BUILDING IN THE BAY AREA: FINDING A SITE

Happy New Year! I hope that the year ahead brings you much prosperity (and excellent real estate decisions!). I am going to start the year off with a few posts on one of my favorite topics – single-family residential development. With such high housing prices in the Bay Area and a relatively old housing stock in need of significant renovations, many buyers are left wondering if they would be better off starting from scratch and building a house to get exactly what they want. Building a house can be an extremely rewarding experience (both personally and financially), but it can also turn into a nightmare with strained relationships, major cost overruns, and a property that will never be what you dreamed it could be. One of the most critical decisions to ensure that your homebuilding story has a happy ending comes at the very beginning: choosing the right property. Here are some key considerations when you start looking into properties for development:

Residential development on the Peninsula and in the South Bay almost always means doing infill development: replacing or enhancing a property in the middle of an already built-up area. Because of this, the city or town already has an idea of what it wants to see on that particular piece of land, and they communicate this through the General Plan and zoning maps. This is where you should start. Make sure the property you have in mind is zoned to fit what you plan to build on the property. If you are looking at a property with an existing house, then it is likely already zoned for residential development. However, there are different types of residential zoning and subcategories within those classifications that will affect what you can build. The specific zoning will determine your setbacks from the street, sides, and rear; FAR (more on that in a second); lot coverage; building height; and potentially dozens of other requirements or limitations, especially if a property is in a historic district. The zoning map will also show permitted uses for lots around a particular property. Is it in a residential zone that allows an in-home business next door? Or perhaps the property backs up to commercial zoning and there are plans to build a movie theater adjacent? Reading the city or town’s municipal code will spell out what exactly is permitted and required in different zones. You better know your zoning!

So let’s assume you found a great 8,000 SF lot on a nice residential street in Los Gatos. You want to build a 2,750 SF house plus garage. Sounds good, right? Wrong! You will exceed your allowable “floor area ratio”. Floor area ratio is a measurement of building mass and is utilized to create streets with general uniformity in building size and scale. It’s good design. However, this ratio is critical, and I have seen it trip up multiple people who buy a property and hire an architect before knowing whether what they want to do will even be allowed. Different cities and towns in the Bay Area have different limits to FAR. Moreover, your allowable FAR can be reduced by lot slope and unique characteristics like flag lots. It is absolutely essential that you calculate your potential property’s FAR before buying, and I even like to double-check my calculation with a member of the Planning Department (ideally in email so you have it in writing) before proceeding with a purchase. A web search of “<City> and floor area ratio” will generally lead you to the right place to find the required formulas. Better yet, take a trip to the Planning Department and talk to someone at the counter.

A note on basements…

Basements are a common way to get more livable square footage out of an FAR-constrained lot. If the first floor is no more than three to four feet above grade (varies based on city code), then the level below does not count as living square footage in the FAR calculation. If you are considering building a house with a basement, be sure to check with Planning to make sure there are no FAR surprises as the code can be pretty nuanced around basement square footage. Also be sure you have a good idea of what that additional basement square footage will cost to build because basements are expensive due to the excavation, soil off-haul, and foundation requirements. Plus, basement square footage typically sells at a discount to above-ground square footage, all else being equal.

So, let’s assume you found a house for sale in Los Gatos with a great 8,000 SF lot on a nice residential street.  Let’s assume you did your FAR calculation and now know that the allowable FAR for living area is actually 2,608 SF, and this works for you. You will build a lovely two-story home with modern architecture. Sound good? This again could be wrong for multiple reasons. Towns like Los Gatos have put a lot of thought into the various elements that create a beautiful and enjoyable town. When it comes to neighborhoods, “neighborhood compatibility” is one requirement that new development must meet to gain the necessary approvals before building. More specifically, if this proposed two-story house is on a street of one-story homes, there will likely be an issue. Modern architecture is proposed, but this too will be a problem if the neighboring homes are more traditional, and the architect is not able to blend the style into a more compatible form. Other considerations such as the number and location of garage doors, proximity to the street, height, and rooflines are also evaluated for compatibility with the surroundings. If you have specific design in mind (especially the building height and architectural style), be sure to read the local design guidelines and choose a property on a street with similar homes.

Finally, in evaluating a lot for development, careful consideration must be given to the existing conditions. Is there a historic house on site? (If so, it is likely staying.) How about trees? Some trees – especially oaks and redwoods – are protected and cannot be removed. Others may be removed after full Planning Commission approval and multiple replacement trees replanted on the property, and other trees can be removed with little issue. Additionally, if a lot is larger – particularly if it has numerous trees, water (e.g. creeks), or a slope, the city may restrict development on the lot to what it deems the “least restrictive development area” or LRDA. The goal is to minimize the disturbance to the natural terrain. One last consideration – which is difficult to gauge when purchasing a property – is how the neighbors view development. Vocal concerned neighbors can be quite effective in slowing down your development timeline by escalating your project in the review process. Additionally, frequent complaints can lead to increased inspections from the city.

I have highlighted a few of what I consider the most important factors in choosing a property for development. While cities and towns in the Bay Area have a lot of restrictions, there is also a process to allow for “variances”, or exceptions. It often means that the approval process has a couple extra steps such as review by the Planning Commission, but if you present a reasonable argument (and hopefully have agreeable or at least uninterested neighbors), you may receive your variance. Be careful not to underestimate the importance of complying with the various guidelines. As one of my Stanford real estate professors used to say about development: “You don’t make the rules. The rules aren’t fair. You are not the exception.” Your development project will be much smoother if you assume from the start that you must comply with the local rules. When in doubt, go down to the local Planning and Building departments to hear their opinion on what you’d like to do with a property – before you are in contract. And of course, send me a message if you would like some professional guidance through this complicated process. I am here to help!