Major deal would sell 1,800 East Palo Alto apartments to Menlo Park developer

Sand Hill Property Company confirms negotiations are in the works

East Palo Alto's largest block of rental-housing stock could soon be sold to Menlo Park developer Sand Hill Property Company, a company executive confirmed Tuesday.

The deal, which involves 1,800 units -- more than half of the city's multi-family rental housing -- would be headed by Steve Emslie, former Palo Alto city assistant manager and planning director, Sand Hill's portfolio manager Michael Kramer said. Silicon Valley Business Journal first reported on the potential acquisition on Feb. 16.

Kramer, who oversees acquisition, financing, development, leasing and asset management for Sand Hill, said the company has formed a new affiliate to operate the portfolio, Woodland Park Communities. Emslie will be the executive director.

Since the massive block of housing stock was first bought up by now-defunct Page Mill Properties in 2007, the fate of the Woodland Park apartments has been of special concern to city leaders and the community.

East Palo Alto's 107-acre west side, which is adjacent to San Francisquito Creek from the Menlo Park to the Palo Alto borders, contains about 22 percent of the city's residents -- 6,075 people -- according to the city's draft general plan, which was recently released.

The area contains 77 percent of the city's multi-family housing and 95 percent of the city's rent-controlled housing. About 68 percent are Hispanic, with substantially more Spanish speakers who are not fluent in English -- 48 percent compared to 34 percent of the city as a whole, according to the draft plan.

Much of the west side's housing, about 50 percent of all of East Palo Alto's rental stock, is in Woodland Park apartments, which is currently owned by Equity Residential, a Chicago-based apartment-unit owner.

East Palo Alto renters have been under increasing pressure as surrounding communities' housing prices have skyrocketed and increased demand is fueled by the expansion of Facebook and Google just to the north and south and continuing conversion of retail spaces to offices for startup companies. And many of the most vulnerable residents live on the west side and at Woodland Park, according to the city.

City leaders and residents have said they want to preserve housing for low- and very-low-income residents and to avoid the wholesale pitfalls of gentrification as much as possible. But even rent-stabilized apartments can rise in costs dramatically, taking units out of the low-income and affordable housing stock when a tenant vacates a unit. The landowner can raise the rent to market levels, fair-housing advocates have said. Advocates are concerned that the area, which has many older apartments, might be redeveloped.

But Kramer sought to allay fears of a wholesale redevelopment on Tuesday. He said that the company has no plans to redevelop the properties at this time.

"Woodland Park Communities is newly established and it is dedicated to the acquisition of long-term, income-generating multi-family properties," Kramer said. The company plans to "honor all existing leases for the foreseeable future," he added.

Emslie said Woodland Park Communities "is really focused on the transition and managing the asset. We want to work with the city's general plan process and to be very collaborative and support what the city wants."

Development is a long way off, he added, noting that the company plans to let the general plan, policy and any analysis all work through before making any decisions.

Some East Palo Alto residents have voiced concerns about density and high-rise buildings that could be a part of the city's updated general plan, which may be adopted before September, according to City Manager Carlos Martinez. An eight-story tower was being considered as a possible allowance to entice developers to retain some low-income housing.

Emslie, with his tenure in Palo Alto, said that he developed skills working in a highly engaged community, which he thinks will benefit the project overall for both cities.

"All of the stakeholders' interests are always considered," he said of his vision for any future project. "It will be fair and equitable."

Martinez said that any new owner would be obligated to follow the city's Rent Stabilization Ordinance, which prevents evictions unless under just cause.

"We're waiting to see what happens," he said of the possible ownership by Sand Hill/Woodland Park Communities, but the city is keeping residents informed of their rights.

On news of the pending sale, rent-stabilization-program officials sent letters to all renters within the city informing them of their rights if a property changes ownership. The letter does not mention Woodland Park apartments specifically, and it was also received by renters who do not reside within the acquisition's boundaries but who live in rent-stabilized housing.

Woodland Park has had a rocky history since it was first amassed by Page Mill Properties in 2007, which has contributed to residents' and the city's concerns. The properties were mired in lawsuits over the rent-stabilization ordinance and steep rent hikes by Page Mill, including lawsuits by investors and a $100 million failed investment in the company by the California Public Employees' Retirement System (CalPERS).

Page Mill filed for bankruptcy in 2009 after defaulting on a $50 million loan payment, the Palo Alto Weekly reported at the time. A subsequent auction failed to entice any buyers, largely because of pending litigation, and the properties returned to Wells Fargo in 2010.

City leaders tried to get the bank to sell off parts of the portfolio to multiple buyers so that one company would not monopolize the rental-housing stock, but the bank kept the parcels intact, according to news reports at the time.

Equity Residential purchased Woodland Park in 2011 for $130 million. But the company's ownership was also controversial. Tenants filed a class-action lawsuit in September 2014 alleging that the company charged unlawful and exorbitant late fees.

Reached on Tuesday, Equity Residential would only confirm the potential sale.

"We are working with Sand Hill regarding a potential sale but have no comment beyond that," the company wrote in an email.

Kramer and Emslie said they could not comment on specifics regarding the deal, nor when it might close, due to privacy considerations during negotiations, but they said they would release more information after the deal is completed.

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6 people like this
Posted by A Travesty
a resident of Menlo Park: The Willows
on Feb 17, 2016 at 5:49 pm

This article, while informative, leaves out two major pieces of information. The financial backer for Equity Residential is U.S. Subsidiary ABU DHABI INVESTMENT AUTHORITY.
check out Equity Residential and the name Sam Zell pops up. This is the fellow who in 2007 bought the Chicago Tribune and quickly ran it into the ground, forcing this venerable newspaper to close its doors.
East Palo Alto is, once again, being taken to the cleaners by corporate America.
And Steve Emslie Former Palo Alto Director of Planning and Community Development is collecting a pay check to oversee this travesty.
There is no justice.

Like this comment
Posted by Clem Molony
a resident of Menlo Park: The Willows
on Feb 18, 2016 at 3:07 pm

Dear Almanac,

Related to this issue, please provide a link to the East Palo Alto general plan update public-involvement process. There apparently is a section of that general plan update related to this western portion of EPA, which is immediately adjacent to Menlo Park's Willows neighborhood. Also, all future Almanac stories about this issue should include reference to this link. / Thank you.

Like this comment
Posted by Stats
a resident of Menlo Park: South of Seminary/Vintage Oaks
on Feb 18, 2016 at 3:52 pm

Thanks for making the connection Travesty !
The Biz Journal has an in-depth story on the Abu Dhabi link, but not Sam Zell.
Web Link
"Menlo's own" Sand Hill Properties isn't always the best developer for the communities under development either. It's probably not all their fault, but the Sand Hill's Properties imbroglio over Sunnyvale Town Center has blighted the center of Sunnyvale for a number of years. So just because they are local developers, we shouldn't expect them to do what's best for the local community.

I hope whatever the Sand Hill plan's to do, it is lined up with the city's general plan and the more specific plan for the west side.
Web Link
Web Link

Like this comment
Posted by Hmmm
a resident of another community
on Feb 18, 2016 at 5:05 pm

A Travesty has their bad guys mixed up, which is pretty easy since corporations are people. Sam Zell is the Equity bad guy and they're the seller. Sand Hill is the new bad guy, the buyer in this current negotiation. It's Sand Hill with the ADIA $$, not Equity.

Clem - I hope our city planners keep in mind what your city's allowed Facebook to do and how lousy Menlo was with the University Circle project. What's good for the goose is good for the gander.

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