SB 6 aims to create more housing

Local real estate leaders have mixed feelings about the passage of Senate Bill 6, which allows housing to be built on underutilized malls and other commercial land.

The bill was signed into law in late September and allows residential construction on commercially zoned properties without the time-consuming and sometimes costly requirement of rezoning.

The complete process of a rezoned right can currently take two or more years depending on André SoroudiExecutive Vice President of Acquisitions and Development at CGI Real Estate Investment Strategieswho considers SB 6 a “mixed bag”.

“It’s a very intensive process to do these kinds of projects,” Soroudi said. “So in that sense, (SB 6) obviously provides a streamlined and defined route to getting a project approved, which is obviously the main advantage of this in trying to (increase) housing production.”

On the other hand, SB 6 requires high labor expenditure, which dampens the enthusiasm of developers.

Matthew MayPresident of Sherman Oaks May Real Estate Advisors, supports the bill. He said while it is possible to build commercial buildings in the same space as office buildings, residential projects should also be valid replacements. He added that creating residential buildings in former commercial spaces can add value to the property, reduce traffic congestion and help low-income residents.

“It’s a win-win situation on every level,” May said. “That’s what trade corridors are designed for. If we allow 10-story office buildings, we should allow 10-story residential buildings, and once you enter the residential there are less entrances and exits (in and out trips) . And given that we have more people working from home, it reduces traffic and pollution. »

FY 2011

SB 6 is closely tied to the successful passage of the 2011 Assembly Bill, which creates a streamlined approval path for qualifying multi-family projects on commercial land and removes developers from being subject to a permit. conditional use if development meets standards. The bill was passed at the same time as SB 6.

The AB 2011 approval pathway is also exempt from California’s Environmental Quality Act, which requires developers to report the environmental impacts of potential construction projects and often impedes development.

Both bills also include wage requirements for construction workers.

In the case of SB 6, developers seeking to avoid having to manage rezoning processes are required to provide workers with prevailing wages and skilled and trained labor requirements, which generally incurs costs. much higher for builders.

Like SB 6, AB 2011 includes a requirement that all construction workers be paid at least the prevailing general wage rate. In addition, both bills require studies of the results of their respective provisions.

‘Very expensive’

Daniel Yukelson, executive director at Greater Los Angeles Apartment Associationsaid the provisions of SB 6 may discourage the construction of additional housing.

“While it might have a chance of encouraging some housing development, it would just be very expensive because of all the different layouts and studies required (for the development process),” Yukelson said, adding that the bill did not quite meet the goal it set out to achieve.

May echoed Yukelson’s concerns, saying prevailing wages, in addition to higher construction fees and costs, could prevent some projects from proceeding, particularly regarding the amount of rent that may be charged.

“If we’re in West LA, where you can get $6 rent per square foot, you get a much better idea (to make it work) than if you’re on Ventura Boulevard, where you’re going to get $4 rent. per sq. ft., which we don’t even get today,” May said. same. He does not sketch.

A statement from the governor’s office. Gavin Newsom said the bills will help create new housing for low- and middle-income Californians by allowing housing to be built on underutilized commercial sites, generate thousands of jobs with health benefits and good wages and increase the use of public transport by building housing near existing public transport.

“The Middle Class Housing Act or SB 6 can result in the construction of at least 2 million housing units and is a solution to build and avoid sprawl,” the state senator said. Anna M. Caballero said in the statement, adding that the bill can speed up development processes to avoid vacant properties and will provide strong protections for workers.

Soroudi said that when it comes to the rezoning eliminator in SB 6, there might not be much splash in the city.

“A lot of cities already have (policies) for commercial areas that allow residential use, like in Los Angeles. So in some cities like that, it won’t have a huge impact,” Soroudi said. “What I’ve found over the years is that small towns usually have specific zones just for commerce or residential. So small and medium towns are where I would see this bill being the more used. “

Soroudi added that the requirement to pay workers a prevailing wage could increase costs by 30% and undermine the feasibility of construction projects.

Still profitable?

Soroudi said his main question with SB 6 is: what types of properties can be acquired and transformed, while offsetting the money that will be allocated to prevailing wages?

“If a dilapidated old mall is worth a lot less than residential land would be, it’s possible someone could acquire it and pay the going wage and still make the project financially viable to go vertical,” Soroudi said. . “It will be interesting to see how many sites (the bill) can actually be used and be effective in adding the housing supply that we so desperately need.”

Soroudi’s firm, CGI, specializes in apartment buildings, building conversions, mixed-use projects and hotels and has more than four real estate investments underway in Los Angeles and one in Oxnard according to its site. Internet.

Until this summer, the company was based in Woodland Hills but recently moved to Century City.

Despite the cost-related practicality of SB 6, Soroudi said developers who don’t have to navigate the rezoning process reduce the amount of risk they take, as it’s not uncommon for projects to of construction remain in rezoning limbo for years. .

He also praised AB 2011 for streamlining an approval path that can end up costing developers significant capital.

“If you have to buy land and hold it for two to three years to get your approvals before you can start building, you have to pay interest on loans, property taxes, insurance, and it all adds up very quickly. “, he said. “So taking a three-year process and making it a one-year process is saving a lot of money and a lot of risk.”

May said the only potential downside he sees of AB 2011 is that planners might use the streamlined process and not consider the nuances and logistics of development processes. However, he feels the positives outweigh the negatives.

“Planners are good, but they are not designers. They don’t necessarily live it day to day,” May said. “However, the ability to get things done in six weeks, six months, or 12 months instead of three years is definitely worth it,” May said.

more feasible

Although the Apartment Association’s Yukelson isn’t sold on SB 6, AB 2011 is something he sees as a more favorable solution to California’s housing problems.

He said that in his experience, about a third of the time of a development project can be occupied by rights, including environmental impact reports, hearing procedures, permits, fees and battles with Not in My Backyard (NIMBY) groups. Therefore, the CEQA exemption could be significant.

“AB 2011 is a step in the right direction and has a chance to encourage the development of more affordable housing,” Yukelson said.

Both bills arrived as part of a larger plan to ease California’s housing crisis.

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