When Palo Alto approved in June 2018 a proposal for a 57-apartment development on the prominent corner of El Camino Real and Page Mill Road in Palo Alto, members of the City Council lauded it as both an important boost to the city's anemic rate of producing housing and a critical experiment with "workforce housing."

But now, having spent years clearing the necessary political and zoning hurdles, the development by Windy Hill Property Ventures is in danger of faltering because of an unexpected obstacle: a neighboring property owner who has demanded $1 million in exchange for the right to extend "tiebacks" under its building, according to emails obtained by the Weekly.

Welltower, the Ohio-based real estate company that specializes in health care facilities and senior housing, informed Windy Hill in late July that it is concerned about the company's proposed use of "tiebacks" — horizontal rods that get drilled into the soil to stabilize retaining walls for construction — for shoring at the new housing project. Welltower, whose properties include Sunrise Senior Living at 2701 El Camino Real, argued in a series of letters that the tieback scheme poses a "risk" for the senior community and that the company should be compensated for that risk.

Initially, Welltower had asked for $1 million, or about $67,000 for each of the 15 tiebacks. After some negotiating, it reduced its demand to $750,000, or about $50,000 per tieback, and requested that Windy Hill perform additional analysis to revise its project plans. The request appears to have surprised Windy Hill, which wasn't aware of Welltower's concerns until this past summer, more than a year after the project won the city's approval. It has also left Windy Hill scrambling to review its engineering plans and to seek help from the city.

The City Council only recently learned about the hiccup, which Councilwoman Liz Kniss alluded to on Sept. 23, when the council was discussing new reforms to encourage housing. The project has already benefited from significant assistance from the council, which created a new zoning designation last year specifically to make the development feasible.

The site was previously zoned as "public facility" and previously was used as a parking lot by the Santa Clara Valley Transportation Authority. The council voted in June 2018 to rezone the site to create the city's first "workforce housing combining district." The goal was to allow the construction of a housing development with small apartments that could be affordable to local employees.

The city has also tried to mediate the dispute, with little success. The approval process specifically states that shoring for basement excavation, including tiebacks, "must not extend onto adjacent private property or into the city right-of-way without having first obtained written permission from the private property owner and/or an encroachment permit from Public Works."

This gives Welltower significant leverage over Windy Hill in potentially delaying or stopping the project, leverage that Windy Hill acknowledged in its correspondence with the neighboring property owner.

Last month, Planning Director Jonathan Lait wrote a letter to Nicholas Rumanes, Welltower's head of development, expressing the city's desire to see new housing and its disappointment in seeing the project held up. Days later, however, Lait concluded in a separate email to Windy Hill that the dispute is a "civil matter between two parties," with no role for the city to intervene — a position that Windy Hill described as "disappointing."

Windy Hill has already agreed to fulfill several demands from Welltower, including provision-of-reliance letters from engineers explaining potential impacts of the tiebacks on the neighboring site and increasing insurance coverage from $10 million to $50 million. But Tod Spieker, co-founder of Windy Hill, indicated that his company is willing to meet these conditions but cannot pay the $1 million that Welltower had demanded in a July 30 letter from Laura Bartos, a Welltower executive.

Bartos wrote to Spieker that the Sunrise property is a "high-profile asset for us" and that the company isn't "comfortable with the risk and disruption of tiebacks."

"To compensate for that, we are offering the $67,000 fee per tieback. Our team feels this is an appropriate starting point for negotiating a fee which takes into account the risks and impacts this process poses to our building and residents," Bartos wrote.

Spieker responded that Windy Hill doesn't have the $1 million in its budget. He also stated that had Windy Hill known about Welltower's stance in February, there would have been other opportunities to mitigate the project costs. Now, those opportunities have been taken away, and the project is in danger of falling well behind schedule or faltering entirely.

"You have total leverage over us right now, but we have nothing to offer you," Spieker wrote. "And it feels terrible to be in this spot."

Spieker also indicated that without Welltower's permission to use tiebacks, the only options Windy Hill has are to put the project on hold and redesign the shoring or to "mothball the project altogether."

"We are asking for your understanding and cooperation," Spieker wrote. "You know how hard it is to entitle and develop property, especially in Palo Alto. You expect challenges from the city and pushback from neighborhood groups but not from other developers."

In his correspondence with Welltower, Lait acknowledged the city's disappointment in seeing the project held up. The city, he wrote, has a goal of producing 300 housing units per year, and while it is not meeting the target, the Windy Hill project "gets us 57 units closer."

"I will acknowledge that I am discouraged that with all the interest across the state in providing more housing, including deed restricted housing, and with threats from Sacramento to constrain local zoning laws in communities that fail to meet their housing obligations, that we'd find ourselves in situation where we are unable to issue a building permit because two parties, both familiar with development, are unable to find a reasonable solution to a routine construction activity."

Spieker declined to comment for this story. Welltower did not respond to questions about the dispute.