In its roughly four decades on the Peninsula, TheatreWorks has piled up raving reviews and theater awards, but one prize has continuously eluded the theater company -- a permanent home. That, however, can soon change.

An ambitious plan by billionaire John Arrillaga to build a theater and a large office building near Palo Alto's downtown Caltrain station could help TheatreWorks achieve its dream of finding a place it can call its own. Theater officials have told the Weekly they have been in discussions with Stanford University and the city over the new plan and are hoping to become the occupant of the proposed theater, which would be built at the site of the historic MacArthur Park restaurant.

The project is still in its embryo phase, but Monday night the City Council approved 8-0, with Mayor Yiaway Yeh absent, a staff recommendation to spend $250,000 on design work and environmental analysis. The money would be taken from a $2.5 million fund that Stanford University pledged to provide the city as a "public benefit" last year as part of the massive expansion of its hospital facilities.

If the project were to proceed, it would be a major coup for TheatreWorks, a company that currently alternates between the Mountain View Center for Performing Arts and Palo Alto's Lucie Stern Community Center. Theater officials say the setup creates both logistical inconvenience and confusion for patrons. Robert Kelley, the company's artistic director, said the company typically moves into a venue for a show and then packs up after about five weeks. He analogized the existing arrangement to not having a real home.

"Try to imagine that you're living in two different hotels in different cities, and you have to move every couple of months," Kelley told the Weekly in a recent interview.

The new proposal isn't the first time the theater company has looked to a partnership between the city and Stanford University for a solution. In 1999, the city and the university explored teaming up to build a new theater at El Camino Park, just west of the site currently under evaluation. TheatreWorks took part in that discussion. But Stanford opted in 2000 to forgo the partnership in favor of pursuing its own plan.

Kelley said TheatreWorks officials were thrilled to learn last fall that the city is now considering a fresh proposal for a downtown theater. Kelley said his company has been thinking about finding a permanent home for a few decades. The main aim, he said, is having control over space.

"There's tremendous advantage for having a home for TheatreWorks, a single space," Kelley said. "That's independent of site considerations."

But he was quick to add that there's "tremendous virtue" to this particular site, namely its proximity to mass transit, El Camino Real, Stanford University and downtown Palo Alto. The existence of other arts-and-culture facilities in the area would help establish the strip as a cultural destination.

"What I find really exciting about it is that it's in the midst of a burgeoning arts community and an arts district that includes the new Bing Concert Hall (on Stanford's campus) and the Stanford Theatre," Kelley said.

The theater's proximity to the Caltrain station would be a major draw, agreed Phil Santora, managing director of TheatreWorks. The company has patrons throughout the Peninsula, and the adjacent Caltrain station would make it easier for them to get to the theater, he said.

Santora said the theater company is looking for a venue that could seat 600 (the same as the Mountain View center). Ideally, it would also include a smaller "flexible" space that could accommodate between 150 and 300 seats.

"The dream is to have all activities under one roof," Santora said. "Right now, if you're engaged in all TheatreWorks programming, you're driving to various facilities."

The new proposal has one advantage over prior discussions that Stanford and the city eventually tabled -- a pot of money specifically dedicated to improving the area around the Caltrain station. The development agreement between Palo Alto and the Stanford University Medical Center specifically allocates $2.25 million to pedestrian and bicycling amenities near the border of Stanford and Palo Alto. The new proposal also has, in Arrillaga, a backer with deep pockets and a long history of major donations to his alma mater, Stanford.

Deputy City Manager Steve Emslie called the timing of the proposal a "fortunate situation" because it allows the city to consider pedestrian and bicycle improvements to the area in the context of the project. Had the proposal come in after these improvements are made, the city likely would have to make substantial modifications to accommodate the new facilities. He noted the project remains far from certain and said staff expects to come back in two to three months with more details.

"This is a very fluid and a very tentative proposal at this point," Emslie said.

Even so, council members reacted favorably to the idea of bringing a new theater to the MacArthur Park site, a project that would require the restaurant's relocation to a site of the city's choosing at the applicant's expense. The historic building had already been relocated once -- in 1919, when it was moved from Menlo Park to its current location. The proposal also includes at least one office building and an underground garage.

Councilwoman Nancy Shepherd said she is "very excited" about the prospect of TheatreWorks having a "premier auditorium" in the city and praised the project for giving the city a chance to take a fresh look at improving the prominent downtown area.

"I think this can really open things up for the downtown area -- make it much more integrated -- and I think it will be really good for Palo Alto," Shepherd said. "It will complement the other aspects of Palo Alto that we have that we like so much."

Others expressed a few reservations. Councilwoman Karen Holman called the project both "exciting and scary," noting that there had been almost no public discussion of the proposal before Monday's meeting. Councilman Sid Espinosa said he was "cautiously excited" about this project but pointed to its potential to "really transform this wall between Stanford and Palo Alto."

"This can really be a transformative move for the city, and that's why I'm excited," Espinosa said. "I'm cautious because I just want to be sure we build a process that reaches out to the neighbors, reaches out to businesses and thinks about how to really engage them."