SB 684/1123 Fee Simple
Subdivisions

The Reasoning

A change in state law turned a multi-year political process into an administrative one. That is the whole opportunity.

SB 684, expanded by SB 1123, created a ministerial approval pathway for small-lot subdivisions on multifamily-zoned land. Ministerial matters enormously: it means approval is administrative rather than discretionary — no public hearing, no discretionary environmental review, no neighbor appeal that can add three years and kill a project outright. Entitlement stops being a political risk and becomes a schedule item.

The arbitrage this opens is a valuation mismatch. Multifamily-zoned land is priced on the income approach — what a rental building on that site would earn. SB 684 lets the same site deliver individual homes sold to individual buyers at for-sale pricing, which on a per-square-foot basis is materially higher than income-based value. We are buying land at one valuation basis and exiting it at another.

The fee-simple structure is what makes the exit work. Each home sits on its own legal lot with its own APN, so buyers use conventional mortgage financing rather than the specialized loans a TIC or condo-alternative structure requires. That widens the buyer pool to essentially every qualified homebuyer in the price band — a decisive advantage over structures that ask buyers to accept unfamiliar financing.

Being early is a real and temporary edge. Few operators in the region have executed this pathway; The Culver VI at 3850 Westwood was the first ministerial approval in Culver City. While the field is thin, sites can still be acquired at bases set by the old rental-value assumption. That window narrows as the statute becomes better understood.

What Can Go Wrong

The risks we underwrite against.

Every strategy has a failure mode. These are the ones specific to this one — the complete risk disclosure for any investment lives in its offering documents.

• SB 684 is a recent statute and jurisdictions interpret and administer it differently. Processing timelines, plan-check standards, and local implementation vary, and the law itself could be amended.
• Affordable-housing obligations apply on these projects and are disclosed per deal.
• Sellout is absorption-dependent: each home waits on its own buyer and financing. The bulk-sale fallback value is underwritten before acquisition precisely because the unit-by-unit path may take longer than modeled.
• Three of the active projects carry construction cost above current loan commitments; each requires a construction refinancing, and investor-level return projections are intentionally withheld until that capitalization is reconciled.