Palo Alto leaders found plenty to love about downtown's newest housing proposal: it's a short walk from transit, it's near Stanford University and Palo Alto High School and it's so close to retail that it's practically in a mall.

Owners of that mall, however, aren't sold on the project. At a Monday hearing, Ellis Partners, which owns Town & Country Village, came out swinging against the proposal from Ed Storm: a five-story building with 20 condominiums that would occupy what is now a parking lot behind Jamba Juice. Even as some residents and council members suggested that the area is eminently suitable for housing, Ellis contended in letters and comments that the development would be incompatible with the popular shopping center.

The shopping center's co-founders James Ellis and Melinda Ellis Evers and director of development Dean Rubinson wrote in a letter to the City Council that they were "shocked to learn" about the proposed residential development, which they argued is "significantly different from the existing scale and architecture that Ellis Partners, based on city policy, has worked to preserve."

"Our intent was to continue to ground lease the site and utilize it for parking for our tenants and customers for the foreseeable future," the letter states. "However, it appears that the site is now under contract with a developer who is interested in maximizing the development density on the site, in excess of the city-wide height limits and with no apparent regard for the architectural context of this important community gathering place."

Rubinson told the council during Monday's hearing on the project that Ellis Partners has always respected the city's land use vision, adhered to the zoning code and avoided maximizing developmental potential. Given its history of reviving the shopping center, Ellis Partners became "greatly concerned when we learned about the proposed project."

"With all due respect to the application and their architect we feel like placing an isolated five-story 55-foot development on a quarter acre site that might measure to 70 feet with mechanical and elevator equipment is wholly out of context for a site like this that is adjacent to historic and primarily single-story structures," Rubinson said.

Ellis Evers said that while the company supports housing, it believes that the project "isn't fair" because it significantly exceeds the city's typical zoning regulations.

"We'd support a thoughtfully designed one-, two- or three-story project at this location but what is currently proposed is just too tall and too dense," Ellis Evers said.

The developer's team argued that the zoning exemptions are a fair trade-off for the critical commodity that they are trying to create: housing. To win approval, Storm is applying for a zone change to concert the commercially zoned site to "planned house zoning," (PHZ) which gives council members broad discretion to relax development standards for residential projects.

The zoning process, which the council created in 2020, has seen an uptick in applications in recent months after an underwhelming first year that saw just one project advance with a formal proposal. Developers had recently proposed using the zoning tool to build a 67-residence condo and townhouse complex at 4345 El Camino Real and to construct a 382-apartment complex at 3400 El Camino Real, the present site of Creekside Inn.

The goal of the zoning designation is to encourage more housing by creating flexibility for builders. While Ellis Partners argued that the owner of the Encina lot is asking for too much, Ken Hayes, founder of Hayes Group Architects, countered Monday that the zoning exemptions are a necessary trade-off for creating housing at a location that is ideally suited for it.

Hayes pointed to the site's proximity to retail, public transit, health facilities, Stanford University and Palo Alto High School and called it the "perfect location for multi-family housing opportunities." He also pointed to other large developments nearby, including the Opportunity Center and Palo Alto Medical Foundation.

"Transition and change aren't easy. That's the price of providing housing in our community," Hayes said. "With no R-1 zones nearby, several 50-foot neighboring buildings and plenty of amenities, this parking lot size is one of the most logical sites I've seen in Palo Alto for high-density housing opportunity and employment of PHZ zones."

While opposition from Ellis Partners may not be enough to completely derail the project, it could prompt significant revisions. Numerous council members, including Eric Filseth and Greg Tanaka, said they would like to see the Town & Country owner and the project applicant to come to some sort of an agreement before the project is approved.

"I think the community is best served if Town & Country Village continues to thrive," Filseth said. "If the operator who has proven that they can run a successful shopping mall in an era where that's very, very difficult — if they've got concerns, we've got to listen to that."

At the same time, he and his colleagues agreed that the proposed location at the edge of Town & Country is perfectly reasonable for housing. Mayor Pat Burt observed that construction of housing in the area around Town & Country is something that the city should embrace, provided they do not negatively affect the shopping center, which could mean eliminating the podium parking and shifting to an underground garage.

"I also want to respect the unique character for Town & Country and I want to make sure a project there is not overbearing on that whole ambiance that is essential to its retail vitality," Burt said.

The project, as proposed, would consist of 12 one-bedroom and eight two-bedroom condominiums. Tanaka said he would prefer to see smaller units such as studios because they tend to be more affordable. Council member Alison Cormack disagreed and suggested that the larger residences would be ideal for families.

"One of the reasons people would want to live there is because they'd want to live close to our fantastic schools," Cormack said. "This is an unusual proposal and I do think it makes sense and I hope there's an opportunity for the neighbors — Town & Country and the applicant — to work together."