Cracking the Code
in Palo Alto
How one big design move transformed a “business as usual” mixed-use project into the highest value transaction ($2,165/RSF) in Santa Clara County.
Most everyone agrees that urban infill which combines jobs and housing is a good idea, especially given the extreme workforce housing shortage in the Bay Area and Silicon Valley. The City of Palo Alto, like many of its peers, encourages mixed-use projects by offering developer incentives to include a housing component with commercial office – an in-demand building type that, done right, can command high rents and long-term leases at nearly double the price per rentable square foot (RSF) than housing can.
In the case of 385 Sherman, a literal interpretation for a mixed-use development that could tick all of the planning department’s boxes could not really maximize the value of either office or housing for the developer. Brick’s design for the project turned conventional thinking on its head to create incredible value for the developer, a great new home for Visa’s R&D group, a satisfied planning department, and a better neighborhood park.
The sky is not the limit…
it’s 38 feet.
Maximum office building height in Palo Alto is 38 feet for three stories, a tight fit in terms of floor-to-floor height. To maximize a building’s height, there exists an official loophole of sorts: Throw in at least one residential unit, and you get an extra 12 vertical feet. Since the floor area ratio doesn’t change and office space is worth nearly twice that of housing, the conventional approach squeezes in three stories of office space and adds one or two large “jewel box” residential units on top within 50 feet. Brick founder Rob Zirkle jokingly labels this a ploy to “make the urban realm medieval again” by having the people who work in the offices “live on top of their shop.” The resulting low ceilings on each floor of a conventional approach seem to underscore his punch line.
Uninspired, elitist and expensive:
the unintended consequences of mixed-use
From an urban planning perspective, the conventional approach adds housing where it’s needed. But with residential rents looming around $6 per square foot, two penthouse units would be far out of reach for anyone but the very wealthy, even if they could be enticed with “magical” views of built-up roofing and air conditioning condensers! Most likely, the developer would get less-than-market value for oversized residential units and a less-than-enticing incentive to include residential beyond easing the approvals process. The conventional approach is also more expensive to build: The low floor-to-floor heights require concrete construction to achieve generous ceiling heights on the office floors. Concrete construction is excruciatingly slow compared to building with steel.
One simple move that changed everything
The conventional approach to mixed use assumes that residential will be built on top of office…but it is not required. We wondered what the project might gain by building a residential component next to the office building instead. Immediately, we saw the potential to maximize developer returns. Removing the 4th floor gave us 50 feet to work with for three floors of office (more than we ended up using,) making way for tall windows and natural light, two huge selling points for high-quality tenants.