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Five-Story Donner Lofts Affordable Housing – San Jose, CA – 102 units – 92 studios
On January 31, 2025, the City of Menlo Park sent the Request for Qualification (RFQ) for the Downtown Affordable Housing Project (“DAH Project”) to non-profit housing developers the City hopes will submit construction bids sometime later this year. Their responses are due by March 31, 2025. In this post, I explain why the need for a large public parking garage will likely prevent the City from achieving its objectives despite the City’s willingness to provide public land through a 55-year-long, ground lease with a base rent of $1 per year.
It is useful to view this “housing” project as having two distinct but entangled parts.
- Housing Project: Build at least 345 units of very low-income, affordable housing with parking and complete by 2027.
. - Public Parking Project: Build a parking structure with at least 506 public parking spaces.
Affordable Housing Objectives
While the City has specified the amount of housing it wants – at least 345 units, it has not specified the amount of household parking, a feature that would significantly impact both building profiles and the cost of the DAH project. For example, apartment complex developers typically make the following assumptions: include one space for a one-bedroom apartment, 1.5 spaces for a two bedroom, and two for a three bedroom. If the DAH Project were to provide only one space for all apartment types, at least 345 housing parking spaces would be required. Since the land available for the project is so limited, the design of housing will likely require the units be built over private parking in tall multi-level towers.
Key Question:
The Menlo Park Specific Plan requires that new developments be compatible with Downtown, and while the City could modify its regulations, would the Menlo Park community accept housing that it viewed as aesthetically incompatible with Downtown?
Affordable Housing Financing
The specifications, site limitations and locations of the Downtown Affordable Housing Project will make financing it extremely challenging for developers because the final design will require expensive towers of housing and either underground or structured in-building parking. Developers rely on subsidies and debt to pay construction costs, and construction costs depend on both building design and materials. For example, structures of at least six stories require expensive Type III concrete/wood construction, and underground and structured in-building parking are much more expensive than surface parking. For example, a seven-story building with either underground or structured above ground parking would have a much higher cost per level than a five-story Type V construction wood frame building with surface parking. Add building features like balconies and attractive exteriors, and construction costs will rise sharply.
Next, developers use apartment rents to repay debt, and the amount of revenue collected depends on the mix of income-levels used to qualify housing applicants. For example, a mix of 20% medium and 80% low-income rental units will generate a lot less revenue than a mix of 20% very low and 80% medium income units.
Key Question:
Because the RFQ specifies 100% very low-income housing, the rental apartments will not generate enough revenue to repay the required amount of debt. What mix of housing units and affordability ratings – even some market rate housing, will be needed to ensure this project is BOTH financially viable AND aesthetically acceptable to our community?
Six-Story, Sherman Avenue Parking Garage – Palo Alto, California (Completed December 2020)
Public Parking Objectives
Menlo Park will need enough future public parking to support a healthy business environment and provide an inviting place to visit. Unfortunately, city staff has simply guessed that as few as 90% of the current parking spaces are needed solely based on a September 2024 audit of city parking lot usage. This assumption is both faulty and misleading. (Note: readers should view my earlier post, Menlo Park Might Need More Downtown Parking In The Future -Not Less! where I explain that at least 600 spaces – 5% higher than today – are likely needed.)
Public Parking Structure Impacts
The Sherman Avenue Parking Garage in Palo Alto is a useful reference for Menlo Park.
- 636 parking spaces
- Four stories above ground and two below
- Surface area: 0.96 acres
- Garage access directly from bordering streets.
- $50.2M construction cost ($79,000 per space)
- Completed December 2020
Menlo Park has only two potential locations (Plazas 1&3) for building a Downtown parking structure with at least 500 spaces, and each plaza is about two acres. Wherever built, the parking structure would displace a substantial amount of potential housing if the design was similar to the Palo Alto garage.
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Key Questions:
Would a taller parking structure free up more land for housing? Would the visual mass be acceptable to our community?
Public Parking Structure Financing
Since non-profit developers are interested in building affordable housing not public parking garages, the City of Menlo Park will likely be responsible for constructing, funding and financing this part of the Downtown Affordable Housing Project. The amount of debt the City needs will depend on the gap between (a) construction costs and (b) multiple potential funding sources including grants, capital development reserves, and future “development funding” fees.
In August 2024, city staff estimated the cost of Bay Area parking structure space as having “ranged from $30,000 to over $50,000 per space, and may potentially be higher in current dollar values, from 2012 to 2022”. (Source: Affordable Housing On City-owned Downtown Parking Lots – Feasibility Study Draft)
Using the California Construction Cost Index the Sherman Avenue Garage would have cost $113,000/space in 2024 dollars. (Note: a 40% multiplier versus 2020). Assuming a garage level built underground parking costs twice as much as one above ground (my guess), the construction cost per parking space in 2024 dollars would be about $85,000 per space, a parking structure with 500 to 600 spaces that was built on the surface would cost about $43 – $51M, and the annual debt service on a 7.5% prime interest rate loan would be $3.2 – 3.8M.
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Key Question:
So, how could the City pay for this parking structure?
Closing Observations
- Designing a development that includes at least 345 units of affordable housing, each with one parking space and at least 506 public parking spaces, while preserving the visual and physical characteristics of Downtown Menlo Park, will be extremely difficult, if not impossible.
. - Even if this were physically possible, the affordable “housing-parking” part of the project might NOT be financially viable for a non-profit housing developer.
. - Even if both of the above were possible, it’s doubtful Menlo Park could fund and finance the required public parking structure.
. - Even if ALL of the above were possible, I doubt a central parking structure in either Plazas 1 or 3 would be viewed as convenient and acceptable by most Downtown customers who typically are in a hurry and visit either to run errands or keep appointment. That reflects the nature of our community and types of Downtown businesses.
. - Tenants would live in tall unappealing buildings with little or no shared open space, and ground-level views would be the unattractive backsides of existing businesses.
My Prior Posts On This Subject
- Menlo Park Dismisses A Promising Alternative To Downtown Affordable Housing
(January 30, 2025)
. - Will The Menlo Park Downtown Affordable Housing Project Become A Train Wreck? (January 11, 2025)
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Menlo Park Might Need More Downtown Parking In The Future – Not Less! (November 15, 2024)
. - Will Menlo Park use 3 downtown parking plazas for affordable housing?(September 24, 2024), 2024)
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Why have you never asked these questions about other affordable housing projects in our city?
Because those projects did not threaten the health and viability of Downtown Menlo Park either during 2 to 3 years of expected construction or after its completion. ANY housing of the planned scale would be destructive. The fact this project is “affordable” is NOT my concern.