Developers seizing ‘supersized’ density bonus opportunity

Several developers have already sought to take advantage of a new state law that rewards projects revised to incorporate an additional affordable housing component with a “stackable” density bonus.

At least four projects within the City of San Francisco have applied for an increase in density under AB 1287, according to the city’s Planning Department, which said that another developer had expressed an interest in making use of the provision.

The City of Los Angeles Planning Department stated that while no applications requesting additional density under AB 1287 had been filed yet, seven projects had expressed a desire to the law on their Affordable Housing Referral Form, a prerequisite to filing for a density bonus.

The bill, in force since Jan. 1, allows developers to apply to increase the density of existing projects by as much as 50% if they incorporate an additional portion of dee restricted, moderate income units in the project.

This bonus is in addition to any density increases already approved under the California’s State Density Bonus Law in exchange for a developer including very low income, low income or moderate income housing.

“The way that it works is you have to first maximize the density bonus that has been available in the past. … If you maximize that, then you get to stack on top of that additional density by providing additional affordable units,” explained Chelsea Maclean, a partner at Holland & Knight LLP.

“One of the most powerful combinations people recognize is if you do 15% very low income, that originally would have entitled you to a 50% bonus. If you add an additional 15% of moderate units, you get an additional 50% density bonus [under AB 1287] for a total 100% density bonus,” she added.

Maclean said she is working with a handful of clients with existing projects to explore the possibility of increasing density under AB 1287, as “more units means more revenue, and helps in these market conditions.”

She said that AB 1287 was innovative in that it allowed for-rent moderate income units to count toward density bonus requirements.

“It’s the first time that there have been state density bonus law benefits for moderate rental units,” she said.

Projects already filing for increased bonuses under AB 1287 in San Francisco include 955 Sansome Street, 450 O’Farrell Street, 1101 Sutter Street and 960 Howard Street, according to the city’s Planning Department.

The developer of 960 Howard Street, named oWOW, is seeking a 100% density bonus in return for the inclusion of 15% of units being deed restricted for very low income occupants and 15% of units restricted to those on moderate incomes, according to a planning document lodged with the San Francisco Planning Department.

The project is also seeking waivers to height and bulk restrictions to enable it to incorporate the 100% density bonus, planning documents show.

Robin Baral, senior counsel at Hanson Bridgett LLP, said that although the law added another layer of bureaucracy to California’s already complicated housing legislation, it was a welcome boost for developers looking to adapt to challenging financial conditions.

“I’ve got three or four projects where the applications were already submitted prior to the law going into effect,” he said.

“Now we’re looking at whether to revise those applications to go for additional density [under AB 1287], to make those projects, largely to make them pencil out, because the financial markets are so challenging right now.”

With building activity hitting a slow patch, many developers in the entitlement stage of projects would likely seek to utilize the additional bonuses with a view to commencing construction when financing conditions improved, Baral and Maclean observed.

Baral explained that the State Density Bonus Law and AB 1287 worked in tandem with legislation including SB 330 and the Housing Accountability Act to limit a city’s ability to frustrate plans for increased density.

“When you couple the density bonus program with SB 330, cities have very limited discretion to deny those projects,” Baral said.