Big changes are planned for downtown Santa Barbara after the City Council supported the new Paseo Nuevo redevelopment agreements Tuesday.

Both of the mall’s anchor stores closed in the last decade, and the agreements mean the former Macy’s will be converted into offices for Yardi Systems, and the former Nordstrom will be converted into apartments. 

Tuesday’s 6-0 vote with one abstention introduced the ordinance, which comes back for formal approval on June 30.  

“If somebody’s coming into downtown, from the building they own in Goleta, to be downtown and have a presence downtown, I really appreciate that,” Mayor Randy Rowse said. “I think that’s the best thing that could happen to us.”

Kevin Yardi said the company has 610 employees “anchored” to its Santa Barbara office, and he expects “it would be many hundreds per day” going to the downtown building.

Council members praised the redevelopment plans at their June 2 meeting and again Tuesday, although they dug more into the details since they had the actual agreements in front of them. 

Yardi Systems will convert the Macy’s into offices and an event space, and take over the rest of the shopping center and parking Lot #1. 

DSP plans to build 80-112 rental units at the former Nordstrom, and 10% of them will be affordable for moderate-income households for at least 90 years. None of them can become short-term vacation rentals.

Paseo Nuevo’s theaters, art museum, shops and restaurants will remain for now.

Council members asked about whether the city could have pursued a long-term ground lease rather than transferring the properties to Yardi and DSP. 

City Administrator Kelly McAdoo said a ground lease was a “non-starter” in negotiations with them. 

The city owns the land but has no ownership or operating control of the buildings, McAdoo said. Legal limitations on use have prevented redevelopment in the past, and effectively makes the value of the land zero, she and City Attorney John Doimas told the council. 

The negotiations were complex, with three parties “each having veto powers, each having to come along,” Doimas said.

The city’s team tried to get the best terms it could, he assured the City Council. 

This project will affect the downtown corridor in ways that the city can’t imagine yet, Councilman Mike Jordan said. 

“You cannot put hundreds of employees downtown five days a week, and you cannot put 100 or 120 residents in the 80 apartments there, and not guarantee that there are positive impacts that radiate from this project in addition to those bullet points you see there,” he said.

Jordan said the city is “getting the best project we’re going to get as it exists today.”  

Councilwoman Meagan Harmon, who is also a real estate lawyer, said she reviewed the agreements and they were consistent with what city staff has presented publicly. 

“I believe this is the best deal that there is,” she said. 

“This is a great day moving forward with this,” Councilman Eric Friedman said.

Council members Kristen Sneddon and Wendy Santamaria questioned specific parts of the deal while they supported the overall plan. 

Sneddon didn’t agree with giving discounted parking permits to Yardi when other commuters – including city employees – are paying the full amount.

 “I don’t understand conceptually at all why we would do that,” she said. 

Sneddon also wants to avoid having the city pay for the property’s trash services after the ownership transfer.

 “While I see there are wonderful benefits to this project, I very much hesitate to call this a done deal, a miracle, it’s a slam dunk, let’s just do it,” Santamaria said. “That to me raises red flags.” 

She wanted the city to consider renegotiating some of the smaller points, such as the discounted parking rates, and abstained from Tuesday’s vote. 

Several members of the public spoke in support of the plan, some opposed it, and others asked the city to reconsider transferring away the property one person called the “heart of downtown.”

The council’s approval comes after the other parties already executed their agreements, staff noted. Since the agreements are interrelated, all of them have to be executed for any of them to be effective. 

They include: 

• An agreement between the city and PNSB Real Estate LLC (Yardi Systems subsidiary)
• An agreement between the city and DSP Santa Barbara Sub LLC (lessee of former Nordstrom) 
• A private agreement for Yardi Systems to get ownership from Paseo Propco LLC (also known as AB Commercial) for the Macy’s and shopping center, minus the Nordstrom
• Parking agreements, affordability control covenant and residential use covenant 

“This is a really defining moment for downtown Santa Barbara and for State Street, and at the center of State Street sits two long-vacant anchor buildings that have generated no activity, no jobs, no revenue for years,” said Tess Harris, State Street master planner for the city. 

These two projects represent approximately $100 million in private-sector investment downtown and could bring hundreds of people downtown, Harris said. 

Santa Barbara does not receive revenue from leasing the shopping center land, McAdoo noted. 

Yardi Systems has to continue retail, theater and museum uses on the inline parcels of Paseo Nuevo and preserve community benefit uses for at least seven years (the Center Stage Theater and Museum of Contemporary Art). 

If the City Council formally approves the agreements on June 30, the next steps will be for Yardi and DSP to pursue their applications for converting the buildings to new uses. 

Exterior design changes to the Macy’s and Nordstrom buildings will be reviewed by the city’s Historic Landmarks Commission. Building permits will be reviewed by staff, according to the city. 

The goal is to start construction on both projects in 2027, according to city staff.

Background on the Proposals

Santa Barbara built the Paseo Nuevo shopping center in the 1980s using Redevelopment Agency funding. When RDAs were dissolved, ownership transferred to the city. 

The Macy’s closed in 2017, and Nordstrom shut down in 2020, and the city talked about adding housing to revitalize the area. In 2024, the city declared the property as exempt surplus land.

The previous redevelopment plan would have demolished the Macy’s building and built housing there, with a separate plan for housing in the former Nordstrom building. 

The City Council was unsatisfied with the developer’s plans, and in December directed them to build more affordable housing at the former Macy’s site. 

Then Yardi Systems proposed converting the Macy’s building into its corporate headquarters, and the whole plan shifted. 

Yardi is currently headquartered in Goleta, and the move back to Santa Barbara is a homecoming of sorts for the real estate software company, Noozhawk previously reported.  

As part of these development and disposition agreements, Yardi and DSP will contribute a combined $5.7 million to the city’s local housing trust fund and $1.7 million for downtown improvements. 

City staff estimate the projects would generate an increase of $700,000 in annual revenues to the city, including property and sales tax. 

That also includes an estimated $320,000 in annual parking revenue. The development agreements include Yardi and DSP paying for parking permits for workers and residents, respectively, in nearby city parking lots.

Yardi gets discounted commuter parking permits and will keep Lot #1 open for public use, according to the agreements.