Cyber Cash, Old Money Clash in Palo Alto

PALO ALTO, Calif. â€”  She was the embodiment of well-heeled, this older woman in polished Ferragamo pumps, strolling through the historic Professorville neighborhood with her dapper, white-haired husband in tow.

Her house was looking pretty fine too, as workers laid a new flagstone walk in front of the white-columned bungalow on this shady street of mullioned windows and fish-scaled shingles, quiet voices and quieter money.

But wait. If she looked good and her husband looked good and her house looked good, why was she so worried? Rounding the corner at Addison Avenue and Bryant Street, she strode right up to two women with note pads gesturing at the graceful homes.

“Are you buying the neighborhood?� she demanded, bristling, indignant. “Well, you can’t have our house.�

These are prickly times here in the heart of the Silicon Valley, where history and grace duke it out daily with progress and technology. They are fighting here over the character of this graceful city’s storied neighborhoods. They are bickering over whether a region that has long valued eccentricity and difference can continue to house a mix of folks, or if it will make the final lurch from diversity to just plain big bucks.

An economic bonanza has rolled through this area, and it has left many in this city flush with cash, but worried that their community may be losing its identity.

The divisions are quickly visible. A wide generational fault line can best be seen along University Avenue, the heart of the revitalized downtown and a mecca for youth with sudden money. The area’s economic schism is most obvious in the blistering real estate market.

Silicon Valley Fuels Change

Blame a red-hot Silicon Valley and a white-hot stock market for Palo Alto’s current boom and bind: There’s just so much money here these days, thanks to a record number of companies going public in the last two years.

One of the biggest cash cows these days is University Avenue. With its packed, plush restaurants and retailers like Restoration Hardware, Cybersmith and Home Chef, the six-block stretch of “new chic� emporiums caters to the whims of the young and nesting. Which is great if you’re under 50. Or 40. Or, shoot, maybe 30.

One recent, sunny lunch hour, the line snakes out the door of World Wraps, where the alfresco tables are choked with T-shirted twentysomethings struggling not to drip soy-wasabi vinaigrette into the keyboards of their laptop computers.

Cigar-smoking young Turks lounge on park benches and what has to be the prettiest Burger King in America--all cream stucco and wood-edged windows--does a whopper of a business.

But “a lot of residents who have lived here a while think of this downtown as not their downtown,� said Carol Jansen, the city’s manager of economic resources planning.

“We now have a young person’s downtown. If you’ve lived here for 25 years, you’ve not only seen a change of use, but if you walk downtown, everyone’s younger than you. I know. I’ve done it.�

So has Evelyn Burkhalter, proprietor of the Barbie Hall of Fame, where the only evidence of high technology is the shapely little plastic number in astronaut garb. Burkhalter has no desire to buy Internet time, which is readily available. But “try to find a store where you can get hooks and eyes for a dress,� she challenged.

Not here. Not now.

Or consider the city’s real estate market--reminiscent of Southern California in the 1980s--in which homes are selling for upward of $150,000 over their escalating asking prices.

Palo Alto’s latest technology millionaires “can buy just about anything they want and pay cash for it,� said Alain Pinel, senior vice president for Coldwell Banker. “It’s the explanation that has been fueling the desire for real estate anyplace at any price.�

The nouveaux riches are wandering into graceful old neighborhoods, buying up big houses with bigger price tags only to tear them down and build again, bigger still.

Even high-tech legend Steve Jobs is getting into the act--with a twist. He plans to buy the house next door, raze it and plant an apricot grove. “If you’re tasteful and you have money, that’s what you do,� sniffed one old-timer.

There is a plus side, of course. As City Hall struggles to regulate the replacement of historic homes with “monsters,� “mega houses� and an orchard, officials here are also patting themselves on the back because city coffers are awash in sales tax revenues.

Citywide sales tax revenues jumped a healthy 24% between 1989 and 1996. In downtown, the increase was 61% in the same time period.

The growth of the downtown as an entertainment center was the major engine, according to the city. Between 1989 and 1995, the most recent statistics available, sales tax revenues from eating and drinking establishments nearly doubled.

Retail rents there and in the posh Stanford Shopping Center are among the highest in the nation. What retailers get in return for sky-high rents--in addition to lots of disposable income burning holes in designer pockets--is “a very sophisticated consumer,� said Sue Johansen, marketing director for Home Chef, a regional chain of combination kitchen stores and cooking schools.

While the company considers its customers to be “anyone who enjoys cooking and baking at home,� she said, “we started with the mind-set that our customer would be very affluent.�

Home Chef certainly came to the right place; its University Avenue store is among the expanding chain’s most lucrative.

‘One of the Most Desirable Addresses’

Palo Alto, or “tall tree,� was born in 1894 as the company town for Stanford University. After the 1906 San Francisco earthquake, expansion-minded city leaders printed up 200 posters that read, “Why not live in Palo Alto?� and tacked them to the crumbling walls of the ravaged city to the north.

That early effort backfired, and the crowds didn’t actually begin to appear until World War I. They didn’t take off until the 1950s, when Palo Alto became the birthplace of the world’s best-known technology ghetto, a region that has prospered almost nonstop since.

A combination of culture and climate, education and economics combine to make the city what relocation guides describe as “one of the most desirable addresses in the nation.�

Palo Alto boasts 2 1/2 jobs for every resident. One third of all Palo Altans over the age of 25 have at least one advanced degree. One of every four acres within the city’s boundaries is parkland.

There have been only six murders committed here in the past decade; the latest was June 13, and the city is still reeling. The public schools consistently rank in the high 90th percentile on standardized test scores.

With the average home priced in the neighborhood of $600,000, Palo Alto is actually one of Silicon Valley’s more affordable prime addresses. But demand is driving that home price up about 1.5% a month.

A decade ago “the high-tech entrepreneur . . . would have built a Taj Mahal to himself in Atherton or the Los Altos foothills,� said Gary Fazzino, a city councilman and manager for state government affairs at Hewlett-Packard.

“Now they’re doing it here,� he said. “There are fewer and fewer real people in this place. . . . That’s the most disturbing impact.�

Former Mayor Gail Woolley moved to town in the 1960s, next door to a Stanford University custodian and his wife, who wrapped gifts at a local department store. When the blue-collar couple sold their home, they were replaced by a pharmacist and a chemist.

That was a decade ago.

Since then, Silicon Valley has been awash in initial public offerings--private companies going public, selling stock to raise money--$11.8 billion worth in California in 1995 and 1996. Because most high-tech companies give stock options to nearly all employees, even 20-something programmers can become millionaires overnight--at least on paper.

The lion’s share was raised by Silicon Valley firms.

Six months ago these achingly young members of technology’s nouveaux riches “didn’t have this money,� said Coldwell Banker’s Pinel. “They don’t think they’re overpaying. It’s play money. It fell from the sky.�

Tell that to Soroor Ebnesajjad, 38, a software engineer who lives in San Jose and lusts for Palo Alto. She has been looking for a three- or four-bedroom house here for the past 16 months and has made four failing bids--three over the asking price.

In their latest losing effort, Ebnesajjad and her husband offered $70,000 over the list price for a home in north Palo Alto. It was only the third-best offer; the eventual buyer ponied up $90,000 more than the seller was asking.

“There were 13 offers or something,� said a dejected Ebnesajjad. “You just don’t know what hell we went through. . . . We put offers on so many houses and can’t get one.�

She hates what looking has done to her life. She considers giving up; she is well-off but cannot compete with the wealthy.

“I remember my 8-year-old telling me this, which really tore me apart,� she said. “My 8-year-old said, ‘Mommy, we used to go to museums and parks, and now we only look at houses.’ �

Rents have soared too, enough so that Stanford is feeling the pressure. The university guarantees all undergraduates lodging if they choose to live on campus. Right now, there are 231 more students than spaces, because it has become so much more expensive to live in town. The school is scrambling to fulfill its promise.

Graduate students are even worse off, because they compete for scarce campus housing in a lottery. The university just completed construction of 500 new graduate housing units but still is more than 400 spaces short of demand.

The housing dilemma came to a head here in September, when two historic homes were torn down in a matter of weeks to make way for newer, bigger construction. One was the 97-year-old Queen Anne-style Ducker House, the other a cottage believed to have been designed in the 1920s by famed Bay Area architect Julia Morgan.

The two demolitions brought to 52 the number of Palo Alto houses that had been torn down in the first nine months of 1996. Nearly half had been built before 1940; all have eventually been replaced by glaringly new homes.

To combat what many view as an epidemic of tear-downs--often the quick replacement of tradition with tastelessness--the City Council declared a two-month moratorium on all demolition of homes built before 1940 and is now working on permanent regulations to guide future residential building.

“Palo Alto has the burden of affluence,� said Karen Holman, a staunch protector of historic homes. “As property values get so much greater, there is a great temptation to take down something smaller and replace it with something larger because you can charge more for it.�

Property Rights Enter Fray

One storied example of mega construction is the big white house on Waverly Street--more than 6,000 square feet, not counting the basement and pool house, which replaces a 1911 farmhouse.

The new house is so big that the construction crew supports a full-time roach coach to serve lunch to the workers, that the owners had to hire a crane to lift mature trees and a pizza oven over the roof because they could not fit around the sides to the backyard.

Owner Cynthia Gunn and her husband, who have lived somewhere in the neighborhood for the past 20 years, defend their big house as it nears completion; others are bigger, they say.

“It was a shingle-style house before,� said Cynthia Gunn. “It’s a shingle-style house now. It’s a much more gracious, well-functioning and safer structure.�

John Hanlin, attorney for a consortium of developers embroiled in the continuing building saga, makes a similar point. The Ducker House, whose demolition led to the moratorium, may have looked great on the outside, but inside it was a shambles--an impossible-to-rebuild disaster waiting to happen.

“I think it’s a property rights issue,� Hanlin said. “More important than that, it really goes to the issue of aesthetics. Can a city legislate aesthetics?�

Developer Charles “Chop� Keenan is far less circumspect. Keenan came under months of fire when he rehabilitated downtown Palo Alto’s historic Varsity Theater and turned it into a Borders bookstore.

Sure it’s trimmed in gold-flake paint that sells for around $120 a gallon. Sure Keenan faithfully refurbished the 70-year-old marquee, and the “coming attractions� windows today display book covers and posters for author appearances. But a vocal minority still contends that the old theater ought to be a theater still.

“Everyone thinks they have a property right in their neighbor’s property,� Keenan said. “I don’t think that’s what Madison and the Founding Fathers had in mind. . . . We’ve become a community of world-class whiners here.�