The Deal
Commercial Lending Solutions arranged $38 million in construction financing for a 105-unit mixed-use development in Glendale, California. The project represents one of the first significant multifamily developments to utilize AB 2011, California's Affordable Housing on Commercial Land legislation enacted in 2022.
The development features ground-floor retail with four stories of residential units above, totaling 105 apartments with 21 units (20%) designated as affordable housing at 50% Area Median Income. The project qualified for AB 2011's streamlined approval process by meeting the law's affordability requirements and proposing housing on commercially zoned land.
The capital structure included a 24-month construction loan from a regional bank at 65% loan-to-cost, with the developer contributing $20.4 million in equity. Construction pricing reflected current market conditions with elevated material and labor costs factored into the budget.
The Challenge
AB 2011 created a ministerial, by-right approval pathway for multifamily housing on commercial land, bypassing traditional discretionary planning commission reviews. However, the legislation's recent enactment meant most construction lenders lacked familiarity with this entitlement process.
The primary hurdle involved educating lenders about AB 2011's mechanics. Unlike conventional multifamily projects that undergo months of planning hearings and public comment periods, AB 2011 projects receive administrative approval if they meet specific criteria: at least 20% affordable units, compliance with objective design standards, and development on commercially zoned parcels.
Multiple lenders initially declined the transaction, expressing concerns about the ministerial approval process. Traditional construction lenders prefer seeing projects navigate full discretionary review, viewing planning commission approval as validation of community acceptance and regulatory compliance. The streamlined AB 2011 pathway, while legally sound, represented unfamiliar territory.
Additionally, the mixed-use component added complexity. Ground-floor retail requires different construction specifications, mechanical systems, and accessibility compliance compared to residential-only buildings, increasing both construction cost and timeline risk.
The Solution
Our approach centered on comprehensive lender education about AB 2011's legal framework and practical implementation. We prepared detailed materials explaining the legislation's background, requirements, and precedent cases from other California jurisdictions.
Working with the borrower's land use attorney, we obtained formal legal opinions confirming the project's compliance with AB 2011 requirements and its entitlement status under the ministerial approval process. These opinions addressed potential legal challenges and affirmed the development's right to proceed without discretionary review.
We targeted regional banks with established multifamily construction programs and California market knowledge. Rather than presenting AB 2011 as experimental legislation, we positioned it within the broader context of California's housing production initiatives, including SB 9, SB 10, and various density bonus programs that lenders already understood.
The underwriting package included detailed analysis of Glendale's housing demand, comparable mixed-use projects, and retail absorption data for the trade area. We demonstrated that the project's fundamentals, independent of the AB 2011 pathway, supported construction financing based on traditional metrics: location, developer experience, and market conditions.
For the mixed-use component, we provided detailed construction budgets separating residential and retail costs, along with phasing plans that minimized construction risk. The retail portion represented only 8,500 square feet, limiting complexity while providing valuable street-level activation.
The Outcome
We successfully secured $38 million in construction financing from a regional bank with significant California multifamily exposure. The lender ultimately viewed AB 2011 as reducing rather than increasing project risk, since ministerial approval eliminates discretionary review uncertainty that can derail traditional developments.
The loan terms reflected market rates for similar mixed-use construction projects: 24-month initial term with two six-month extensions, interest-only payments during construction, and a 65% loan-to-cost ratio. The lender required standard construction loan protections including payment and performance bonds, completion guarantees, and third-party construction monitoring.
Construction commenced four months after loan closing, with retail shell completion scheduled first, followed by residential unit delivery. The affordable housing component qualified for local fee deferrals, reducing total development cost by approximately $1.1 million.
This transaction established precedent for future AB 2011 financings and demonstrated that construction lenders can successfully underwrite projects utilizing California's streamlined housing approval processes. The key lies in thorough education about the legislative framework and positioning these deals within familiar multifamily construction parameters.
The project represents broader trends in California development finance, where new housing legislation creates opportunities for developers willing to navigate evolving regulatory frameworks, provided they can access construction capital from educated lenders.