Housing waiver requires ‘quid pro quo’ contribution, says Planning Commission

Building commercial developments in Sonoma may come with a new price tag.

And a sizeable one at that, depending on who the builder is.

That’s what applicants for MacArthur Place discovered last week when the 64-room hotel and spa brought its proposal to build 11 new guestrooms at 29 E. MacArthur St. to the Sonoma Planning Commission.

MacArthur Place, which is owned by Arizona-based Lat33 Capital, a subsidiary of JP Morgan Chase, was seeking a permit to move ahead with the five-building expansion, for a total of 6,400 additional square feet on the 5-acre lot – along with a waiver of the city’s requirement of a residential component on commercial properties, which recommends housing be built on at least 50% of the total proposed building area.

MacArthur Place had been granted the waiver in previous project applications dated in 1997, 1998, 2018 and 2020. According to a city staff report, the applicant was basing its request for the waiver on two reasons: that a housing component would be incompatible with its use as a hotel; and that space is too limited to support housing, given that the 5-acre property is largely built out.

But Planning Commission members weren’t as amenable to waiving the housing requirement as in years past.

As Commissioner Larry Barnett put it: “(MacArthur Place) has been extended the waiver over a course of time, I get that. But that was then, and this is now.”

Barnett said the impetus to create more housing in Sonoma has heightened since MacArthur Place was first constructed in the 1990s and the approval of a housing waiver should no longer be a foregone conclusion. If city officials didn’t make more of an effort to get housing built, or raise the revenues for it, he said, “it’s never going to happen.”

Barnett suggested that MacArthur Place, being owned by JP Morgan Chase, would need to make a “major contribution” to the city’s Housing Trust Fund in order to receive his vote for the waiver.

“To me, (that) would be a quid pro quo at this point in time in the year 2021 in the City of Sonoma to grant a housing waiver for increased commercial development,” Barnett said.

The City established its Housing Trust Fund in 2019 with the intent that contributions to the fund would provide revenue to support low-income housing projects – whether as subsidies to affordable housing developments or as direct relief to low-income residents. In May of 2020, for instance, trust fund revenues were approved for use for rental assistance and utility payments to help keep low-income residents housed during the pandemic.

The fund currently has $240,180, according to city staff.

Commissioners Steve Barbose and Sheila O’Neill also voiced support for making the housing waiver contingent on a contribution to the fund.

Barbose called for “a substantial quid pro quo.”

“We’re now dealing with a corporate owner (JP Morgan Chase) who is one of the largest banks on Wall Street who wants to build 11 more rooms,” said Barbose. “(And that) is going to increase the financial profile of this property and they may well want to flip it and sell it to somebody else. I don’t think that’s remotely unlikely.”

O’Neill ran some rough numbers during the meeting. She said, based on a $500 per night room charge and an occupancy rate of about 75%, MacArthur Place “is looking at $1.5 million (per year) in revenue for these 11 rooms – which is significant.”

O’Neill suggested a rate of $100 per square foot as the calculation for the contribution to the housing trust – which, at 6,400 square feet, would have totaled $640,000.

Joe Walsh, the project spokesperson for MacArthur Place’s application, responded that if that high of a fee were added to the construction costs, the project would not be feasible.

“But you’re the Planning Commission, and it’s whatever you decide,” Walsh said. “But if it’s $100 per square foot I believe the project would not be built.”

Walsh said the applicant could agree to a $10 per square foot contribution. Barnett was unmoved by that offer, describing it as a “drop in the bucket” that would be the equivalent of “like one bathroom, maybe two.”

Project architect Michael Ross, meanwhile, urged the commissioners to “settle this based on the merits of the project.”

“It’s a philosophical question about how we fund housing,” said Ross. “And to take a project and negotiate across the room, I don’t know if that’s the best way to do it.”

When asked if requiring a housing-fund contribution in exchange for a housing waiver was allowable under city bylaws, Sonoma Planning Director David Storer said the municipal code provides the commission with the flexibility to do just that. He said the code cites four circumstances in which a housing waiver might be granted, but it also specifies that the commissioners “are not limited” to them. He described the offering of a housing-trust contribution – or, a Residential Waiver/Reduction Fee – as simply another circumstance in which the commission may grant a waiver.

O’Neill then proposed a $100,000 per unit contribution, which for 11 guest rooms would come to $1.1 million payable over a set number of years. Barnett, Barbose and commissioners Matt Wirick, Jim Bohar and Ron Wellander said they could support that.

In the end, the commission voted 6-0, with Robert McDonald absent, to approve the use permit and grant the housing waiver contingent on a Residential Waiver/Reduction Fee of $100,000 per guestroom to be paid over five years.

When asked following the meeting if the commission was setting any sort of precedent with its new Residential Waiver/Reduction Fee, Storer preferred to think of it as just another option planning commissioners can consider when an applicant requests a housing waiver.

“That’s my understanding of their discussion and findings,” Storer told the Index-Tribune.

MacArthur Place, meanwhile, has 15 days from the meeting to file an appeal of the decision to the Sonoma City Council. The deadline to appeal is Tuesday, Aug. 31.

Email Jason at jason.walsh@sonomanews.com.