How does this market resolve if a court forces Palo Alto to approve the project? 

 As long as Palo Alto approves it, whether by injunction, mandamus, or voluntarily, it resolves YES.

On April 3rd, Palo Alto received its first Builder's Remedy project, 300 Lambert Ave, with 45 condo units, 9 of which are designated low-income. The building would be 65 feet, bypassing Palo Alto's 50-foot height limit. It will replace an auto shop.

Will this project be approved by the city to have at least 40 units and be over 60 feet before 2025?

https://padailypost.com/2023/04/03/palo-alto-gets-first-builders-remedy-application-that-bypasses-city-zoning/#comment-25529

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