Stanford Drops Plans for Mall Expansion

April 14th, 2009

University to focus on hospital expansion, says city’s treatment of the two projects ‘created confusion’

By Gennady Sheyner — Palo Alto Online,

Stanford University has dropped its ambitious plan to expand the Stanford Shopping Center and to add a hotel to the mall site.

Stanford officials said the university decided to abort its plan for a shopping-center expansion so that it could focus all its energies on its other major Palo Alto project — the massive renovation of its medical center. Stanford announced its plans to withdraw the shopping-center application in a letter and at a meeting with City Manager James Keene and Mayor Peter Drekmeier Tuesday morning.

“It is unfortunate we have had to take this step, especially given the effort, time and dollars invested by all parties,” stated the letter, signed by Stanford Vice President Robert Reidy.

The Simon Property Group, which owns and manages the shopping center under a lease with Stanford University, has been planning to add 240,000 square feet of retail space, as well as a new 120-room hotel, to the shopping center. Simon’s agreement with Stanford gave the university the right to withdraw the application.

Simon’s application has been crawling through the city’s approval process since August of 2007. City officials have been consistently referring to the expansion as one of Stanford’s two potentially “transformative” projects, with the other one being Stanford’s proposed hospital expansion.

On March 30, City Manager James Keene stressed the potential financial benefits the shopping-center expansion would have on the city and called the shopping center “a critical sales-tax generator for the city.”

The withdrawal of the Simon’s shopping-center application means the city will not receive the millions in sales- and hotel-tax revenues it planned on drawing from the shopping-center project. City staff has estimated that the new retail space would have brought in about $1.6 million in annual sales-tax revenues, while a 120-room hotel would have given the city $1.1 million in revenues.

The city was also planning to collect about $9 million in impact fees from Stanford for the shopping-center expansion, money that would be used to mitigate the project’s impacts on local schools.

A recent city report stated that it is expecting a 10.4 percent slump in sales taxes — initially estimated at $22.1 million — for the current fiscal year, which ends June 30.

Stanford officials said the university decided to withdraw its shopping-center plans because the city has been consistently lumping the two major projects together, which Stanford said creates “confusion and distraction” and diverts focus from the hospital project. Reidy argued in his letter that the City Council and the Planning and Transportation Commission have been routinely treating the two projects as “one large project.”

“The intertwining of the Shopping Center with Stanford’s priority for hospital renewal has created confusion for the public and even the City Council that sought it,” the letter stated.

The shopping-center expansion, Stanford noted, was the city’s idea and not Stanford’s. But in recent months, the plans for new retail space have been interfering with the university’s main goal: to renovate Lucile Packard Children’s Hospital and Stanford Hospital and Clinics.

Stanford plans to add 104 beds to the Children’s Hospital, raising its total to 361, and to create more space for families in patients’ rooms. The university also plans to furnish Stanford Hospital with 144 beds — raising the total bed count to 600 — and add 824,000 square feet of new space. Stanford estimates the medical center will have 2,243 new workers by 2025.

Jean McCown, Stanford’s director of community relations, said the university’s application withdrawal reflects Stanford’s position that the hospital project is the higher priority of the two. Stanford needs to retrofit its hospitals to meet California’s seismic requirements by 2013 and university officials say the project is already at least a year behind schedule.

Stanford has also argued that the hospital facilities desperately need more space. Close to 900 patients had to be turned away from the two hospitals in 2007 because of a lack of space.

Stanford had previously agreed to apply for the two projects concurrently, though university officials insisted that the merits and impacts of each projects be considered separately.

Stanford has been particularly concerned about the city’s request that the hospital provide 594 units of housing. Stanford has argued that the city has been asking the hospitals to shoulder a disproportionate burden in mitigating the housing and traffic impacts from the two expansion projects.

Drekmeier said that while the two projects were studied simultaneously, the City Council could have easily voted on them separately, after evaluating the merits of each.

“This wasn’t a packaged deal,” Drekmeier said. “Stanford’s concern was that the perception of the community was that this was a big, packaged deal.”

Stanford Hospital and Children’s Hospital officials also sent the city a letter underscoring the need to seriously consider the inherent community benefits of the hospital projects, namely world-class health care to Palo Alto and neighboring communities. The city has repeatedly acknowledged that the hospital would provide major benefits, but council members insisted that Stanford provide other benefits because its proposed expansion calls for development at a greater density than the city’s zoning regulations allow.

The letter, co-signed by Christopher Dawes, president and chief executive officer of Children’s Hospital, and Martha Marsh, president and chief executive officer of Stanford Hospital and Clinics, says the hospitals are currently evaluating which mitigation measures they would be able to provide.

“We are facing higher financing costs, greater difficulty in raising private donations, and the need to provide more care to those who cannot afford to pay for health care,” states the letter, “This reduces the hospitals’ financial ability to afford these projects, which are much needed by the community.

“If, in addition, the City requires millions of dollars in costs for items that are not related to the health care or the impacts of the projects themselves, these projects will be in great financial jeopardy.”