Normally developments within the "Downtown Expansion District" - which Tony Sudol wants his San Ysidro Square housing project to fall under - must include retail on the first floor and residential above. But the Planning Commission and the city's zoning code enforcement officer, Gregg Polubinsky, say Sudol's "stand-alone residential development wouldn't jeopardize downtown synergy," according to Polubinsky presentation at Monday night's council meeting.

The council unanimously directed staff to prepare ordinances that would amend the city's General Plan to include the six acres at 200 E. 10th St. in the expansion district.

"It makes sense to do this. This land is not prime for industrial use anymore," Polubinsky said, adding that Sudol's project would embellish downtown's southern end by removing an idle industrial site and improving pedestrian safety with upgraded sidewalks and traffic turn lanes along Alexander street.

If the council votes to expand the district's boundaries once city staff writes the ordinances, Sudol would draw from the Downtown Specific Plan's pool of 1,500 housing units, 355 of which have already been snapped up by other residential builders downtown.

Sudol wants between 177 to 198 condos, so Polubinsky said he wouldn't have a problem securing them with council approval like he would if he went after some of the 3,450 regular, market-rate housing units for areas outside of the downtown.

The council has already given away all 3,450 available until 2014, meaning the only way Sudol can build his project is if it joins downtown.

Mayor Al Pinheiro bristled at the fact that the project would "change the rules established," but Sudol said it's appropriate.

"This may be something that wasn't considered when the General Plan was created, but it's become viable," Sudol said, adding that the condos will fill in the downtown and maximize existing sewer and water lines, which resonated with Councilman Russ Valiquette.

"You want to get away from urban sprawl?" asked Valiquette. "Well, this is how you get away from it. It may be new to this community, but the least we can do is give it a shot."

Sudol also touted the school district's acceptance of his plan and his willingness to voluntarily pay nearly three times the required school impact fees and also employ a crossing guard to improve pedestrian safety at the intersections of 10th and Monterey streets and 10th and Alexander streets.

"If we build it, they will come," Sudol told the council, referring mostly to retired "empty-nesters" and young singles, especially teachers, nearly all of whom don't live in Gilroy because of housing costs, according to school board member Denise Apuzzo.

But Pinheiro said district satisfaction doesn't guarantee council approval. Councilman Roland Velasco said "it seems if a developer throws enough money at the school district, they'll do it" and then asked if the district was concerned with increased bussing costs.

The Gilroy unified School District's facilities director, Robert Mendiola, said the school district will have capacity problems, "however, those with full mitigation (like Sudol) won't contribute to capacity problems" even though his project could bring in anywhere from 90 to 190 new students to the area. Some kids will require bussing, which the district's prepared to do, according to Apuzzo.