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Real Estate Development Zoning Research Process - Part 2 of a 2 Part Series

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In Part 1 of this series, we demonstrated how to research the zoning for your project. In this part 2, we'll demonstrate how to check the zoning standards or as they are sometimes called development standards. These are the requirements and conditions for the development within that zoning designation.

A quick high level note: There are two types of projects when it comes to zoning, those that fit within the existing zoning or what we call "by right" or those that do not fit the existing zoning and require a change in the zoning or general plan, or some other planning department action to facilitate your project. This what we call an "entitlement" or "getting entitlements". Said another way, this is the set of political and planning actions that approve your project. Both of these are standard ways of proceeding on projects, with the main differences between the two being:

A. Time - it takes time to rezone or change the entitlements of a project, we have had projects take 18 months to get approvals.

B. Money - it can take from $5K up to $1M to process a zone change or entitle a project.

C. Risk - once you enter into entitlement domain, you now are subject to political risk, or entitlement risk, due to the discretionary nature of zone changes. Discretionary approvals mean that someone can say "no" to your project and not have any liability to you for loss. This is where you go to the planning commission or to the city council, and this also where if you have neighbors that don't like your proposal, or neighbors that don't want or like change, they can show up at a public hearing and sway commissioners or city council folks to vote against your project. And by the way, as a developer, we are ALWAYS the agent of change, it's the very nature of real estate development to produce change, and most folks we run into don't do well with change. Some people will love you for producing a new project, upgrading a site or neighborhood, but many will just resist change for change's sake.

Many development and homebuilding companies choose not to deal with political risk at all, and so buy land that is either already zoned, or where someone like us has processed the entitlements and will deliver the land with approvals already in place. Our company, Urban Pacific, does both by-right and entitlements projects, and in fact, most of the projects we have done since 2000 have been entitlements projects.

Using our previously utilized City of Long Beach example, the zone is for our example site R-4-N. This example project is by-right for our design, or more accurately, we designed our project so that it fit within the zoning envelope and became by-right through our efforts.

This is the general order or checklist to use when reviewing zoning standards for your development project:

1. Determine if your use is an allowed use. Each zone will have a list of allowed uses. In our case in Long Beach example site, the zone is R-4-N, with the "R" designating "Residential" Now, be careful here, sometimes cities use "R" sometimes not for residential. It is best to ALWAYS check the zoning designation on your map, then check what is allowed. One opportunity area for new projects and sites is to look for zoning that is not obviously residential, but say commercial, or mixed use, or industrial, and that allows residential within that zone. Sometimes cities say residential is allowed in a commercial zone with a Conditional Use Permit (CUP), or some other process that allows the city to "condition" your project, but yet allows residential in an non-residential zone. Adding conditions, means to add extra requirements to the normal requirements. This might mean better exterior finishes, or you'll need to pay extra impact fees, or anything and everything they can think of. And by the way, it's not always fair what they want to add, and that's the life of a developer. This is where your soft skills or political skills come in, where you as the developer are tasked with convincing a person at the city, a planner, planning manger, or city council member, that you want that extra condition that they want removed or eliminated. This is a key skill for a developer, managing the bureaucracy and the bureaucrats.

2. Determine what density this zone will allow. You will remember from my previous post, that our UTH product lays out at 1,700 s.f. of land area per unit. Now you need to check the zoning standards to determine that this du/a is allowed. In our case, R-4-N allows 1,500 s.f. of land area per unit, so we are in good shape being slightly above (less dense) than the zoning standard.

3. Check your height limit. In our case, we utilize a 3-story unit plan. On the example Long Beach project, R-4-N allows 3 stories or 38 feet in height. It's critical to read all the fine print and footnotes. That's where they delineate "exceptions". Example, City of Los Angeles in their RD1.5 zone, allows only 2 stories in the 1XL height zone. Yet, in the footnote section of the zoning code, if your project is purely residential, you are limited to height in feet not number of stories. So if you can fit 3 stories inside of 30 feet, you are welcome to do so. For our UTH product, it works much better at 3-stories. Going to 3-stories allows us to increase total density, as long as the height standards allow it.

4. Parking - make sure you understand the requirements for parking. In the R-4-N zone it's two spaces per unit, plus guest parking at 1 space per 4 units or .25 spaces per unit. In our example project, we meet the unit parking standard by providing two spaces in our ground floor two car garage, and we'll provide the guest spaces onsite. You could supply the spaces available to the tenants as surface spaces, open to the sky, instead of garages like most apartments projects. But we like the marketing benefits of an attached two car direct access garage, it's more appealing to the family tenants that we serve in our moderate income UTH projects. As well, don't forget to include handicap parking space requirements. The ADA standards are pretty clear cut, and apply to all projects over 3 units. HC spaces require one van accessible space, which is about the width of 1.5 spaces, so really you're using two regular spaces to meet your HC parking requirements. Your architect should know this stuff inside and out.

5. Check setbacks. These are the distances that your building must be placed away from the property line or "PL". So if you have a 20' rear yard set back, your building face at the rear of the property or back wall cannot be any closer than 20' feet from the PL. Again, as always, view the footnotes, as you may find exceptions depending on the zoning code. All projects will have front, side, and rear setbacks. These setbacks, plus the height limit, make up what I call the "zoning envelope", that space within which your building can be designed and built.

Here are some screenshots from the City of Long Beach Zoning Code and Residential Development Standards. When researching new zoning, just Google "City of XXXX Zoning Code", that should bring up search results that cover your particular city. If they don't come up, go to the city website directly and use the search box on the city website and search for "zoning code". In all cases, the zoning code is part of the municipal code for all cities.

The above process is certainly not exhaustive. I would encourage you to read the zoning codes thoroughly when working on your first few projects and I mean read ALL of it. As I've said before, you may hope to rely on your architect for these nuances, but it's your butt on the line when you put a deal together and raise capital, you want to make SURE the zoning really allows what you want and need. Please ground your assessments about zoning standards and your project's fit within those standards before you launch. Here, precision and grounding are a strategic advantage and marginal utility. Plus, as the developer, you will be a better deal maker than your architect. You will always be more creative in thinking of ways to make your project work, by using creative thinking, the exceptions, and footnotes. You are incentivized to figure out ways to make it work. Deals and projects don't always work, you have to know when to quit a project, but being an entrepreneur in real estate demands that you solve and resolve these types of constraints and limits on a daily basis. This amongst other things, is why developers can and do receive high value for their offers and practices.

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