically allowed increases in rent based on a
formula determined by ordinance or rent board.
24 City of Alameda, City Attorney’s Office. Rent Program Annual Report 2024.
2024. https://www.alamedarentprogram.org/files/sharedassets/housingauth/v/1/resources/2024-rent-program-
annual-report.pdf (accessed February 19, 2026).
25 City of Alameda, City Attorney, “FY 2023-25 Biennial Budget”,
https://stories.opengov.com/alamedaca/published/KHkeRFzR4J (accessed February 19, 2026).
26 City of Alameda, “FY 23-25 Budget Summaries: Rent Review Fee”,
https://alamedaca.opengov.com/transparency#/69813/accountType=revenues&embed=n&breakdown=types&cur
rentYearAmount=cumulative¤tYearPeriod=years&graph=bar&legendSort=desc&proration=true&saved_vie
w=255143&selection=BD4055BF9DE56E9E99F25064297A4AB0&projections=null&projectionType=null&highlightin
g=null&highlightingVariance=null&year=2025&selectedDataSetIndex=null&fiscal_start=earliest&fiscal_end=latest
(accessed February 19, 2026).
27 City of Berkeley, Rent Stabilization Board, Recommendation to Board on FY 2025/26 Line-Item Budget, Staffing
Model & Expenditure Level,
https://rentboard.berkeleyca.gov/sites/default/files/documents/Budget_Rent_Board_Staff_Report.pdf (accessed
February 19, 2026).
28 City of Berkeley Rent Stabilization Board. “About/Contact Us.”
https://rentboard.berkeleyca.gov/services/aboutcontact-us (accessed February 19, 2026).
29 City of Berkeley, Rent Stabilization Board, Recommendation to Board on FY 2025/26 Line-Item Budget, Staffing
Model & Expenditure Level,
https://rentboard.berkeleyca.gov/sites/default/files/documents/Budget_Rent_Board_Staff_Report.pdf (accessed
February 19, 2026).
30 ibid
31 City of Berkeley Rent Stabilization Board. “Elected Rent Board.” https://rentboard.berkeleyca.gov/elected-rent-
board (accessed February 19, 2026).
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x Landlord-Initiated Petitions: Ability to petition for a greater increase if landlord is
unable to make fair return on their investment from the annual general adjustment.
Programs may optionally include tenant-initiated petitions to help tenants resolve concerns
such as an unlawful rent increase, failure to maintain a habitable premise, or a reduction in
housing services.
To administer these various program components, some cities primarily used their own staff
while others engaged consultants to provide customer support, legal services, administer
hearings, conduct mediations and/or complete property inspections. Some cities used either an
appointed or elected rent board with staff support to hear cases instead of hearing officers.
The City currently offers tenants and landlords (and all community members) access to free,
confidential and impartial mediation services through the Palo Alto Mediation Program to
resolve disputes.32 The Palo Alto Mediation Program is administered by Project Sentinel, a local
nonprofit, on behalf of the City. Chapter 9.72 of the Palo Alto Municipal Code requires landlords
to register with the City and requires parties to respond in many types of disputes involving
rental housing properties.33 Funding from the City is provided annually to support Project
Sentinel.
Rental Registry Program Data Considerations
Viewed alongside the preceding analysis of state law, the effects of rent stabilization measures,
and the resource implications of program administration, the Program Year 1 data offers
additional context. Ultimately, none of the below findings are intended to suggest that
affordability pressures do not exist for Palo Alto renters. Pressures clearly exists in a market at
these price points. Staff’s interpretation of the data in aggregate does not appear to
demonstrate a pattern of widespread, acute rent increases that would warrant standing up a
new local regulatory program.
When considered alongside Palo Alto's limitations under California's Costa-Hawkins Rental
Housing Act, the protections already afforded to many renters through the TPA and expanded
local just cause eviction protections beyond those required by state law under the TPA, and the
relatively narrow universe of units a local ordinance could reach, the practical impact of a rent
stabilization program would be limited. Paired with the significant resource requirements of
establishing such a program and the budgetary constraints currently projected for FY 2026 and
beyond, staff recommend indefinitely deferring implementation of a rent stabilization program
at this time.
Current Data Considerations Summary: Of the 5,174 units included in the rent increase analysis,
approximately one quarter of units (1,323 units; 25.57%) were reported with a rent increase of
32 Palo Alto Mediation. “Home.” https://www.paloaltomediation.com/home (accessed February 19, 2026).
33 City of Palo Alto. “Landlord Resources”. https://www.paloalto.gov/City-Hall/Housing/Tenant-Landlord-Resources/Landlord-
Resources (accessed February 19, 2026).
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between 0% and 5% and one tenth of units (566 units; 10.94%) were reported with a rent
increase above 5%. Nearly two-thirds of units (62.85%) were reported with no change in rent.34
A very small percentage (3 units in total) reported a rent decrease. See Exhibit 1 Figure 9 and
Table 7 in Attachment A for more information.
Arguably, these findings suggest that existing state protections aimed at keeping rent increases
below 10% (or 5% plus the percentage change in cost of living, if that’s lower) for covered units
are functioning largely as intended for the majority of Palo Alto's registered rental units.
Further analysis would be needed to determine what percentage of units that reported a most-
recent rent increase over 5% may have violated state law.35
A meaningful share of the rental stock already operates with some form of market adjustment
based on the self-reported data. About 26% of renter-occupied units carry deed restrictions,
rental assistance, or informal rent discounts, which may reduce the practical reach of additional
rent regulation on the units most in need of affordability protections.
The age of the housing stock is also a relevant consideration. With 74% of registered units in
buildings constructed before 1980, property owners face rising maintenance and potential
retrofit costs. Staff has heard directly from property owners that the market is price-sensitive
and that even modest cost increases are difficult to absorb. Constraints on rent adjustments
could, over time, affect the capacity to maintain these aging properties, a concern that takes on
added significance as the City explores mandatory retrofitting requirements for seismically
vulnerable buildings, which may represent a substantial additional cost obligation for many of
these same property owners.
Palo Alto renters also benefit from existing local protections beyond TPA. The City's ordinance
requiring landlords to offer one-year leases provides tenants with 12 months of rent
predictability at each lease term, addressing one of the more common concerns that rent
stabilization is designed to resolve.
Rental Registry Program Expansion
With respect to Council's direction to evaluate expanding the Rental Registry Program to
include single-family homes and properties with two or fewer rental units, staff recommend
deferring this expansion indefinitely. Program Year 1 was the City's first year administering the
registry, and the process surfaced a number of operational refinements, including unit count
36 Rental Registry Program participants were asked to report both the date and amount of the last rent increase for each unit.
Many participants reported a “$0.00” rent increase for a unit and a corresponding date in the past, confirming that the unit had
not experienced rent increases since that date. For example, reporting of “$0.00” for a rent increase frequently coincided with
known tenancy start dates, meaning that there was no change in rent since initial occupancy. However, some renters have
tenure lengths longer than the date of last rent increase reported as “$0.00,” so it is unknown if those renters had a rent
increase at some point earlier in their tenure.
35 In order to complete this analysis, staff would need to compare the rent increase amount to the TPA rent cap at the time the
rent was increased and then determine that the rent increase occurred in a covered building and was not associated with any
tenancy changes.
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verification against Santa Clara County Assessor data, registration notification challenges
associated with property sales, clarifications around senior housing and condominium
registration requirements, and the deployment of new reporting and payment functionality.
Program Year 2 is the first year in which returning participants are updating existing
registrations, paying the newly adopted registration fee, and using improved event-based
reporting tools. Staff believe it is prudent to allow these processes to mature and stabilize
before introducing a significantly larger population of property owners into the program.
Indeed, the estimated 4,305 units on properties with two or fewer units, predominantly single-
family residences, would require coordination with a substantially larger number of individual
property owners, many of whom may be owner-occupiers who would be exempt from
registration fees and/or would be navigating the program for the first time. Staff have
previously identified that expansion at this scale would require at least one additional full-time
employee.
FISCAL/RESOURCE IMPACT
The recommendation in this report does not have any budget or fiscal impact. However, if Palo
Alto were to pursue a local rent stabilization program or expand the Rental Registry Program
(RRP), it would need to be resourced. Because rental registries are often tied to rent
stabilization programs, many cities fund their rent stabilization program partially or entirely
through rental registry fees. The City’s current Rental Registry Program fee of $35 per unit in
Palo Alto supports approximately one full-time employee and specialized contract work needed
to run the rental registry program at its existing scale. The RRP is currently focused on
establishing and maintaining a multi-family rental unit inventory and does not regulate rents.
This program’s fee for covered units would need to be significantly increased if it were to be the
sole funding source to develop, implement and enforce a local rent stabilization program.
Based on a rough analysis, staff estimate that covered units may need to pay a fee up to or
above $300.00 per unit 36 in order to achieve full cost recovery for an expanded program. While
staff estimate that approximately five additional staff may be needed to run a rent stabilization
program in Palo Alto, the final size of the team needed would be based upon the number of
registered units (which would increase if the program were to be expanded to one- and two-
unit properties), the complexity of the program, the level of customer support provided to both
renters and landlords, the potential use of contracted services, enforcement procedures, and
other factors.
STAKEHOLDER ENGAGEMENT
This agenda item was publicly noticed as part of the March 10, 2026, Policy and Services
Committee meeting. City staff maintains a list of groups and individuals interested in renter
36 For reference, Berkeley currently charges $344 per fully covered unit, Richmond charges $267 per fully covered
unit and Alameda currently charges $170 per fully covered unit.
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protection policy development and the implementation of the rental registry program; an email
advertising the March 10, 2026 Policy and Services Committee meeting and discussion on this
topic was sent to this list after publication of this report. Staff also sent targeted emails to
representatives at the California Apartment Association, Alliance of Californians for Community
Empowerment, Public Advocates, Tenants Together, Palo Alto Forward and Silicon Valley at
Home after publication of this report. Lastly, staff sent an email after the publication of this
report to all property owners and/or representatives who have participated in the Rental
Registry Program to date, upon the publication of this staff report to inform them of this
upcoming policy discussion.
ENVIRONMENTAL REVIEW
Committee action on this item is exempt from review under the California Environmental
Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3), as it can be seen with
certainty that discussion and direction regarding regulation of residential rental units will not
have a significant effect on the environment.
ATTACHMENTS
Attachment A: Program Year 1 (FY 2024-2025) Summary Report
APPROVED BY:
Jonathan Lait, Planning and Development Services Director
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Page 1
CITY OF PALO ALTO
RENTAL REGISTRY PROGRAM
Program Year 1 (FY 2024–2025) Summary Report
Program Overview
City Council established the Rental Registry Program by adopting Palo Alto Municipal Code (PAMC)
Chapter 9.65. The program serves four purposes: understanding the residential rental landscape as
experienced by renters and landlords; supporting data-informed policy decisions that protect
public health, safety, and welfare; promoting community awareness of existing renter protections;
and supporting the City’s Housing Element goals for rental unit protection, preservation, and
production.
The City launched its inaugural registration period on October 1, 2024, running through January
15, 2025, with a grace period extended through April 6, 2025. Per City Council direction, Program
Year 1 focused exclusively on rental properties with three or more units. All information was self-
reported by property owners and property managers. Please see Exhibit 1 to this report for
additional program data analysis.
Registration Results
The program achieved a 95.4% property registration rate (414 of 434 properties) and a 97.9% unit
registration rate (7,653 of 7,821 units) by the close of the grace period on April 6, 2025. See the
summary table below or Exhibit 1 Table 1 for more information.
Registration Status Properties Units
Total Required 434 7,821
The majority of registrations were completed later in the registration period; only 55% of
properties (237) and 33% of units (2,581) completed by the initial January 15, 2025 deadline. The
remaining registrations arrived steadily through the extended grace period. Staff conducted
outreach through postcards, registration letters, direct email campaigns, staff-hosted workshops,
and one-on-one customer service. Only four properties did not complete registration by the close
of the grace period and received administrative citations.
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The 16 exempted properties (an estimated 148–162 units) were deferred to Program Year 2
because recent property sales resulted in new owners not receiving registration notice letters.
Key Findings from Registered Properties
Occupancy and Vacancy Rates
Of the 7,653 registered units, 94.79% were occupied and 5.21% were vacant. Among occupied
units, 93.13% were occupied by renters, 0.98% by property managers, 0.48% by owners, and
0.20% by rent-free occupants. Among vacant units, 3.68% were available for rent and 1.53% were
not available for rent. See Exhibit 1 Table 3 and Figure 1 for more information.
Unit Diversity
The registered rental stock is predominantly composed of smaller units. Studios and one-bedroom
units together account for 58.89% of all registered units. Two-bedroom units represent another
35.14%. Units with three or more bedrooms constitute 5.97% of the inventory. See the summary
table below or Exhibit 1 Table 4 and Figure 2 for more information.
Unit Type Avg. Size (sq ft)Units % of Total
Age of Building Stock
The registered rental stock spans buildings constructed from 1893 through 2022. Nearly half of all
registered units (3,790 units; 49.52%) were built between 1960 and 1979, and nearly three fourths
of registered units were built before 1980 (5,701 units; 74.49%). Only 1,203 registered units
(15.72%) are in buildings constructed after 2000. See Exhibit 1 Figure 3 for more information.
Properties that are 15 years old or newer are exempt from the rent stabilization provisions of the
California Tenant Protection Act of 2019 (TPA).
Amenities, Services, and Auto Parking
Among the most commonly included amenities for renter-occupied units were outdoor common
space (4,010 units), bicycle parking (3,853 units), laundry (3,650 units), and pool/spa access (3,073
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units). Utilities included in rent varied: refuse/recycling was included for 2,953 units, water for
2,916, and sewer for 2,233. Internet (347 units) and cable (370 units) were rarely included. EV
charging was available for 924 units. See Exhibit 1 Figure 4 for more information.
Parking was included in rent for 6,932 units (90.58%). An additional 231 units (3.28%) had parking
available for an additional fee and 410 units (6.14%) had no onsite parking offered. See Exhibit 1
Figure 5 for more information.
Stability and Turnover
Over half of current renters (3,834 units; 53.73%) started their tenancy within three years of the
April 2025 registration close. The next largest group (1,283 units; 17.98%) had tenures exceeding
10 years. Approximately 300 renter households (4.21%) have lived in their units for over 20 years.
See Exhibit 1 Figure 6 for more information.
The most common lease arrangement was a one-year lease (66.63%), followed by month-to-
month leases (28.44%). Under Palo Alto Municipal Code Chapter 9.68.030, all landlords must offer
a one-year lease term in writing, but renters or potential renters may decline this offer in favor of
a shorter, negotiated lease term (such as month-to-month).
Rental Discounts and Incentives
Of 7,127 renter-occupied units, 3,889 (54.57%) were market rate units without formal market
adjustments. The remaining 3,238 (45.43%) renter-occupied units received some kind of market
adjustment. Specifically, 981 units (13.76%) were deed-restricted, 554 units (7.77%) were deed-
restricted with rental assistance or subsidies, 418 units (5.87%) had rental assistance or subsidies,
and 1,285 units (18.03%) were market rate but with other rent discount or incentive, such as a
rent concession during the course of the lease term or an employee housing rate. See Exhibit 1
Table 5, Figure 8, and Table 6 for more information.
Rents for Market Rate Units
Rent data can be reported in aggregate for market rate studio, 1-, 2-, and 3- bedroom units. Rent
data for 4- and 5-bedroom units are known but excluded from aggregate reporting due to few and
potentially identifiable numbers. See Exhibit 1 Table 4, Table 5, and Table 6 for more information.
Median monthly rents for non-discounted market rate units were as follows:
Unit Type Median Rent 25th Percentile 75th Percentile
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3-Bedroom $4,495 $3,993 $4,993
Rent Increases for Market Rate Units and Market Rate Units with Other Rent Discounts
Among the 5,174 market rate units or market rate units with other rent discounts included in rent
increase analysis, almost half of units (2,470 units; 47.64%) reported no change in rent between
October 2022 and April 2025, including units with renters who had been in their unit for less than
one year. Another group of units (787 units; 15.21%) reported no rent increase over an even
longer timeframe, such as since before October 2022 or even beyond five years prior to open
registration. Approximately one-third of units (1,685 units; 32.57%) reported a rent increase
between October 2022 and April 2025. A small number of units (204 units, 3.94%) reported their
last rent increase in the more distant past, since before October 2022 and even beyond five years
prior to open registration.
Of the 5,174 units included in the rent increase analysis, only approximately one quarter of renters
(1,323 units; 25.57%) experienced a rent increase of between 0%-and 5% and approximately one
tenth of renters (566 units; 10.94%) experienced a rent increase above 5%. A very small
percentage, accounting for 3 units in total, reported a rent decrease instead of a rent increase. See
Exhibit 1 Figure 9 and Table 7 for more information.
Some reported rent increases may exceed Tenant Protection Act of 2019 (TPA) limits (5% plus local
CPI, or 10%, whichever is lower). However, the program data notes that caution is warranted in
interpreting these figures: the TPA does not apply to all units, allowable percentages vary year to
year, and some data entry errors may remain in this initial round of self-reported information.
Additionally, it is likely that some of the larger recent rent increases reported in Program Year 1
were associated with a change in tenancy, which is allowed under the TPA; however, change in
tenancy data was not collected during Program Year 1. Staff introduced an occupancy/tenancy
change reporting form in Program Year 2 to better understand the nature of reported rent
increases going forward.
Geographic Distribution
Most registered rental units were located within a half-mile of a commercial area (88.1%) and a
public park (77.6%). The majority of units (59.5%) were within a half-mile of a public school and
were within 500 feet of an arterial road (62.2%). Proximity to transit was lower: 27.4% of units
were within a half-mile of a Caltrain station and 33.0% were within a half-mile of a major bus stop.
Program Administration and Implementation Notes
Data Quality
The initial property inventory relied on Santa Clara County Assessor data. Staff identified minor
unit count discrepancies on approximately 30% of properties, which were resolved through
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systematic verification during registration review. Property owners and property managers reliably
reported accurate unit counts with no instances of over- or underreporting identified.
Property Inventory Refinement
The initial inventory methodology did not capture all 3+ unit rental properties. Staff identified
additional properties, primarily smaller rental properties and those in non-residential zoning
districts, estimated at approximately 852 units across roughly 229 properties. These have been
added to the inventory for Program Year 2.
Registration Clarifications
During implementation, staff clarified several registration requirements. Properties with three or
more units where the owner or manager occupied some units were still required to register.
Condominiums where a single owner holds three or more units and rents at least two were also
included. Units lacking independent cooking, bathing, or sleeping facilities (such as certain Junior
Accessory Dwelling Units) and units in hospitals, skilled nursing facilities, or continuing care
retirement communities were determined not to require registration.
Senior housing presented particular complexity. Some units, while residential in form, either
shared core living facilities or included individualized healthcare services in their rates. These were
exempted through a City-administered affidavit verification process.
Registration Fees
Program Year 1 registration fees were waived by City Council direction. For Program Year 2, City
Council approved a registration fee of $35.00 per unit, with exemptions for owner-occupied units
and units on 100% affordable housing properties. Staff has received feedback from property
owners that the Palo Alto rental market is price-sensitive and that the fee, combined with other
rising costs, may be impactful.
Event-Based Reporting
In addition to annual registration, the program requires property owners to report certain events
as they occur: rent increases, notices to quit, unlawful detainers, and evictions. Rent increases are
the most frequently reported event. Some property owners expressed unfamiliarity with these
requirements, and staff received complaints questioning the need for event-based reporting. In
response, staff released improved reporting forms, clearer rent increase reporting, and a new
optional rent decrease form.
Looking Ahead: Program Year 2
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Program Year 2 (FY 2025–2026) registration opened on October 1, 2025, with the annual open
registration period running through January 15, 2026. The City extended a grace period through
February 16, 2026 and is presently preparing to send administrative citations to unregistered
properties. The program continues to focus on properties with three or more units.
Program Year 2 incorporated the 16 properties previously exempted due to recent property sales
(148–162 units), as well as the approximately 229 additional properties (~852 units) identified
through improved inventory methodology during Program Year 1, and two newly constructed
properties (160 units).
City Council previously directed staff to evaluate potential expansion of the program to all rental
properties, including single-family homes and properties with two or fewer units. The American
Community Survey estimates approximately 4,305 rental units on such properties, with an
estimated 4,116 being single-family residences. Staff has noted that expansion at this scale would
represent a more than 600% increase in the number of property owners requiring coordination
and would require additional staffing. Based on FY 2025–2026 budget discussions, no additional
staffing was requested, and Program Year 2 has proceeded without this expansion.
As the Rental Registry Program’s online portal retains baseline registration information from
Program Year 1, staff anticipate a less time-intensive update process for returning participants,
though learning the new fee payment module will be part of the Year 2 experience.
Attachments
Exhibit 1: Program Year 1 (FY 2024-2025) Supplemental Program Data
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Year 1 (FY 2024-2025)
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-2025) SUPPLEMENTAL PROGRAM DATA 1
Exhibit 1
CITY OF PALO ALTO
RENTAL REGISTRY PROGRAM
PROGRAM YEAR 1 (FY 2024-2025)
SUPPLEMENTAL PROGRAM DATA
October 30, 2025
Planning & Development Services Department
Rental Registry Program
rentalregistry@paloalto.gov
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-2025) SUPPLEMENTAL PROGRAM DATA 2
Property Inventory and Registration Status
Table 1: Rental Registry Program - Program Year 1 Property Registration Status (as of April 6, 2025)
Registration Status Number of Properties Number of Units
Properties in Completed Registration Status 414 Properties (95.4%) 7,653 units (97.9%)
Properties in Open Registration Status/Payment Pending 4 Properties (0.9%)
Properties Exempted from Program Year 1 Registration Requirement 16 Properties (3.7%)* 148 Units (1.9%)*
Total Number of Properties in RRP Requiring Program Year 1 Registration 434 Properties 7,821 Units
Additional Property Disposition Information
Properties Vetted/Removed from Program Year 1 Property Inventory 6 Properties** N/A
Properties Retained in RRP for Recordkeeping Purposes, but Not Registration 26 Properties*** N/A
Properties/Units Added for Program Year 2 ~229 Properties**** ~852 Units****
Properties/Units Added for Program Year 2 due to New Construction/Occupancy
Notes:
• The anticipated number of rental units in Palo Alto on rental properties with 3+ units (8,673 units) exceeds the American Community Survey estimates (7,545 units), which would be verified at the close of Program Year 2.
• *These properties were exempted from the Program Year 1 registration requirement because property owners did not receive critical registration notice letters because of incorrect contact information due to recent
property sales. Registration of these 16 properties will be required in Program Year 2. The estimated total unit count for these properties ranges from 148 units to 162 units and will be confirmed at Program Year 2
registration.
• **These properties were found to be either residential non-rental/entirely owner occupied (3 properties) or commercial property (3 properties).
• ***These properties are retained in the Rental Registry Program property inventory for administrative/recordkeeping purposes, but not for registration in Program Year 1 or Program Year 2. These properties are retained
because they were either rental properties with two or fewer units (18 Properties) or properties with one or more units as part of a hospital, extended medical care facility, skilled nursing facility, health facility, or continuing
care retirement community (8 Properties).
• ****The unit count for these properties is estimated at ~852 units across ~229 properties.
Table 2: American Community Survey (ACS) Distribution Estimate of Palo Alto Rental Households by Rental Unit Property Type
Mobile
Home
Boat, RV, Van,
etc.
Single Family
Detached
Single Family
Attached Duplex Triplex
and Fourplex
Small Sized
Rental Property
(5 to 9 Units)
Medium Sized
Rental Property
(10 to 19 Units)
Medium Sized
Rental Property
(20 to 49
Units)
Large Sized
Rental Property
(50 or More
Units)
Total
# of Units 89 0 3,289 827 189 715 1,343 1,234 1,621 2,632 11,939
% of Total Units 0.75% 0% 27.55% 6.93% 1.58% 5.99% 11.25% 10.34% 13.58% 22.05% 100%
Source: U.S. Census Bureau, 2019-2023 American Community Survey 5-Year Estimates Table, B25032 Tenure by Units in Structure: https://data.census.gov/table/ACSDT5Y2023.B25032?g=160XX00US0655282.
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-2025) SUPPLEMENTAL PROGRAM DATA 3
Occupancy and Vacancy Rates
Table 3: Program Year 1 Occupancy Rate and Vacancy Rate by Occupancy Type (7,653 Registered Units)
Occupant Type Number of Units Percentage Combined Percentages
Occupied by Owner 37 0.48%
Occupancy Rate 94.79%
Occupied by Property Manager 75 0.98%
Occupied by Renter 7,127 93.13%
Occupied by Rent-Free Occupant 15 0.20%
Vacant - Available for Rent 282 3.68%
Vacancy Rate 5.21%
Vacant - Not Available for Rent 117 1.53%
TOTAL 7,653 100.00%
Figure 1: Program Year 1 Unit Vacancies by Number of Bedrooms in Unit (399 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 4
Unit Diversity
Table 4: Program Year 1 Rental Units by Number of Bedrooms (7,653 Registered Units)
Unit Type Average Size (sq ft) Number of Units Percentage of Units
Studio ±500 1,197 15.64%
1-Bedroom
2-Bedroom
3-Bedroom
4+-Bedroom +1,500 29 0.38%
TOTAL N/A 7,653 N/A
Figure 2: Program Year 1 Comparison Between Unit Size and Number of Bedrooms in Unit (7,653 Registered Units)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0 1 2 3 4 5
Si
z
e
o
f
U
n
i
t
(
S
q
F
t
)
Number of Bedrooms in Unit
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-2025) SUPPLEMENTAL PROGRAM DATA 5
Age of Building Stock
Figure 3: Program Year 1 Number of Registered Rental Units Built by Decade (7,653 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 6
Amenities and Services
Figure 4: Program Year 1 Amenities/Services Included in Rent for Renter Occupied Units (7,127 Registered Units)
347
370
2953
2916
2233
982
1036
1562
3650
1459
3853
924
2761
3073
4010
2432
853
0 500 1000 1500 2000 2500 3000 3500 4000 4500
Internet
Cable
Refuse/Recycling
Water
Sewer
Natural Gas
Electricity
Outdoor Private Space
Laundry
Storage
Bicycle Parking
EV Charging
Gym
Pool/Spa
Outdoor Common Space
Indoor Common Space
Community Kitchen
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-2025) SUPPLEMENTAL PROGRAM DATA 7
Auto Parking
Figure 5: Program Year 1 Auto Parking Availability for Rental Units (7,653 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 8
Stability and Turnover
Figure 6: Program Year 1 Tenure Length for Renters (7,136 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 9
Figure 7: Program Year 1 Lease Lengths for Renter Occupied Units (7,127 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 10
Occupancy of Market Rate Units and Units with Market Adjustments
Table 5: Program Year 1 Distribution of Market Rate Rental Units Versus Units with Market Adjustments by Occupancy Type (7,653 Registered Units)
Occupancy Type Market Rate Units Market Rate Units with
Other Rent Discount Deed Restricted Units
Deed Restricted Units with
Rental Assistance/
Subsidy
Units with Rental
Assistance/
Subsidy
Other/
Unknown if Market Rate Total
Occupied by Owner - - - - - 37 37
46 10 15 1 3 - 75
Occupied by Renter 3,889 1,285 981 554 418 - 7,127
12 1 2 - 15
Vacant - Available for Rent 22 - 7 3 1 249 282
6 - - - 3 108 117
TOTAL 3,963 1,307 1,003 559 427 394 7,653
Notes:
• Some market rate rental units do not have any rent discounts, whereas others do have some sort of rent discount. Examples of rent discounts in Program Year 1 data include:
o rent concessions, such as a free month during the lease term;
o lower rent rates offered to employees; or
o informal rent discounts, such as a lower rent rate for a family friend or for helping with property maintenance tasks.
• Market rate adjustments include deed-restrictions so that the unit is offered at below the market rate rent at a specified percentage level of area median income.
• Other market adjustments include a unit having some form of subsidy or rental assistance, such as a utility allowance or a Section 8 voucher to cover the difference between what a renter could afford and the market rent for the
unit.
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-2025) SUPPLEMENTAL PROGRAM DATA 11
Figure 8: Program Year 1 Distribution of Market Rate Rental Units Versus Units with Market Adjustments by Number of Bedrooms in Unit (7,105 Registered Units)
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-2025) SUPPLEMENTAL PROGRAM DATA 12
Rents for Market Rate Units
Table 6: Program Year 1 Median Monthly Rent for Market Rate Units by Number of Bedrooms in Unit (5,164 Registered Units)
Number of
Bedrooms
in Unit
Unit
Rent Type Number of Units Median Q1
(25th %)
Q3
(75th %)
IQR
(Inter-quartile
Range)
Min Max Avg Stnd Dev
Studio
Market Rate Unit 338 $2,095 $1,895 $2,395 $500 $0 $3,825 $2,176 483
Market Rate Unit
with Other Rent 118 $2,223 $2,064 $2,334 $271 $1,590 $3,453 $2,283 449
1
Market Rate Unit 1911 $2,600 $2,300 $3,000 $700 $0 $100,120 $2,757 2311
Market Rate Unit
with Other Rent 547 $2,800 $2,565 $3,330 $765 $1,000 $5,800 $2,971 575
2
Market Rate Unit 1463 $3,295 $2,895 $3,846 $951 $400 $398,508 $3,738 10373
Market Rate Unit
with Other Rent 573 $3,531 $3,291 $4,300 $1,009 $1,630 $6,138 $3,815 672
3
Market Rate Unit 167 $4,495 $3,993 $4,993 $1,000 $1,685 $18,000 $4,862 2265
Market Rate Unit
with Other Rent 47 $5,024 $4,929 $5,120 $191 $2,262 $6,694 $4,914 789
Notes:
• Number of Units is the total number of units included in this group (based on bedroom count and rent type). This tells us how large the sample size is — the bigger the number, the more reliable the rent statistics.
• Median is the "middle" rent value — half of the units rent for less than this amount, and half rent for more. This is often the most accurate reflection of typical rent because it isn’t skewed by outliers.
• Q1 (25th Percentile) shows that a quarter of the units rent for less than this amount. This shows the lower end of the rent range.
• Q3 (75th Percentile) shows that a quarter of units rent for more than this amount. This shows the upper end of the typical rent range.
• IQR (Interquartile Range) shows the range between Q1 and Q3 — it shows where the middle 50% of rents fall. A smaller IQR means rents are more consistent. A larger IQR suggests wider variability in rent pricing.
• Minimum is the lowest rent reported, which may sometimes reflect data errors (like a typo or missing zero). It is to be used as a flag, not a benchmark.
• Maximum is the highest rent reported. Like the minimum, maximum may include typos or unusually high figures, which can skew the average — so it's important to view this in context with the median and IQR.
• Average is the total of all rents divided by the number of units. While average gives a general sense of rent levels, it is sensitive to data errors or extreme values (too high or too low).
• Standard Deviation is a measure of how much rent values vary from the average. A low number means most rents are similar; a high number means there’s a lot of variation — which could reflect different unit sizes, locations, or
data errors.
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-2025) SUPPLEMENTAL PROGRAM DATA 13
Rent Increases for Market Rate Units
Figure 9: Program Year 1 Number of Market Rate Units Reported with No Change in Rent by Unit Tenure Length (3,254 Registered Units)
Notes:
• 3,254 units included in analysis; excludes units with rent decreases and date of last increase reporting errors
1277
802
352
184
116
52
56
47
55
37
276
0 200 400 600 800 1000 1200 1400
1 year or less
>1 to 2 years
>2 to 3 years
>3 to 4 years
>4 to 5 years
>5 to 6 years
>6 to 7 years
>7 to 8 years
>8 to 9 years
>9 to 10 years
Over 10 years
Number of Units with No Change in Rent
Un
i
t
T
e
n
u
r
e
L
e
n
g
t
h
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-2025) SUPPLEMENTAL PROGRAM DATA 14
Table 7: Program Year 1 Frequency of Rent Increases and Rent Increase Percentage for Market Rate Units (5,174 Registered Units)
Rent Increase Percentage
Rent Increase
Timeframe Date of Last Rent Increase
Rent
Increase
Reporting
Error
Rent
Decrease
No
Change
0% and
1%
1% and
2%
2% and
3%
3% and
4%
4% and
5%
5% and
6%
6% and
7%
7% and
8%
8% and
9%
9% and
10%
Over
10%
Grand
Total
Between
October 2022
and
April 6, 2025
(October 1, 2024 – April 6, 2025) 3 1 641 28 59 102 100 105 62 20 21 40 6 20 1,208
Prior to Open Registration 8 0 1039 21 86 110 122 103 58 28 16 13 23 11 1,638
Prior to Open Registration 4 1 430 13 36 49 71 90 44 17 5 6 11 8 785
Prior to Open Registration 0 0 249 7 15 11 20 27 15 6 8 8 11 1 378
Prior to Open Registration 0 0 111 3 4 8 5 14 10 1 1 1 5 0 163
Before
October 2022
Prior to Open Registration 0 0 181 1 1 5 11 13 5 0 3 7 4 2 233
Prior to Open Registration 0 0 61 0 0 2 1 0 6 2 2 1 0 1 76
Prior to Open Registration 0 0 59 1 0 0 0 1 0 0 0 0 0 0 61
Prior to Open Registration 0 1 49 1 0 0 1 1 0 0 1 1 0 0 55
Prior to Open Registration 0 0 38 0 1 0 1 2 0 0 1 0 0 1 44
Prior to Open Registration 1 0 29 1 7 5 11 4 4 1 3 0 0 2 68
Prior to Open Registration 2 0 370 0 6 8 10 19 24 5 2 0 6 6 458
Date of Last Rent Increase Reporting Error 0 0 5 0 0 0 0 1 0 1 0 0 0 0 7
Grand Total 18 3 3,262 76 215 300 353 380 228 81 63 77 66 52 5,174
Item 3
Attachment A - Program Year 1 (FY 2024-2025) Summary Report
Item 3: Staff Report Pg. 32 Packet Pg. 91 of 100
-2025) SUPPLEMENTAL PROGRAM DATA 15
Notes:
• For Program Year 1 initial registration, the City asked for the current monthly rent for each unit, as well as the initial monthly rent (if known) and the date and amount of last rent increase. Consequently, the City was able to gather
past rent increase information for Palo Alto rental units.
• This analysis reflects rent increase information gathered between October 1, 2024, through the close of the open registration period on April 6, 2025. Initial findings are provided for studio, 1-bedroom, 2-bedroom, and 3-bedroom
market rate units (5,164 units), both without and with some form of rent discount.
• Reported dates of the last rent increase were sorted into the open registration period of October 1, 2024, through April 6, 2025, and otherwise in half year increments prior to the October 1, 2024, start of open registration.
• The California Tenant Protection Act of 2019 (TPA; AB 1482) came into effect January 1, 2020, during the timeframe included in this analysis. Units regulated by TPA are limited to annual rent increases of no more than 5% + local CPI
(CPI = inflation rate), or 10%, whichever is lower. Properties that are 15 years old or newer are exempt from the rent stabilization provisions in TPA.
• Program Year 1 information shows possibility of some rent increases exceeding 5% + local CPI. However, caution is recommended for interpreting this Program Year 1 information for at least the following reasons:
o TPA does not apply to all residential rental units;
o Allowable rent increase percentages vary from year to year;
o TPA does not apply when a rent increase is associated with a change in occupancy;
o Staff were able to filter out clear errors, but other data entry errors might remain; and
o Future reporting may correct data entry errors.
Item 3
Attachment A - Program Year 1 (FY 2024-2025) Summary Report
Item 3: Staff Report Pg. 33 Packet Pg. 92 of 100
-2025) SUPPLEMENTAL PROGRAM DATA 16
Geographic Distribution
Figure 10: Program Year 1 Registered Rental Unit Locations (7,653 Registered Units)
Table 8: Program Year 1 Proximity of Registered Units to Special Features (7,653 Registered Units)
Feature Number of Registered Units
within Proximity
Number of Registered Units not
in Proximity
Public schools (1/2-mile radius) 4,553 units (59.5%) 3,100 units (40.5%)
Public parks (1/2-mile radius) 5,935 units (77.6%) 1,718 units (22.4%)
Caltrain stations (1/2-mile
radius) 2,100 units (27.4%) 5,553 units (72.6%)
Major bus stops (1/2-mile
radius; include VTA, SamTrans, 2,528 units (33.0%) 5,125 units (67.0%)
Commercial Areas (1/2-mile
radius) (Only if Possible) 6,744 units (88.1%) 909 units (11.9%)
Arterials (500 foot radius) 4,760 units (62.2%) 2,893 units (37.8%)
Item 3
Attachment A - Program Year 1 (FY 2024-2025) Summary Report
Item 3: Staff Report Pg. 34 Packet Pg. 93 of 100
Policy & Services Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: City Auditor
Meeting Date: March 10, 2026
Report #:2603-6084
TITLE
Recommend Approval of New Task Order 4.42 - Flock Safety Assessment for Inclusion in the
City Auditor's FY 2026 Audit Plan and Amend FY 2026 Task Order budgets to Support this New
Task Order with a Net Zero Financial Impact; CEQA – Not a project
RECOMMENDATION
The Office of the City Auditor recommends the Policy & Services Committee (P&S) recommend
City Council approve a new Task Order 4.42 - Flock Safety Assessment for inclusion in the City
Auditor's FY 2026 Audit Plan.
The Office of the City Auditor recommends P&S approve the following actions to fund the
proposed new task order:
•
• Task Order 4.40 – Contract Solicitation
and Authority Levels Advisory Project which was reported to P&S in
• Task 6 – Evaluation & Benchmarking
Task Order 4.42 – Flock Safety Assessment Total $30,000
BACKGROUND
The City entered into a three-year contract 1 with Flock Safety in 2023 for Automated License
Plate Recognition (ALPR) implementation services to install and maintain twenty ALPR cameras
1 City Council, April 3, 2023; Agenda Item #: 11; Staff Report #: 2301-0741,
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82232&dbid=0&repo=PaloAlto&searchid=98d1813
d-4a86-41b4-a85b-8035a8722846
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at locations identified by the Palo Alto Police Department. Ten additional cameras were added
via a contract amendment2 in 2024.
The City has requested the City Auditor conduct an assessment of Flock Safety given recent
concerns about the security of the City’s data within Flock Safety’s system.
The City outsourced its City Auditor function to Baker Tilly in 20203. Through the process of
reviewing the City’s request for Flock Safety assessment services, Baker Tilly identified that
Flock Safety became a client of the firm in 2024. Baker Tilly provided Flock Safety with ISO
27001, 27701, 42001, 27017, 27018 Certifications audit services and SOC 2 Type II Examination
services in 2025. ISO/IEC 27001:2022 certification is a globally recognized standard that
establishes requirements for implementing, maintaining and continually improving an agency’s
information security management system, Privacy and AI. SOC 2 Type II examinations provide
assurance that a company’s system adheres to criteria prescribed by the AICPA related to
security, availability, processing integrity, confidentiality and privacy as selected by the client.
The proposed Flock Safety Assessment, conducted by the City Auditor’s Office, would look at
Flock Safety’s operational controls that interface with and/or impact Flock’s client-facing
policies, procedures and security controls as they relate to the processes for roll-out and
control of user settings around data sharing in alignment with the City of Palo Alto’s contract.
ANALYSIS
The objectives of this assessment are to review Flock’s system for the appropriate policies,
procedures and controls to ensure City information and data is secure and confidential.
Assessment areas include, but are not limited to, the following:
• IT Security/Governance – compliance with customer regulatory and data privacy
requirements
• Source Code Review – process for introducing system releases/updates
• System Infrastructure – assess Flock cloud environment for security and monitoring
• Access Management – expected controls and data security including access
management policies and procedures
• System Interfaces – assess internal/external systems interface and security
• Change/Configuration Management – assess processes for developing, implementing,
and testing changes to the Flock ALPR system as well as access controls for monitoring
system changes to ensure appropriate authorization
2 City Council, December 2, 2024; Agenda Item #: 11; Staff Report #: 2408-3360,
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83107&dbid=0&repo=PaloAlto&searchid=7b6b82d
0-6e91-40f8-819c-f028c5036c77
3 City Council, September 28, 2020; Agenda Item #: 11; Staff Report #: 11624,
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=80939&dbid=0&repo=PaloAlto&searchid=835258ae
-7722-4c0b-985b-ec3289ab3b3c
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Item AA1 Staff Report
Item AA1: Staff Report Pg. 2 Packet Pg. 95 of 100
Please see the attached Task Order and Scope of Work for a full list of audit activities proposed
for this assessment.
In addition, both the City of Palo Alto and Flock Safety will need to agree to a conflict-of-
interest waiver in order for work on this task order to proceed because Baker Tilly provides
services to both the City and Flock. The City Attorney’s Office is currently reviewing this waiver.
Please note that the City and Flock Safety are served by independent teams at Baker Tilly.
FISCAL/RESOURCE IMPACT
The proposed engagement will have a net zero impact on the City Auditor’s contracted budget
for FY 2026 as we will be using unspent funds and funds specifically earmarked for ad hoc
projects such as this.
STAKEHOLDER ENGAGEMENT
The City Auditor consulted with the Palo Alto Police Department and City Manager’s Office as
well as representatives from Flock Safety to discuss the parameters of the project.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because the audit activities do
not involve any commitment to any specific project which may result in a potentially significant
physical impact on the environment. CEQA Guidelines section 15378(b)(4). Council action on
this item is not a project as defined by CEQA because the audit activities do not involve any
commitment to any specific project which may result in a potentially significant physical impact
on the environment. CEQA Guidelines section 15378(b)(4).
ATTACHMENTS
Attachment A: Task Order 4.42 Flock Safety Assessment & Scope of Work
APPROVED BY:
Kate Murdock, City Auditor
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1
0
8
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PROFESSIONAL SERVICES TASK ORDER
Consultant shall perform the Services detailed below in accordance with all the terms and conditions of
the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into
this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional,
technical and supporting personnel required by this Task Order as described below.
CONTRACT NO. C21179340
OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE)
1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): C21179340
1B. TASK ORDER NO.: FY26-4.42
2. CONSULTANT NAME: Baker Tilly Advisory Group, LP
3. PERIOD OF PERFORMANCE: START: March 1, 2026 COMPLETION: June 30, 2026
4. TOTAL TASK ORDER PRICE: $30,000
BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD
5. BUDGET CODE_______________ COST CENTER________________ COST
ELEMENT______________ WBS/CIP__________ PHASE__________
6. CITY PROJECT MANAGER’S NAME & DEPARTMENT:
Chair of the City Council’s Policy and Services Committee
7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A)
MUST INCLUDE:
SERVICES AND DELIVERABLES TO BE PROVIDED
SCHEDULE OF PERFORMANCE
MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)
REIMBURSABLE EXPENSES, if any (with “not to exceed” amount)
8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A
I hereby authorize the performance of the work
described in this Task Order.
APPROVED:
CITY OF PALO ALTO
BY:____________________________________
Name __________________________________
Title___________________________________
Date ___________________________________
I hereby acknowledge receipt and acceptance of
this Task Order and warrant that I have authority
to sign on behalf of Consultant.
APPROVED:
COMPANY NAME: Baker Tilly Advisory Group,
LP
BY:____________________________________
Name __________________________________
Title___________________________________
Date ___________________________________
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Attachment A - Task Order
4.42 Flock Safety
Assessment & Scope of
Work
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Attachment A
Introduction
Services and Deliverables To Be Provided
Schedule of Performance
Maximum Compensation Amount and Rate Schedule (As Applicable)
Reimbursable Expenses, if any (With “Not To Exceed” Amount)
Services & Deliverables
Step 1: Assessment Planning
Step 2: Fieldwork and Testing
Step 3: Reporting
Step 1 – Assessment Planning
Gather information to understand the environment under review
o Understand the environment under assessment
o Assess the City code, regulations, and other standards and expectations
o Assess prior audit results, as applicable
o Assess additional documentation and conduct interviews as necessary
Prepare an assessment program
o Refine assessment
o objectives and scope
o Identify the procedures to be performed and the evidence to be obtained and examined
Announce the initiation of the assessment and kick-off meeting with key stakeholders
o Discuss assessment objectives, scope, process, timing, resources, and expectations
o Discuss documentation and interview requests for the audit
Step 2 – Fieldwork and Testing
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Assessment & Scope of
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a. Assess how the Flock ALPR cloud environment is secured and monitored to protect Palo Alto
data
4. Access Management (Application and Database Layers)
a. Assess User Access Management process
b. Assess Vendor Access Management process
c. Assess User Access Review process
d. Asses User activity monitoring
i. Potentially test a sample of data entries that may have been impacted by the enabling
of the global license plate search feature, to see if any of the data was accessed
during the time period that the feature was enabled.
5. System Interfaces
a. Assess security controls around internal/external systems that may interface with the Flock
ALPR system (e.g., data encryption, data transferred between systems, monitoring of activity,
controls to prevent data leakage, etc.)
6. Change/Configuration Management
a. Asses process for requesting, developing, implementing, and testing changes to the Flock
ALPR system features and/or configurations.
b. Assess controls for monitoring and reviewing system configuration changes, to ensure they
are authorized.
c. Assess whether any system alerts are sent out to authorized individuals, if changes are made
to the system, including changes to configurations.
d. Assess process for communication to Flock ALPR System customers of any new
releases/features and/or functionality changes (e.g., Release Notes).
Step 3 – Reporting
In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and
review a draft report with stakeholders, and submit a final report for management response. Tasks include:
Developing findings, conclusions, and recommendations based on the supporting evidence
gathered
Validating findings with appropriate individuals and discuss the root cause of the identified
findings
Complete supervisory review of working papers and a draft audit report
Distribute a draft audit report and conduct a closing meeting with key stakeholders
o Discuss the audit results, findings, conclusions, and recommendations
o Discuss management responses
Obtain written management responses and finalize a report
Review report with members of City Council and/or the appropriate Council Committee
Deliverables:
The following deliverables will be prepared as part of this engagement:
Audit Report
Policy & Services Committee Audit Report Presentation
Schedule of Performance
Anticipated Start Date: March 1, 2026
Anticipated End Date: June 30, 2026
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4.42 Flock Safety
Assessment & Scope of
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Maximum Compensation Amount and Rate
Schedule
The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $30,000.
The not-to-exceed budget is based on an estimate of 105 total project hours, of which a minimum of 5 are estimated
to be completed by the City Auditor.
We plan to complete all fieldwork steps for this audit remotely and do not anticipate any on-site work.
Item AA1
Attachment A - Task Order
4.42 Flock Safety
Assessment & Scope of
Work
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