Why this article is important: Achievable intervention in California’s housing shortage requires multiple fronts. A new law approaches the shortage from the intuitive angle of reducing local agency discretion — the red tape leash — for adapting vacant commercial structures for reuse as housing projects. Commercial brokers are best positioned with owners of zombie buildings to benefit by marketing vacant commercial to developers.
Real estate adapts, too
Empty or underused space in existing structures may be converted to housing. Called adaptive reuse projects, these types of developments reduce costs for developers of residential projects, better than starting from scratch.
A new law, passed by Assembly Bill 507, requires a local government without comparable ordinances governing adaptive reuse projects for approval or disapproval administratively — that is, without first requiring a discretionary review of the use — to permit adaptive reuse projects as codified. [Calif. Government Code §65658.3(c)]
The legislative rationale is based on continuing commercial vacancies, particularly in the office sector, resulting from the shift to remote work since 2019. These zombie buildings continue to dot California’s commercial real estate landscape years after the “return to work.”
The new law requires permits for adaptive use projects to preempt local zoning regulations. The adoption or amendment of compliant zoning ordinances authorizing adaptive reuse projects may be inconsistent with the local housing plan. [Gov C §65658.3(d)]
Adaptive reuse standards
A building conversion is classified as an adaptive reuse project when characterized by the retrofitting and repurposing of an existing building to create new residential or mixed uses. Mixed use projects may include projects with two or more land uses (such as residential and office), but may not include industrial use. [Gov C §65658(a)(1); (i)]
The project must be located in:
a city with an urbanized area; anda parcel with at least a 75% perimeter of adjoining parcels with urban uses. [Gov C §65658.5(b)(1)]
The project must be proposed for either:
an existing structure less than 50 years old;a structure listed as a historic resource on the local, state or federal level; ora structure that is more than 50 years old and the local government has evaluated the site through a preliminary application and determines whether it is a historic resource. [Gov C §65658.5(b)(2)]
When the property is determined to be a historic resource, the adaptive reuse project needs to sign an affidavit declaring it will comply with federal historic rehabilitation standards for historic properties. [Gov C §65658.5(c)]
Adaptive reuse projects do not include the retrofitting and repurposing of:
any building located in an industrial zone unless residential use is allowed (in which case, the property may not be a mixed use building that includes an industrial use); orany hotel or mixed-use property containing a hotel, unless the hotel use was discontinued prior to 2021. [Gov C §65658(a)(2); (i)]
When the adaptive reuse project is for rental housing, it must include either:
8% of units affordable to very low-income households and 5% for extremely low-income households; or15% for low-income households. [Gov C §65658.5(b)(3)(A)(i)]
The local government must require the affordability of the applicable rental units to continue for at least 55 years. [Gov C §65658.5(b)(3)(A)(ii)]
Editor’s note: “Affordability” is defined as:
30% of 30% of the area median income for extremely low-income households;30% of 50% of the area median income for very low income households; 30% of 60% of the area median income for low-income households; and30% of 110% of the area median income for moderate-income households, adjusted for household size. [Calif. Health & Safety Code 50053(b)]
When the adaptive reuse project is for owner-occupied housing:
30% of the units must be affordable for moderate-income households; or15% of the units must be affordable to low-income households. [Gov C §65658.5(b)(3)(B)(i)]
The local government must require the affordability of the applicable owner-occupied units to continue for at least 45 years. [Gov C §65658.5(b)(3)(B)(ii)]
In all cases, units subject to affordability standards in the project are to provide:
the same bedroom and bathroom ratio as the market rate units;even distribution within the project; andthe same type and quality of appliances, fixtures, and finishes as the market rate units. [Gov C §65658.5(b)(3)(D)]
When the project includes mixed uses, at least half of the project’s square footage (not including basements or underground parking) needs to be dedicated to residential uses. [Gov C §65658.5(b)(4)]
Approval timelines
When the local government administratively determines the adaptive reuse project conforms with these new code standards, the project must be approved within:
60 days of the determination for projects containing 150 or fewer residential units; or90 days of the determination for projects containing more than 150 residential units. [Gov C 65658.8(a)(1)]
When the project is in conflict with the new code standards, the local government must issue its reason for rejection within:
60 days of submission for projects with 150 units or less;90 days of submission for projects with more than 150 units; or30 days of submission for projects that have resubmitted an application following a rejection. [Gov C 65658.8(a)(2)]
For statutory approval, when the local government fails to notify the developer within the required timeframe, the project is deemed to be in conformance with the standards and approved. [Gov C §65658.8(a)(3)]
Related article:
Legislators clear the path for more commercial-to-residential conversions