For years, Palo Alto has treated the area around 340 Portage Ave. as a prime opportunity zone, a place that is ripe for new housing, parkland and community amenities.

The sprawling area, which until recently was occupied by Fry's Electronics, is the subject of an "area concept plan," a vision document that has been in the works. Some residents and neighborhood leaders have called on the city to buy the property and build hundreds of affordable housing units, as well as retail space and a community center.

The Sobrato Organization, which owns the property, appears to have other plans. Last week, it submitted to the city a preliminary application for a housing development that it plans to build at 200 Portage Ave., a site that is currently occupied by a portion of the building, which once served as a cannery.

The townhouse plan calls for 15 buildings with a total of 85 units along a portion of the lot adjacent to Park Boulevard, according to the application. Seventy of these would be three-bedroom units, while the remaining 15 would have two bedrooms, according to the application. Thirteen units would be designated for residents in the "moderate" income category, which is defined as 120% of Santa Clara County's area median income.

In addition to housing, Sobrato is also looking for certainty. The company's attorneys submitted two letters to Planning Director Jonathan Lait last week in which they declared Sobrato's intent to rely on recently approved state laws to make sure their project wins approval. One letter notes that Sobrato plans to take advantage of Senate Bill 330, which effectively locks in the development standards at the site and prohibits the city from making any zone changes that would modify the project or make it infeasible. Another letter notes Sobrato's plans to use the Density Bonus Law to secure additional density and to find some relief from the city's open-space requirements.

Sobrato's proposal for 200 Portage Ave. is the first development in Palo Alto that is relying on SB 330, also known as the "Housing Crisis Act," to ensure approval. The act, which was amended in 2019, creates time limits for city reviews of housing applications and prohibits cities from applying new development standards after a preliminary application is submitted.

By relying on the law to lock in the status quo, Sobrato is also limiting the city's option to rezone the area as part of the North Ventura Coordinated Area Plan, which is focusing on the broader 60-acre area that includes the campus formerly occupied by Fry's Electronics.

It is also, however, providing an amenity that the city has been clamoring to see: housing. The city's Housing Element envisions up to 249 housing units at 340 Portage Ave. and many residents have advocated for the redevelopment of all or part of the old cannery building that housed Fry's Electronics for residences. Sobrato had consistently said that it has no plans to redevelop the Fry's building. It has, however, requested a zoning waiver that would allow Target to set up shop at the site.

But as the new applications shows, Sobrato is willing to redevelop at least part of the sprawling building to create housing, even though it's not the type of housing that most advocates have been called for. One proposal that is championed by a group of neighborhood residents and community volunteers would create 400 below-market-rate units for teachers, seniors and people with disabilities as well as 770 other units at the Fry's site. By contrast, the proposal from Sobrato targets families and its 13 "below-market rate" units are aimed for residents in the highest eligible income bracket.

The letter from Sobrato's attorneys argues that redeveloping the 4.64-acre portion of the 12.47-acre site at 340 Portage Ave. by replacing the existing commercial spaces with 85 townhomes "is consistent with and will assist in meeting the City's housing goal." The project would take up roughly 38% of the site's capacity.

This isn't the first time that Sobrato has tried to build housing near the former Fry's Electronics. In 2017, the developer received the city's approval for a 50-unit apartment project at Mike's Bikes' previous location on El Camino Real. Last year, however, Sobrato informed the city that because of high construction costs, it will no longer be pursuing the development at 3001 El Camino Real.

Sobrato's attorneys indicated in a letter to Lait that the developer may modify its proposal for 200 Portage Ave. at a future data by adding units. To do that, it would rely on the state density bonus, which can be applied to projects where at least 10% of the units are affordable to moderate-income households. At the moment, Sobrato has elected to not rely on the law.

"Although not currently planned, Sobrato reserves the right to apply for density bonus units, up to the maximum, if determined necessary to make the Project financially feasible during the development of the Project," states the letter from Tamsen Plume and Genna Yarkin of the firm Holland & Knight LLP.

While Sobrato is not requesting additional units at this time, it is relying on the state density bonus law to obtain two zoning waivers: one that would allow it to increase the density of the buildings by shifting the floor-area-ratio at the site from 0.6 to 0.92; and another that would allow it to provide less open space than the city's zoning code requires.

"Sobrato has determined that an increased FAR (floor area ratio) is necessary to provide appropriately sized features of a townhome development including home plans with variety that offer options to different people, provide adequate circulation, and meet all other City standards," the letter from Plume and Yarkin states. "Reducing the FAR to 0.6 would result in the loss of units and therefore, the maximum of 0.6 would preclude construction of the Project at the density permitted, and this requirement must be waived."

While the city mandates open space to make up 30% of the project, Sobrato is calling for a waiver that would bring it down to 24%. The decreased percentage of open space, the letter states, is necessary to provide "appropriately sized features of a townhome development, respect exiting easements, provide adequate circulation, and meet all other City standards including height maximums."

In declaring Sobrato's intent to rely on SB 330, Pluma and Yarkin underscore that the city is only permitted to reject the project "if there is a preponderance of evidence that the project would have a significant, unavoidable and quantifiable impact on 'objective, identified written public health standards, policies or conditions.'"

"The Legislature has affirmed its expectation that these types of conditions 'arise infrequently.' There is no evidence, let alone a preponderance of evidence, that the Project would have any impact on public health and safety that cannot be feasibly mitigated," Plume and Yarkin wrote.

Having received the presubmittal application last week, the city is now reviewing it for completeness, city spokesperson Meghan Horrigan-Taylor said in an email.

"As this is the first SB 330 submittal that the City has received, we are setting up a web page to ensure that the public can view pre-applications as they are submitted, with more details on the State law and associated online resources," Horrigan-Taylor wrote.