In the latest sign of downtown Palo Alto's sizzling office boom, the city approved on Thursday a proposal to build a four-story building at a prominent University Avenue location currently occupied by the popular boutique shop Shady Lane and other stores.

The city's Architectural Review Board voted 4-0, with Catherine Ballantyne absent, to approve a mixed-use development proposed by Hayes Group Architects for 429 University Ave., at the corner of Kipling Street. The plan calls for a demolition of two existing one-story buildings (425 and 429 University) and replacing them with a single building that would have roughly three times the density of the existing ones.

The 31,407-square-foot development would include retail on the ground floor, office space on the second floor, and three residential units on the third. There would be an additional residential unit on the fourth floor, along with commercial space and a rooftop terrace.

The development does not seek a zone change and will not be reviewed by the City Council unless someone files an appeal.

The board's vote came despite a mixed reception from the public, with many downtown residents arguing that the new building is too massive, doesn't provide enough parking and would clash with architecture on Kipling Street, where there are numerous Victorian buildings.

Marion Odell, who lives at Cowper Street and Everett Avenue, argued in a letter to the city that the project is "too massive" for Kipling, which is narrow, and that the additional traffic will cause congestion.

Andres Mediavilla, a resident of Palo Alto Avenue, wrote that the tall building would create a canyon on Kipling, "making this beautiful street look like an unwelcoming city alley."

Not everyone felt this way. Several residents and downtown employees, including numerous real-estate agents, argued that the building designed by Ken Hayes Architects is exactly what's needed to add vitality downtown. Beverly Fields, a commercial property manager, praised Hayes for bringing diversity to downtown with buildings that are "modern, sleek, simple and beautiful."

The Thursday hearing was the third time since November that the architectural panel has taken up the project. The design for the development has gradually changed based on board comments, with the recent modifications including clear glass for the ground-floor storefront; second- and third-floor balconies set further back from the street; and transparent railings along the alley on Kipling. And while the board had some concerns about the project's density and proposed landscaping, members agreed that the application warrants approval.

Board member Kyu Kim said the review process has improved the design, such that it is now "a great building." While Mayor Karen Holman has talked extensively about the need to improve the city's architectural-review process, Board Chair Randy Popp argued on Thursday morning that the evolution of the building's design is proof the reviews are working.

"I think it's important for people to understand how this process has worked, in particular on this building, which does seem to be particularly polarizing," Popp said.

Popp and board member Alexander Lew both acknowledged the public's concerns about the project's density and its potential impact on traffic and parking. The applicant, Elizabeth Wong, has relied on a program known as "transferable development rights" to increase the building's commercial component by 9,207 square feet. The program allows density bonuses and parking exemptions to be purchased from developers who are rehabilitating historic buildings elsewhere. In this case, the project is also relying on the TDR program to get a reduction of 20 parking spots.

This exemption, as well as the developer's payment of "in-lieu fees" for parking, change the requirement from 92 parking spaces to 35. The applicant has agreed to provide 40 parking spots in the building's underground garage.

Lew said that because the board doesn't get to see which historical projects are being restored and selling these bonuses, it's hard to judge whether the trade-off is fair.

"I think the (time) seems ripe for a community discussion about a larger picture of how that ordinance has been working," Lew said.