| A Commercial Lending Solutions Publication | Issue No. 3 | Week of July 6, 2026 | | | The Legislative Edge | | California housing bills, decoded into deals. |  | | | This Week's Featured Bill SB 35: The 10-Unit Line That Changes the Math SB 35 skips discretionary review entirely for qualifying housing in cities that miss their state housing targets. Los Angeles misses on every income tier, so the ministerial path applies citywide. Most coverage of this bill focuses on big ground-up towers. The sharper play for a lot of developer-LPs is smaller: keep an existing income property standing, add units under SB 35, and structure the unit count to stay under 10. This week we walk a real Mid-City triplex through exactly that math. | What the Bill Does Signed 2017 (Sen. Wiener) | Effective 1/1/2018 | Extended through 2036 via SB 423 (signed 10/2023) SB 35 forces ministerial, by-right approval of qualifying housing in any jurisdiction that has not met its Regional Housing Needs Allocation targets. No CEQA review, no discretionary hearings, no NIMBY appeals. Los Angeles fails both its above-moderate and lower-income RHNA benchmarks, so the ministerial path applies to every eligible parcel in the city. Eligible sites are zoned residential or mixed-use, urban infill, and 2 acres or smaller. SB 35 does not require a full teardown. An addition of new units on an existing residential lot qualifies just as a ground-up project does, provided it meets the objective standards. Density follows local zoning or a stacked State Density Bonus. The line that matters for a small deal: projects of 10 units or fewer are exempt from both the prevailing wage requirement and the affordable set-aside that apply at larger scale. Stay at 9 total units on a project and you keep SB 35's ministerial speed without either cost driver. That threshold is the entire subject of this issue. | Does Your Site Qualify | 1. | The jurisdiction fails its RHNA target. LA fails both benchmarks, so SB 35 applies citywide. | | 2. | Residential or mixed-use zoning, urban infill, 2 acres or smaller. Confirm current zoning via ZIMAS. An existing small residential lot with excess FAR is exactly the profile to look for. | | 3. | Not an excluded site type. Coastal zone, prime farmland, hazardous sites, historic resources, mobile home parks. An addition that keeps existing tenants in place and does not demolish rent-controlled units sidesteps the displacement exclusion entirely. | | 4. | Total unit count, including anything already on site. Stay at 10 or fewer and skip prevailing wage and the affordable set-aside. Go to 11 and both apply retroactively to the whole project, not just the marginal unit. | | The Opportunity: 5219 San Vicente Boulevard, Mid-City Real, currently listed parcel, re-verified the morning this issue was built. Hypothetical analysis below. Numbers are a framework, not a return guarantee. Site snapshot.
6,725 sf lot, zoned LAR2, in Mid-City just south of the Miracle Mile. Listed at $1,300,000, active 10 days as of this build, MLS 26851283. Improved with a 1942 wood-frame triplex, 2,124 sf, three 1BR/1BA units. Two units occupied with paying tenants, one delivered vacant at close. The listing itself markets ADU and expansion upside under current LA housing incentives.
The play. Keep all three existing units. No demolition, no tenant displacement, no Ellis Act filing. Add 6 new studio units in a rear addition on the lot's excess area, using SB 35 plus a stacked density bonus for ministerial approval. Total unit count: 9. That is the number that keeps the project under the prevailing wage and set-aside triggers. | | Sources and Uses (hypothetical analysis, 9-unit configuration) | Use | Amount | % | | Acquisition (existing 3-unit building and land, current ask) | $1,300,000 | 48.3% | | New construction, 6 studios (2,700 sf x $375/sf, no prevailing wage) | $1,012,500 | 37.6% | | Soft cost and contingency (18% of new hard cost) | $182,250 | 6.8% | | Financing (bridge-to-construction interest reserve, fees) | $95,600 | 3.6% | | Developer fee | $99,800 | 3.7% | | Total project cost | $2,690,000 | 100% | | Bridge-to-construction loan at 70% LTC | $1,883,000 | 70% | | Sponsor equity | $807,000 | 30% | | Total sources | $2,690,000 | 100% | | Exit and Returns (hypothetical analysis, 9-unit hold) | Metric | Value | | In-place NOI, year 1 (2 legacy leases, 1 market unit, 6 new studios) | $123,000 | | Market cap rate (Mid-City, small multifamily) | 4.95% | | Untrended yield on cost | 4.57% | | Untrended development spread | -38 bps | | Trended NOI, year 3 (legacy leases roll to market on turnover, rent growth on new units) | $140,600 | | Trended yield on cost | 5.23% | | Trended development spread | +28 bps | | Return on cost (sale at trended stabilization) | 5.6% | | Equity multiple (approx. 2.5-year addition and stabilization) | 1.12x | | Cash-on-cash after permanent refinance (65% LTV, 5.75%) | 1.4% | | Levered IRR | ~5% | | Profit per door (9 units) | $16,667 | Hypothetical analysis, illustrative only. This clears a positive spread only on the trended basis, and it stays well under this framework's 150 to 200 basis point target. Read that honestly: this is a mechanically sound, low-risk structure, not a high-return one. RLV back-solve for the 175 bps target implies an acquisition basis near $790,000, meaningfully below the $1,300,000 ask. A developer chasing the higher target needs a better basis, more turnover timing, or both. | How a Developer Reads This Deal 1. The 10-unit line is the whole deal. At 9 units, no prevailing wage, no affordable set-aside. At 11 units, both apply retroactively across the entire project. That difference alone can swing hard cost by six figures on a project this size. Design to the threshold, not around it.
2. Keeping the existing units is the real lever, not the land. A ground-up rebuild on a comparable Mid-City lot pays full freight for the shell you already own. This structure pays only for the increment, 6 new studios, while the 3 existing units keep cash flowing through construction with zero relocation cost and no Ellis Act exposure.
3. It only clears the bar once trended. Untrended spread is negative 38 bps. Trended, once the two below-market legacy leases roll to market on natural turnover under Costa-Hawkins, plus ordinary rent growth on the new units, spread turns positive at 28 bps. That gap is the honest price of a deal this small and this de-risked.
4. Watch the bridge-to-perm gap. The 70% LTC bridge loan does not fully amortize against a 65% LTV permanent takeout at this NOI. The gap here is roughly $37,000, trivial next to a ground-up deal's refinance shortfall, but still worth sizing before you close. | | Sensitivity: Yield on Cost and Spread | Scenario | Yield on Cost | Spread | | Base case (trended) | 5.23% | +28 bps | | Rents +5% | 5.49% | +54 bps | | Rents -5% | 4.97% | +2 bps | | New-construction cost +5% | 5.15% | +20 bps | | New-construction cost -5% | 5.31% | +36 bps | | Exit cap +25 bps | 5.23% | +3 bps | | Exit cap -25 bps | 5.23% | +53 bps | Every scenario here stays on the right side of zero, which is the point. This deal does not need a favorable break to work. A ground-up rebuild on a comparable lot needs several things to break right simultaneously and still misses. Hypothetical analysis, illustrative only. | How We Finance These Deals A value-add addition like this needs a lender comfortable underwriting an existing, occupied income property alongside new ground-up scope on the same parcel, and comfortable sizing the permanent exit before the bridge closes. | Product | Indicative Terms | | Bridge-to-Construction | Up to 70 to 75 percent loan-to-cost, blending acquisition and new construction scope. 12 to 24 month interest-only term. Sized so existing rent roll supports carry during the addition build. | | Permanent Takeout at Stabilization | 5.75 percent indicative fixed rate. 30 year amortization. 1.25x DSCR minimum. Up to 65 percent stabilized LTV. We size this against your submarket's actual cap rate before you close the bridge, so a small refinance gap does not become a surprise. | Indicative terms only. All loans subject to underwriting, credit approval, third party reports, and market conditions at lock. Not a commitment to lend. | | | Other LA Parcels Worth Looking At Pulled from active listings within a few blocks of the featured site the morning this issue was built. Always verify APN, current entitlements, and disqualifier checks with qualified counsel before underwriting. None of these have been validated to the same depth as the featured site. | Address | Type | Building SF | Zoning | Ask | | 5219 San Vicente Blvd, 90019 (featured) | Triplex | 2,124 | LAR2 | $1,300,000 | | 1259 S Orange Dr, 90019 | Multi-family | 2,867 | (verify) | $1,100,000 | | 1532 Carmona Ave, 90019 | Multi-family | (verify) | (verify) | $899,888 | | 1412 S Victoria Ave, 90019 | Multi-family | 5,067 | (verify) | $1,599,000 | All four are active listings in the same Mid-City pocket as of this build. 1412 S Victoria already carries more beds than the featured site, worth a look if the 9-unit ceiling on this issue's structure feels too tight for your target. | Closing Thought SB 35 through 2036 gets discussed almost entirely in terms of big ground-up towers. The more useful reading for most developer-LPs is the small end: an existing residential property, converted into a commercial-scale asset by adding units under the same ministerial process, without paying to rebuild the income you already own. Designed to stay at 9 units, this deal clears a positive spread on a trended basis where every comparable ground-up scenario in this market runs negative today. It will not make anyone rich. It is a mechanically sound way to use the bill. If you have a small residential property with excess lot area and want a straight read on the addition math, talk to us about the bridge-to-construction financing and the permanent takeout in one shop. Until next issue, | Trevor Damyan President, Commercial Lending Solutions
The developer's first choice for construction lending |  | | | | | Disclosures. This newsletter is for informational purposes only and does not constitute legal, tax, or investment advice. All deal frameworks shown are hypothetical. Verify all legislative criteria, APNs, current entitlements, and ministerial path applicability with qualified legal counsel before relying on any bill for project approvals. Not a guarantee of investment return. Loan programs subject to underwriting, credit approval, and market conditions. | | |