CC Resolution No. 24-077 waiving BMR and Planning Fees imposed of the Vallco Rise SB 35 projectRESOLUTION NO. 24-077
A RESOLUTION OF THE CUPERTINO CITY COUNCIL WAIVING THE
IMPOSITION OF CERTAIN IMPACT FEES FOR THE VALLCO/RISE
SB 35 PROJECT
WHEREAS, on September 21, 2018, the City of Cupertino (“City”) City
Manager approved an application under Government Code section 65913.4 (“SB
35”) submitted by Vallco Property Owner LLC (“VPO”) for development of a
mixed-use project on a 50.82-acre property (“Property”) located at 10101-10330
North Wolfe Road, hereinafter referred to as “the Approved Project”; and
WHEREAS, on June 3, 2022 and subsequently on February 16, 2024, the City
approved two modifications to the Project under SB 35 ( “Modified Project”).
Collectively, the “Approved Project” and “Modified Project” are referred to herein
as “the Project”; and
WHEREAS, the Project approval as modified authorizes the construction of
2,669 housing units, 890 of which would be affordable to lower income
households; 1,954,613 square feet of office space; and 226,387 square feet of retail
space; and
WHEREAS, prior to approval of the Project, as defined below, the Property
was occupied by a shopping center comprised of 1,450,927 gross square feet of
retail area; and
WHEREAS, on August 20, 2019, the Cupertino City Council adopted
Resolution Nos. 19-108, 19-109, and 19-110, and Ordinance Nos. 19-2187 and 19-
2188 amending the City of Cupertino General Plan to alter development standards
for the Property (“General Plan Amendment”); and
WHEREAS, the Project is subject to certain “fees,” as defined in
Government Code section 66000(b), charged by the City in connection with
approval of the Project for the purpose of defraying all or a portion of the cost of
public facilities related to the Project (“Impact Fees”), and is further subject to
parkland dedication requirements and/or fees under the Quimby Act,
Government Code section 66477; and
WHEREAS, VPO disputes the validity of the Impact Fees and parkland
dedication fees imposed on the Project in whole or in part; and
Resolution No. 24-077
Page 2
WHEREAS, on August 15, 2022, the City and VPO (collectively, the
Parties”) entered into a Tolling Agreement that tolled the statute of limitations
for certain challenges to Impact Fees and parkland dedication fees imposed on the
Project, which, as amended, remains in effect and tolls the statute of limitations on
those claims through July 31, 2024; and
WHEREAS, on July 10, 2024, the Parties entered into a Settlement
Agreement and Release (“Settlement Agreement”) to resolve their dispute
regarding Impact Fees and parkland dedication fees imposed on the Project; and
WHEREAS, as a condition of the Settlement Agreement, the City agreed to
present for City Council consideration a request to waive Below Market Rate
Housing Mitigation Fees (“BMR Fees”) and Zoning/Planning Municipal Code
Fees (“Planning Fees”) that may otherwise apply to the Project; and
WHEREAS, on December 18, 2023, VPO renewed its prior request for a
waiver of the BMR Fees under Section 2.3.3(D) of the City’s BMR Housing
Mitigation Program Procedural Manual, Resolution No. 20-055 (Exhibit A); and
WHEREAS, the City Attorney has reviewed the request to waive BMR Fees,
and has determined based on Exhibit A and other evidence considered, including
but not limited to the City’s 2015 Non-Residential Jobs-Housing Nexus Analysis,
that the Project fully mitigates the impact of market-rate residential and
nonresidential components of the Project on the demand for affordable housing;
and
WHEREAS, under Sheetz v. County of El Dorado (2024) 601 U.S. 267, 275
Sheetz”), a generally applicable, legislatively imposed fee charged as a condition of
granting a land use permit must have an “essential nexus” to the government’s
land-use interest and “rough proportionality” to the development’s impact on that
interest to avoid a finding that the fee is a taking of property in violation of the 5th
and 14th Amendments of the U.S. Constitution. In the absence of an impact of the
Project on the demand for affordable housing in Cupertino, the imposition of the
BMR Fees on the Project would in the opinion of the City Attorney result in an
unconstitutional taking of Property, and therefore a waiver of the BMR Fee is
appropriate; and
WHEREAS, the City Attorney has reviewed the Planning Fees that would
be imposed on the Project under the FY 2024-25 Fee Schedule and has determined
Resolution No. 24-077
Page 3
that the imposition of the full amount of the Planning Fees would be
disproportionate to the impact of the Project on long-range planning efforts by the
City (See Sheetz, supra, 601 U.S. at p. 275; see also Gov. Code, § 65104 [“. . . [A]ny
fees to support the work of the planning agency . . . shall not exceed the reasonable
cost of providing the service for which the fee is charged.”]); and
WHEREAS, in lieu of the paying Planning Fees, VPO, through the
Settlement Agreement, has agreed to provide up to $500,000 to fund future long
range planning studies in the vicinity of the Project, which may include studies
covering the Vallco and/or Heart of the City Specific Plan areas; and
WHEREAS, based on the findings and Recitals set forth above, the City
Attorney recommends that the City Council waive the imposition of BMR and
Planning Fees on the Project.
NOW, THEREFORE, BE IT RESOLVED, based on the Recitals set forth
above, that:
1. The City Council hereby waives imposition of the BMR Fees and
Planning Fees imposed on the Project.
2. Notwithstanding Resolution No. 20-055 or any other prior Resolution of
the City Council, the fee waivers granted by this Resolution shall remain
in effect during the Term of the Settlement Agreement; provided,
however, the fee waiver shall expire upon the termination of the
Settlement Agreement or, alternatively, upon a finding by the City
Attorney that a BMR Fee is due and payable under Section 6(c) and
Exhibit D of the Settlement Agreement, in which case applicable BMR
Fees shall be determined according to the provisions of Section 6(c) and
Exhibit D.
3. To the extent that Resolution No. 20-055 or any other prior Resolution
of the City Council is inconsistent with this Resolution, this Resolution
shall control, and nothing in any prior Resolution shall create a legal
obligation or give rise to a duty of the City to act in a manner
inconsistent with this Resolution.
Resolution No. 24-077
Page 4
PASSED AND ADOPTED at a regular meeting of the City Council of the City of
Cupertino this 16th day of July, 2024, by the following vote:
Members of the City Council
AYES: Mohan, Fruen, Moore, Wei
NOES: Chao
ABSENT: None
ABSTAIN: None
SIGNED:
Sheila Mohan, Mayor
City of Cupertino
Date
ATTEST:
Kirsten Squarcia, City Clerk Date
7/25/24
7/25/24
017571.0001 4895-8905-1014.2
Miles Imwalle
D (415) 772-5786
mimwalle@coblentzlaw.com
December 18, 2023
VIA ELECTRONIC MAIL
Chris Jensen
City Attorney
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014-3202
ChrisJ@cupertino.org
Re: The Rise – Request for Waiver of BMR Fee [Updated, December 2023]
Dear Chris:
This updated letter is submitted on behalf of Vallco Property Owner, LLC (the “Project
Applicant”) regarding its project, The Rise (the “Project”), to request a waiver of the Affordable
Housing Fee the City is proposing to charge on the office portion of the Project. This request is
made in connection with the modification application recently submitted to the City for the
Project. This waiver request is submitted pursuant to Section 2.3.3(D) of the BMR Housing
Mitigation Program Procedural Manual. Specifically, the Project Applicant requests that the City
decline to impose an Affordable Housing Mitigation Fee because the Project does not have an
affordable housing impact. The Project, which includes 890 affordable units, more than offsets
any affordable housing demand its other land use components generate. Imposing impact fees
when the Project does not create an impact is unconstitutional.
The Project contains three primary components—residential, retail, and office—and
replaces an existing retail mall. The Project’s 890 units of affordable housing yield more than
any other Project in the history of the City. The retail and office components of the project
induce demand for affordable housing; however, the removal of the existing retail mall and the
Project’s provision of 890 affordable units offset that induced demand. Because the Project
more than offsets any demand induced by its retail and office components, using the analysis
from the City's own nexus studies,1 there is no affordable housing impact—indeed there is a
benefit—and therefore the City cannot constitutionally impose an impact fee. We also note that
in the SB 35 context applicable to the Project, the office portion is inextricably tied to the
1 Residential Below Market Rate Housing Nexus Analysis, dated April 2015. Accessed from:
https://www.cupertino.org/home/showdocument?id=16828.
Non-Residential Jobs-Housing Nexus Analysis, dated April 2015. Accessed from:
https://www.cupertino.org/home/showdocument?id=16830.
EXHIBIT A
Chris Jensen
City Attorney City of Cupertino
December 18, 2023
Page 2
017571.0001 4895-8905-1014.2
affordable units being provided since, by law, the office component cannot be built unless the
residential component, including the BMR units, is also built. For that reason, the City must look
at the impact based on the entire Project, not each subcomponent individually.
a. Calculation of Affordable Housing Impact
To understand why the Project does not create an affordable housing impact, we
propose the following analytical framework:
Step 1: Calculate the total induced demand for BMRs caused by the non-
residential portions.
Step 2: Calculate the existing induced demand for BMRs caused by the retail
mall being removed.
Step 3: Calculate the net new demand of non-residential (i.e., subtract existing
demand from the new demand)
Step 4: Calculate the number of BMR units in excess of what is required to
mitigate the induced demand from market rate units.
Step 5: Compare the "excess" BMR units to the non-residential net new induced
demand to calculate the total net new demand of the entire Project
Credit for the existing mall should be based on the comparative demand for affordable
housing, i.e., the impact. For that reason, we look to the increased demand for the various uses
contained in the City's nexus studies, rather than the fees for each. Fee amounts do not
measure impacts, because the City considers other unrelated feasibility and policy factors when
setting fees.
Non-Residential Jobs-Housing Nexus Analysis Table II-4: Housing Demand Nexus
Factors per Sq. Ft. of Building Area (copied below) identifies the number of affordable housing
units induced per square foot of building area per type of use, which identifies the impact of the
Project components. As this Table demonstrates, retail has the highest induced demand for
affordable housing per square foot and this demand is focused most on the very low-income
level. Office has a lower induced demand, which is most focused on the low- and moderate-
Chris Jensen
City Attorney City of Cupertino
December 18, 2023
Page 3
017571.0001 4895-8905-1014.2
income categories. While we note the disparity in income categories, to keep this analysis
simpler, we focus only on the total amount of increased BMR units.2
Table II-4: Housing Demand Nexus Factors per Sq. Ft. of Building Area
We calculate Steps 1 to 3 as follows:
Step 1: Calculate total demand from non-residential
Office:1,954,613 sf x 0.00071733 du/sf 1,402.10 BMR units
Retail:226,386 sf x 0.00098361 du/sf 222.67 BMR units
Total:1,624.77 BMR units
Step 2: Calculate existing demand from the Mall
Existing Mall: 1,207,774 sf x 0.00098361 du/sf 1,187.98 BMR units
2 Not only is this simpler, it is also a conservative approach because it underestimates the
benefit of the Project. A full accounting would acknowledge the affordable housing benefit of
shifting the use from retail to office since office has less than one-quarter of the induced
demand for very low income units compared to retail. Instead, office’s induced demand is
concentrated on the low and moderate income end of the spectrum. This shift to higher income
levels is itself a benefit.
Chris Jensen
City Attorney City of Cupertino
December 18, 2023
Page 4
017571.0001 4895-8905-1014.2
Step 3: Calculate net demand
1,624.77 BMR units
1,187.98 BMR units
Total new demand 437 BMR units
Step 4: Calculate the number of BMR units in excess of what is required to
mitigate the market rate induced demand
The City requires that market rate projects set aside 15% of the on-site units as
affordable to offset the induced demand of the market rate units. Here, there are
1,779 market rate units, meaning that 267 of the BMR units (rounded up) are
offsetting the induced demand of the 1,779 market rate units. Therefore, the
additional 623 BMR units are "excess" and should be credited when calculating
the net new demand of the entire Project.
Step 5: Calculate the total net new demand of the entire project
Comparing the total BMR unit demand from non-residential (437 BMR units) to
the number of BMR units that are in excess to the market rate demand (623 BMR
units) demonstrates that there is a net Project benefit of 186 BMR units. That is,
all induced demand for affordable housing from all components of the Project is
being met on-site and there are 186 BMR units being provided beyond that
induced demand, which is a significant benefit to the City.
b. Fees Cannot Be Imposed When The Project Has No Impact.
The City cannot impose an affordable housing fee here because the Project produces a
net benefit rather than an impact on the demand for affordable housing. The City’s impact fees
must have a “reasonable relationship” to the “deleterious public impact” of the development.
San Remo Hotel L.P. v. City and Cty. of San Francisco (2002) 27 Cal.4th 643, 667 (citing Gov.
Code § 66001). There is no such relationship here, where the predicate of imposition of fees—
an impact—does not exist. Any fees imposed in the absence of such a relationship are
unlawful, a violation of the Project Applicant’s due process rights, and would be invalidated.
See Home Builders Ass’n of Tulare/Kings Counties, Inc. v. City of Lemoore (2010) 185
Cal.App.4th 554; Boatworks, LLC v. City of Alameda (2019) 35 Cal.App.5th 290, 300.
Indeed, a fair reading of the BMR Housing Mitigation Program Procedural Manual would
not result in imposition of fees here. Only by making certain assumptions against the Project
that its components should be treated independently, and that the existing retail impact should
be measured based on the time when the mall has been under redevelopment) can the City
Chris Jensen
City Attorney City of Cupertino
December 18, 2023
Page 5
017571.0001 4895-8905-1014.2
arrive at the conclusion that an affordable housing fee can be imposed. By making such
assumptions, the City would engage in precisely the sort of individualized determinations that
require a “rough proportionality” before a fee could be imposed. Nollan v. Calif. Coastal
Comm’n, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994); Koontz v. St. Johns
River Water Management Dist., 570 U.S. 595 (2013). Again, because there is no impact, the
City would be engaging in an unconstitutional taking were it to impose fees. Instead, as the
City’s Municipal Code recognizes, “[t]o the extent permitted by law, the City’s objective is to
obtain actual affordable housing units within each development rather than off-site units or
mitigation fee payments.” Cupertino Mun. Code 19.172.020(B). Units, rather than in-lieu fees,
are exactly what the City needs, and are exactly what this Project provides (in excess of the
induced demand).
Further, Section 2.3.3.D of the City’s BMR Housing Mitigation Program Procedural
Manual recognizes that there may be instances in which application of the BMR requirements
could have an unconstitutional result, in which case, waiver or modification of the BMR
requirements is necessary. Although the City cannot charge a fee in excess of constitutional
limits, so the specific procedure for requesting waivers is not controlling, we nonetheless submit
this request for a waiver pursuant to that section.
Based on the foregoing, the Project Applicant requests that the City decline to impose an
unconstitutional affordable housing fee.
Very truly yours,
Miles Imwalle
cc: Pamela Wu, City Manager
Reed Moulds, Managing Director, Sand Hill Property Company