Palo Alto's latest downtown project seeks to accomplish two things: blend seamlessly into the bustling, tech-savvy environment of University Avenue and stand out as a "gateway" structure that welcomes train commuters downtown.

The proposed glassy five-story building with four floors of office space, a café at street level and at least five residential units on the fifth floor would stand on the corner of Alma Street and Lytton Avenue, the site of a former Shell gas station. Because its height, at 64 feet, and density would exceed the city's regulations, the applicants are requesting changing the property's zoning to "planned community" (PC) -- a designation that allows developers to exceed density laws and other zoning rules in exchange for "public benefits" to be negotiated.

Though PC-zone projects have become the subject of controversy in Palo Alto, the city's Planning and Transportation Commission voted 6 -1 Wednesday night to initiate the zone change, with Susan Fineberg dissenting.

Among the proposed public benefits of 101 Lytton Ave. (also known as 355 Alma St.) are a garden, public art, at least one unit of low-income housing and several charging stations for electric vehicles.

More importantly for Palo Alto officials, the building would fulfill the city's often-stated mission of encouraging dense developments near transit corridors. The new building would stand a block away from University Avenue and directly across the street from the downtown Caltrain station -- the second busiest station on the Peninsula.

"If we are going to accommodate housing in the city -- and we need to do it to some extent -- this seems to be a more appropriate way to do it than locating it in areas like East Meadow Circle or things that have been redeveloped in the past decade," planning director Curtis Williams told the commission, alluding to a south Palo Alto neighborhood that has seen a recent influx of residential development.

Planning commissioners agreed that the plan isn't perfect and that the proposed public benefits aren't sufficient. They asked the applicants to consider putting in more housing units and retail space -- suggestions that the applicants promised to integrate into their revised application.

"We talk a lot about housing near transit and compact design near transit and more sustainable uses of our precious land resources," Commissioner Eduardo Martinez said. "I think this is the opportunity for us to test the waters."

Martinez and commission Chair Samir Tuma both asked the applicants to increase the housing component to 10 or 12 units and to increase the number of below-market-rate units.

Large PC-zoned projects typically face heavy community scrutiny, particularly when the subject of public benefits arises. Recent PC projects, including Alma Plaza and the College Terrace Centre, faced significant opposition from land-use watchdogs and neighborhood residents and went through various revisions before earning the city's approval.

Several residents similarly criticized the "Lytton Gateway" development for not offering enough public benefits. Winter Dellenbach, a persistent critic of PC-zoned projects whose benefits fail to materialize, argued Wednesday that the applicants are proposing too many offices and too few apartments.

"It strikes me that never has so much development been tried to be justified by so little benefits and so little housing," Dellenbach said.

Bob Moss, a frequent critic of PC-zoned proposals, urged the commission to "kill this project." He cited other PC projects in which the applicant proposed benefits that never fully materialized. In several cases (including near Caffé Riace on Sheridan Avenue and near St. Michael's Alley on High Street), plazas intended for public use were partially or fully appropriated by area restaurants.

"Never has the city of Palo Alto punished a property owner for failing to comply with a PC requirement -- never," Moss said.

Jerry Schwarz, who lives three blocks from the proposed development, took a different stance and said he would welcome the new building. He said he likes downtown's "vibrancy" and has no objections to buildings that exceed the 50-foot limit. The proposed 64-foot height is not too high, he said.

"I know I'm unusual, but I want to be sure people here understand it -- there are people who live downtown because they don't object to height," Schwarz said.

The majority of the commission agreed that the opportunity to build a dense building so close to the train station is too good to pass up. The City Council has spoken consistently about the need to encourage development near transit centers.

"If not here, where? If not now, when?" Commissioner Daniel Garber asked.

Vice Chair Lee Lippert agreed and said the proposed building "has the potential to be the medium-sized incubator space for a company like Facebook." The social-media giant had its first headquarters on University Avenue, just a short stroll from the proposed building.

"The next start-up company that starts in Palo Alto should take this building" before moving to a larger space, Lippert said.

Jim Baer, a prominent downtown developer who is part of the application team, said the proposed project would cater to the young, tech-savvy companies -- the next generation of Facebooks and Googles. Many employees live in San Francisco, he said, and the proposed building would allow them to easily commute to Palo Alto by Caltrain.

Baer said the building would also serve as a symbol of Palo Alto's status as an educational, technological and financial capital.

"It's kind of an epicenter," Baer said. "You know you have arrived in Palo Alto."

The developers are expected to revise their application and add more benefits before returning to the planning commission for further review and possible approval. The Architectural Review Board and the council would also have to approve the development before it could be built.