A proposal by Smith Development to construct a mixed-use building with 65 apartments on University Avenue eked out an early win Wednesday, despite criticism from neighboring residents and some planning commissioners about the project's parking plan and density.

The development proposed for 660 University Ave. is the first project in Palo Alto to move ahead with a formal application under the "planned home zoning" process, which allows builders to negotiate with the city over zoning exemptions. If approved, it would replace a medical building that currently houses the Palo Alto Dental Group. The dental offices would relocate elsewhere in the city under the proposal, developer Boyd Smith told the Planning and Transportation Commission on Wednesday.

The commission voted 5-1, with Chair Ed Lauing absent and Vice Chair Doria Summa dissenting, to advance the project to the Architectural Review Board. If approved by that board, the project would return to the commission and ultimately the City Council for final approval.

Despite its preliminary support, the commission expressed concern about various elements of the project. Commissioner Bryna Chang argued that the building is too close to the street and called for larger setbacks. Others, including Summa and Commissioner Keith Reckdahl, suggested that the parking plan is insufficient and said they were skeptical about Smith's plan to reduce parking demand through a "transportation demand management" program that encourages residents and office workers to eschew cars in favor of other modes of transportation.

While a development of this sort would typically require 110 parking spots, Smith plans to include 88 spots in its underground garage.

Several residents of The Hamilton, a condominium community for residents ages 55 and older, also spoke out against the plan, arguing that it would bring too much density and traffic to the part of downtown that today is known for an abundance of senior services. Replacing medical offices that exist today with general offices, they argued, would not be compatible with the character of what some refer to as downtown's "senior corner."

Carol Gilbert, who sits on the board at The Hamilton, argued that the project would be too large for the area and that its units would not be affordable to most residents. Though she said she supports housing in the area, the proposal for 660 University would "amend the city requirements so that another concrete monolith can spring from the sidewalk for more affluent residents."

The project proposed by Smith Development would include 47 studios, 12 one-bedroom apartments and six two-bedroom apartments. With a height of about 45 feet (the elevator tower would rise up to 61 feet and 11 inches), it would exceed the existing height limit of 35 feet in the current zoning district. The plan calls for 9,115 square feet of office space on the ground floor.

Leigh Prince, an attorney for The Hamilton, argued that the density and intensity of the proposal is "too much." If the project is approved, the city would be allowing a far greater density than would normally be allowed under both local zoning and the state's density bonus law. The project, she said, would bring "little benefit to the community and perhaps even a burden on neighboring seniors."

"General office, unlike existing medical office, provides no benefit to the seniors living here," Prince said. "It only provides intensity."

Chang shared some of the concerns brought up by residents and suggested that the apartments at the proposed development are unlikely to be affordable to most people. Five of the 13 units that are listed as "below market rate" would be designated for the "moderate" income level, which targets residents who make between 80% and 120% of area median income under the current plan. A studio, she said, would rent for about $2,355 per month.

"My concern is we're not real getting affordable units here," Chang said. "That's supposedly the community benefit we're receiving in order to allow a tremendous amount of density."

While the commission shared some of these concerns, members agreed that these issues can be resolved as the project moves further along in the process. Commissioners Cari Templeton and Keith Reckdahl both alluded to state mandates that the require cities to ramp up their housing production and the recent state trend toward giving developers more leeway to exceed traditional rules on density and parking. Reckdahl noted that the city is required to build 6,086 units under the Regional Housing Needs Allocation process, which means considering projects that would normally make residents and city officials uncomfortable.

"Uncomfortable is the new normal when it comes to housing in Palo Alto," Reckdahl said.

Commissioner Bart Hechtman agreed and said the city has to take seriously any opportunities to build housing.

"This project, at 65 units, may actually cover 1% of our RHNA goals for the next time and that's not insignificant," Hechtman said.

Like others, he questioned the need to allow general office use at the site, a component of the project that Smith Development argued is necessary for the financing to work out. In a letter, Lund and Boyd Smith wrote that they believe allowing traditional office space on the site is "in the best interest of the community because it will play a key role in bringing about these new housing units."

"Without this change, the project is not economically viable," Boyd and Lund Smith wrote. "We want and need this office space to be viable for the next 50 years, and flexibility in the type of office tenant that can use this space will help us better respond to market changes as they occur."

Summa was not convinced. She argued against permitting general office use and suggested that the project should be reduced from four stories to three. While others suggested that the project can be refined as it moves through the process, she said she would rather see the issues identified by residents and commissioners addressed before it gets too far along.

"It is a good place for density," Summa said. "It's a question of how much and at what cost."