The historic MacArthur Park building in downtown Palo Alto would be relocated to make way for a new theater and a multi-story office building under an ambitious proposal from philanthropist John Arrillaga.

The plan, which was unveiled in a staff report Thursday and which the Palo Alto City Council is scheduled to discuss for the first time Monday night, would significantly transform a highly visible site next to the downtown Caltrain station -- a site owned by Stanford University that serves as an entryway into downtown Palo Alto. The city and Stanford University have previously flirted with the idea of building a performance center near this location and had even commissioned a study in 2000 to consider whether such a project would be feasible. The company TheatreWorks, which currently rents space in Palo Alto and Mountain View for its performances, also took part in the 2000 study, seeing the project as a possible permanent home in Palo Alto for its theater operations.

Stanford ultimately decided in 2005 to back away from what was then called the Palo Alto/Stanford University Performance Art Initiative and to pursue its own plan for building performing-arts venues.

Now, the two sides are once again looking to bring major changes to the prominent site. The earlier initiative had evaluated as a possible location for performing-arts facilities the Palo Alto side of El Camino Real -- the city's El Camino Park. The new proposal focuses on a location directly east of that land, 27 University Ave.

"The importance of a site in this area is the link between the University and the City of Palo Alto," Deputy City Manager Steve Emslie wrote in a report. "The area provides a direct link to the University Caltrain station, direct vehicular access and public visibility. The prominence of the site enables a theatre to be a community landmark while having a physical association with Stanford."

Arrillaga, a developer and philanthropist who is well-known for his significant contributions to Stanford University, his alma mater, pitched the project, according to Emslie's report. The concept includes "a new multi-story office building fronting El Camino Real, a separate theatre building on approximately 60,000-80,000 square feet, and a three-level underground garage," Emslie wrote.

It would also include improvements to transit, pedestrian and bicycle connections and a relocation of the MacArthur Park building, a state-recognized historical landmark that served as a meeting place for soldiers and their families during World War I. Initially located in Menlo Park, the building was moved to its current location in 1919.

The proposal to build a new office building and theater could receive a major boost from the ongoing expansion of Stanford University Medical Center -- a $5 billion project that the council approved last year after several years of public hearings. As part of the approval, the medical center had agreed to pay the city $2.25 million to design and develop an attractive park space with pedestrian pathways, benches and flower borders near the downtown transit station. The goal is to minimize traffic by encouraging people to walk, bike or ride Caltrain to the expanded hospitals.

The development agreement between the city and Stanford specifies that the $2.25 million must be used for "improvements to enhance the pedestrian and bicycle connection" from the transit center to the intersection of El Camino Real and Quarry Road.

Staff is recommending the city use $250,000 from this account to hire an architect, a site planner and an urban designer to evaluate the new proposal and to launch the necessary environmental analyses, including a traffic study, an arborist report, a storm-water-management plan, a sanitary-sewer study and a storm-drain analysis.

The studies would be the first of many planning steps Palo Alto officials would take to assess and possibly approve the project. According to Emslie's report, the city would probably need to rezone the property to accommodate the new office building; change the Comprehensive Plan, Palo Alto's land-use bible; and prepare an environmental-impact report, a comprehensive analysis of the project's potential impacts and steps needed to compensate for those consequences. Voters may also be asked to "undedicate" a driveway next to El Camino Park that is currently dedicated parkland.

These steps would be undertaken upon submittal of the formal application for this project, according to Emslie.

If the city were to proceed with the project, it would be the second major office development to make its way toward the area around the downtown Caltrain station. The city's Planning and Transportation Commission recently approved a zone change to enable the construction of a five-story building at the intersection of Lytton Avenue and Alma Street. The "Lytton Gateway" development, much like the new proposal, is an example of the city's recent drive to promote dense, mixed-use development near major transit areas -- a key tenet of what is known as New Urbanism.

"The project presents a unique opportunity to create an attractive, vibrant urban destination and identity for people arriving by transit to Palo Alto, one that complements the scale and character of downtown and enhances connectivity to downtown and Stanford," Emslie wrote in the report.