Eucalyptus Sand Hill Hotel and Office Development Project

By Douglas Abbey, Chris Mahowald, Sara Gaviser, Whitney Birdwell
2019 | Case No. RE133 | Length 16 pgs.

This case describes a development decision faced by Stanford University’s Office of Land, Building, and Real Estate. In 2004, Stanford had the opportunity to develop a a 21.4 acre swath of land on Sand Hill Road in Menlo Park, California, one of the premier business addresses in the United States. Whitney Birdwell, an associate director of real estate development at Stanford Land Buildings and Real Estate (LBRE), has been asked to evaluate Stanford’s building options. Specifically, she needs to prepare a development pro forma as for Stanford’s senior staff which, following the staff’s approval, will be presented before the Menlo Park City Council (MPCC) in order to seek the required building entitlements.

Since the MPCC’s attitude towards growth had become more favorable over the last year, LBRE had been working intensively with architects, planners, hotel consultants, contractors and the leasing brokers to fully understand the feasibility of an office or hotel project on the site. The MPCC desperately wanted more hotel space in the city and, due to traffic and other concerns, particularly those relating to fiscal issues, would be reluctant to approve a project dominated by office use.

Birdwell could propose a project with a hotel only. This would give the project a high likelihood of obtaining approvals from the MPCC. Alternatively, she could suggest a project with the maximum developable office space and risk seeing it rejected. If Stanford’s proposed project failed to gain approvals, the bigger risk was that the land could lie vacant, as it already had, for decades. In this case, the land would generate no current income for the university.

To complicate matters, observers believed that the upcoming election in November 2004 would bring the return of a less development-friendly council. It was the last scheduled Council meeting before the election and, given the required public notice provisions, there would not be enough time to file a new application for consideration by the Council before the election.

Learning Objective

Give students the opportunity to decide the best and most profitable use of undeveloped land while taking into account local political restrictions. Teach students about hotel and office economics as well as balancing the needs of various development partners.
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