Dancing Around A Two-Step Flip
Condo Conversion Given the Boot
by Nick Welsh
Bill Mahan may speak softly, but he wields a big red pencil.
Just ask developer Bob Hart, who until last Thursday had dreams of
converting the four two-bedroom rentals on top of an office
building he owns in the 3400 block of State Street into
condominiums. That’s when Mahan — an eight-year veteran of the
Santa Barbara City Planning Commission and an architect by
profession — went to work. Pulling out his fabled red pencil, Mahan
did some quick and dirty calculations that turned Hart’s dreams,
then before the commission on appeal, into a nightmare. The results
of Mahan’s math have been plenty embarrassing to city planners as
well. Had they done the same calculations as Mahan, perhaps they
might have caught a small but lethal glitch in Hart’s plans much
sooner.
Mahan discovered that Hart’s proposed condos did not qualify for
the crucial break in parking requirements that city planners had
said they had. And while the numbers are not large — eight required
spaces rather than the four proposed — their financial implications
for Hart are huge. His project — a modest mixed-use combination of
office space and apartments — is already built and there’s no room
to spare on the ground for four additional parking spaces. As Mahan
said afterward, his discovery proved “a bullet between the eyes”
for Hart’s specific proposal. But for real estate investors eager
to capitalize on Santa Barbara’s stratospheric housing prices by
converting otherwise modest rental properties into more lucrative
condominiums through a maneuver known around City Hall as “the
two-step flip,” it was, as Mahan said, “a shot into the hull.”
The two-step flip is a dodge used by developers to avoid some of
the risks of regulatory oversight and discretionary review involved
with condominium conversion; it’s also a method savvy property
owners use to escape the exorbitant insurance costs associated with
condominium development until recently. Here’s the way it works:
property owners apply for permits to build apartments first, and
then they turn around and seek permission to convert the apartments
to condominiums. Thus far, city planners have been able to document
13 instances of the two-step flip — involving a total of 43
units — since 2002. In some cases, the flip occurs two years after
construction. But in Hart’s case, the initial request for condo
conversion arrived at City Hall just three weeks after Hart had
obtained his building permits. As Mahan stressed, this practice is
perfectly legal. Nonetheless, it doesn’t sit well with a Planning
Commission increasingly exasperated over its limited ability to
stem the loss of rental housing.
Just two days before the Planning Commission’s deliberations
last week, members of the Santa Barbara City Council had expressed
grave concern about gentrification and the loss of modestly priced
rental housing. The two-step flip was specifically lambasted by
name, and housing advocates urged that the practice be severely
limited or stopped altogether. The most obvious solution is to
impose a time restriction on the flip. And until 1992, City Hall
did just that, requiring a five-year waiting period before allowing
a new apartment to be eligible for condo conversion.
Adding fuel to the Planning Commission’s fire, earlier this year
the City Council put a controversial mixed-use housing project
slated for upper State Street on indefinite ice at the insistence
of angry neighbors concerned that their piece of paradise had
become a traffic hellhole. Until the council adopts a master plan
for upper State Street acceptable to the community, any project
that fails to provide the full number of parking spaces is likely
to get a very cool reception. Given this sudden sea change now
being proposed within city hall, Bob Hart was as much a victim of
bad timing as he was of Mahan’s red pencil.
But the pencil definitely hurt. For Hart’s mixed-use project to
qualify for the break on parking requirements, the square footage
dedicated to residential use could not exceed that of his
commercial space, according to city land use rules. Back in 2002,
when Hart’s project first went before the city’s Architectural
Board of Review, that was the case. It was also the case when Hart
was granted his building permit in September 2004. But when Hart’s
project went before the Planning Commission last week, the numbers
weren’t so clear. No one had added up the square footage of the
four condos and compared that sum with the square footage of the
downstairs commercial space. “It just looked close to me,” Mahan
said. When he added them up, he discovered that the condos took up
43 square feet more than the commercial space. While that was
admittedly tiny, it was sufficient for Mahan and the rest of the
Planning Commission to deny the condo conversion and uphold the
appeal filed by neighborhood activist and City Hall watchdog Jim
Kahan of the Allied Neighborhood Committee. “This was a dead duck,”
Mahan said.
At Thursday’s meeting, Kahan — given to blustery and detailed
diatribes that try the patience of many city planners — ascribed
less than pure motives to the planners who reviewed Hart’s proposal
and endorsed it. He complained that city staff missed many
irregularities and transgressions by Hart — involving acoustic
studies, storage shortages, setback violations, and landscaping
omissions — and concluded, “It doesn’t smell good.” Mahan
acknowledged that errors were made but isn’t comfortable with
Kahan’s approach. “I’m not into this conspiracy thing,” he said.
“Accidents happen. We have thousands of projects and our staff is
overworked.”
City planner Betty Weiss is still trying to figure out where the
numbers changed and how Hart found himself on the wrong side of the
parking requirement equation. Because many of the planning
documents have been destroyed since Hart first got his building
permit, it may be difficult recreating the necessary paper trail.
Hart was out of town for his mother’s birthday party and was
represented by land use agent and former city planner Dave Tabor.
Tabor complained he was given only 15 minutes to make his case, and
that he’d been “ambushed” by Kahan, who delivered an expanded
critique just two days prior to the meeting. Tabor said he and Hart
plan to appeal the Planning Commission’s decision to the City
Council. As to Mahan’s calculations, he said, “The numbers on the
plan are the same numbers we worked out with city staff. They
haven’t changed. The only thing that might have changed is how
they’re interpreted.” Tabor dismissed many of the complaints
leveled by Kahan as “red herrings,” saying his client had been
victimized by the political equivalent of a perfect storm. “They’re
trying to balance the broken housing market on the back of this one
project,” Tabor said.
In the meantime, Mahan has just one month left on the Planning
Commission. Most likely, he’ll be replaced by the time Hart’s
appeal goes before the City Council, or the Planning Commission
takes up the inevitable debate over the two-step flip. While
expressing sympathy for Hart’s predicament, he also expressed
satisfaction at making the equivalent of a shoestring tackle
involving a project he said is so fraught with problems it should
have been demolished from the get-go. When asked what prompted him
to put pencil to paper last week, Mahan laughed, and said, “You’ve
heard of the luck of the Irish? Well, I’m Irish. I guess I was just
lucky.”
