News Release News Release The City of Palo Alto
Communications Department
250 Hamilton Ave
Palo Alto, CA 94301


PRESS RELEASE 10/28/2014
Subject :

Sterling Park Developer Agrees to Pay City $8 Million For Affordable Housing
Contact : Molly Stump, City Attorney    650/329-2171
Palo Alto, CA – Following a closed session of the City Council on Oct. 27, City Attorney Molly Stump announced that the City Council has approved a settlement in litigation with Sterling Park, L.P., and the developer has agreed to pay $8 million into the City's Residential Housing Fund.  The Residential Housing Fund is derived from fees paid in lieu of providing affordable housing units in residential developments under the City’s Below Market Rate (BMR) housing program.  The deposit will bring the fund balance up to $9.2 million.  However, some funding is committed to other activities or projects. The City also has a Commercial Housing Fund which collects an affordable housing impact fee for new commercial development.  The current balance of the Commercial Housing Fund is approximately $8 million. 

"We are pleased that the settlement of this lawsuit means that there will be $8 million available to be used for the development of affordable housing," said City Attorney Molly Stump.  “That is the objective of the BMR housing program, and it remained the City’s goal throughout this legal process.”

In 2005, Sterling Park, L.P. and Classic Communities, Inc. submitted an application for a 96-unit townhouse development on West Bayshore Road.  Because the project was over five acres in size, Sterling Park was required to sell 20% of the units at Below Market Rate prices or pay fees equal to 10% of the market rate sales prices.  In 2006, the City and Sterling Park entered into an agreement that Sterling Park would satisfy the BMR program through a combination of on-site BMR units and in-lieu fees. 

In 2009, Sterling Park filed suit challenging the legality of the City’s BMR program after its application had been approved and construction was substantially complete.  At that time, Sterling Park had sold only one unit at a BMR price, with the remaining nine units remaining vacant pending resolution of the litigation.

The parties have been actively litigating the case for more than five years, including an appeal to the California Supreme Court.  The parties have now agreed to settle the suit by adjusting the mix of BMR units and in-lieu fees to provide one BMR unit on site and converting the remainder of the developer’s obligation to in-lieu fees. 

The City’s BMR housing program, one of the first of its kind when adopted in 1974, requires that developers of new market-rate housing units either set aside a certain percentage of those units to be sold at affordable rates or pay in-lieu fees to the City’s affordable housing fund, which are used to finance affordable housing throughout Palo Alto.