For more than 20 years, the commercial building at 260 Homer Ave. has faced a unique restriction: none of its occupants are allowed to take up more than a third of its total space.

The provision was put in place in 2000, when Palo Alto was crafting a new vision for the downtown neighborhood known as South of Forest Avenue (SOFA) to address the relocation of the Palo Alto Medical Foundation to a new campus on El Camino Real. The goal was to hedge against vacancies. Council member Pat Burt, who served on the citizen committee that created the SOFA plan, said during a recent public hearing that city leaders were concerned at the time about "monolithic companies" establishing themselves in the downtown area and leaving gaping vacancies when they choose to leave.

"When you have a monolithic company, you lose them all at once and you have a huge vacancy and that's what we see in several of our downtown areas today," Burt said.

Burt made this point during a Dec. 18 discussion in which the council was asked by the property owner, Tall Tree Partners, LLC, to remove the restriction. Brian Bullock, representing Tall Tree, told the council that over the course of the pandemic, his company has struggled to fill the building's commercial space, which can accommodate four tenants.

One tenant, the accounting giant Ernst & Young, had expressed interest in expanding within the building but was told it could not do so because of the zoning restriction. As a result, the space had remained vacant for 16 months, Bullock said. He argued that having the space vacant led to a reduction in retail activity and urged the council to reconsider whether the policy is still necessary.

"It does two things. One, it makes it harder to lease that space. And two, even when we have a tenant that's in there, we now risk losing that tenant on expiration. … It's been an impediment to leasing and certainly is an impediment to our ability to accommodate the tenants that we have there," he said.

Council members, however, showed little appetite for removing the provision. Their main reason for wanting to keep the provision was the same as Bullock's for wanting to remove it: fear of vacancies. The larger the tenant, council members argued, the larger the vacancy it leaves behind if it chooses to relocate to another site or city.

Vice Mayor Greer Stone said that Palo Alto is known for being an incubator for smaller businesses, Stone added, and one of the ways the council can continue this legacy is by having downtown offices with relatively small footprints.

"I think the reasons for this cap that existed a couple of decades ago still continue to exist today," Stone said. "The concern about a large vacancy in downtown from one large tenant moving out … is a really strong argument for this cap."

Several council members said they were open to changing the policy. Council member Julie Lythcott-Haims noted that some conditions may have changed since the policy was enacted more than 20 years ago.

"The zoning designation that is so specific to this particular site had happened so long ago," Lythcott-Haims said. "The open question for me is: Has the economic environment changed significantly, such that the levers we wanted to pull then are the levers we want to pull now?"

Council member Greg Tanaka went a step further and suggested that the city accede to Bullock's request and give the landlord more flexibility in choosing and accommodating its tenants.

"It makes a lot of sense," Tanaka said. "It's better to have buildings occupied than vacant."

While the meeting was a "pre-screening" hearing and, as such, did not feature any formal votes, the council's feedback made it highly unlikely that the proposed revision will advance. Council member Ed Lauing alluded to recent instances of large companies shifting their headquarters away from Palo Alto, a list that includes the likes of Tesla and Palantir. These moves suggest that the council's proposal to prevent large corporations from taking over downtown spaces remains relevant.

Former Mayor Karen Holman, who served alongside Burt on the SOFA working group, noted during the Dec. 18 discussion that the restriction furthers two other downtown goals: supporting startup companies and ensuring that commercial tenants would not disrupt the "fine-grained residential character" of the neighborhood, which includes homes and small offices.

"Smaller startups can't compete with larger companies and the rents they can pay," Holman said. "When a larger entity leaves or departs, it leaves a big hole in the economy."