In a crucial proof of concept for the city, the first major housing project in North Bayshore received approval at the City Council's Tuesday, Oct. 23 meeting. In the process, the 635-unit project by the Sobrato Organization won a deep discount on city fees.

The mixed-use project, which includes office space, is now cleared for construction after winning a 5-1 vote, with John McAlister opposed. Councilman Ken Rosenberg was absent.

Sobrato's project, located at 1255 Pear Ave., is a snapshot of the city's goals to transform the corporate office park in North Bayshore into a self-contained neighborhood with housing, parks and schools. For that reason, it was vital to show that the project was not only possible, but profitable as a way to encourage the full construction of 9,850 new homes envisions for the area.

"I'm looking forward to this being the first landmark housing project in North Bayshore, and I want to make it work," said Councilwoman Pat Showalter "The discussion on how we can do that is valuable."

Yet the project also was a showcase for the myriad challenges of this kind of multifaceted development. Sobrato Vice President Tim Steele pointed out that his firm pitched initial plans for a project at the Pear Avenue site back in 2011, which was later revised in 2015 as a housing project under the city's gatekeeper process. Along with the 635 homes, the Sobrato project also calls for a six-story, 231,000-square foot office building intended to be leased to Google. As an incentive, the project is donating a 1.4 acre parcel of land for a future 140-unit affordable housing project.

Since the project was submitted, the city fees have reportedly skyrocketed, especially for parks and schools. In 2015, those fees were set around $32,000 per housing unit. Earlier this year, his firm withdrew their project for a period after learning those city fees had practically doubled to $60,000 per unit, or about $38 million for the entire project.

At the time, Sobrato and other prospective housing developers issued warnings that the city fees were gutting their profit margins and making housing construction infeasible in North Bayshore. These fees are largely tied to land values in North Bayshore, which have soared in recent years as the city-fueled development frenzy took stride. Concerns that developers might pull out set off alarms among city officials, especially those who had made North Bayshore housing a top priority for Mountain View.

At the Tuesday meeting, the City Council sought for the third time to tinker with the fee structure.

For park space, council members agreed that Sobrato's private open space should count toward its required quota of parkland as long as it would be publicly accessible. In particular, council members agreed to give a credit of 75 percent toward a 1-acre private park on the Sobrato property's south side, a value equal to about $7.5 million.

City officials acknowledged that the parkland being dedicated by Sobrato would not normally be eligible for credit because it is too narrow and spread out, resembling an apartment courtyard more than a park. Council members urged Sobrato representatives to do their best to make the space an active park by including amenities like volleyball and basketball courts, and barbecue pits.

A similar bending of the rules was made for the school fees. Representatives from the Mountain View-Whisman and Mountain View-Los Altos High school districts could not reach an agreement with Sobrato over how many students likely would be generated by the new housing or how much the developer should pay. The districts insisted Sobrato pay $24.4 million while Sobrato officials countered with an offer of $7.25 million, about a third of which would go to the state.

Mountain View council members ended up splitting the difference by agreeing the school fees should be lowered to $12 million. It was a compromise that didn't thrill anyone, especially from the school districts. If the city buckles on fees for Sobrato, every other developer would be requesting the same, warned Mountain View-Whisman School Board president Laura Blakely.

"I'm worried that you're setting a precedent here with Sobrato, and then you'll have Google next saying, 'Me too! Me too! We want a smaller amount!" she said. "The school district wants certainty, we don't want to be left with a big hole."

Similarly, Councilman John McAlister, who was teleconferencing in from Hawaii, was clearly frustrated that the city seemed to be caving on its fees. Warnings by developers of walking away from North Bayshore were just a bluff, he said.

"We're so eager to discount this so soon," he said. "I play a little bit of poker, and I know pushing the limit. We can hold firm on our ordinances and requirements, and I think the project will still go through."

Mayor Lenny Siegel said that wasn't the case. It wasn't a simple matter of squeezing Sobrato to accept tighter profit margins, he said. Developers needed to show a full inventory of their costs and expected revenues upfront in order to attract investors to the project. In a meeting last month, the city's own consultant agreed that the city fees were making development infeasible, he said.

While Sobrato was getting some slack, council members insisted that other developers wouldn't get similar treatment.

"I don't want to set a precedent for other projects," said Councilwoman Lisa Matichak. "While I'm willing to make an adjustment this one, I don't want people to assume we're always going to be doing this."

While the Sobrato project was approved in a 5-1 vote, McAlister voted against the project, saying he couldn't support the reduced park fees.