After being empty for years, Santa Barbara’s former Macy’s and Nordstrom buildings are set to get a new life that will reshape downtown.

The City Council on Tuesday is set to formally approve an agreement to allow Yardi Systems to move its headquarters into the former Macy’s, and the former Nordstrom will be developed into an 80- to 112-unit housing project by Dune, Shopoff Realty Investments and Praelium (DSP).

The city would also give up ownership of the land underneath and transfer it to Yardi and DSP, respectively.

The council has praised the proposal — a sharp contrast to their disapproval over an AB Commercial proposal in December. That proposal included tearing down the Macy’s and building 209 market-rate apartments and 24 affordable-housing units on the site.

Under the state density bonus law, AB Commercial’s new building could have exceeded the city’s height limits. 

“It would really change the fundamental character of our downtown,” Councilmember Meagan Harmon told Noozhawk. “It wasn’t an affordable project.”

With the complexity of housing development and a complete redevelopment of the area, Harmon said she doubts the project would have been accomplished, even if it was approved. 

“That deal just wasn’t reflective of our needs, nor of reality,” Harmon said.

The deal currently before the council is “something that can bring life downtown,” she added.

“(It’s) such an incredible opportunity for us, given that the city really doesn’t have any control at all over what happens there.”

City Administrator Kelly McAdoo told the council earlier this month that keeping the land was a “non-starter” in negotiations between the city, Yardi and DSP. 

The city’s current control over the land is extremely limited. While it does own the land, it doesn’t own the buildings or have a say in operations. 

“While the city has the ground lease, we have zero control over the buildings,” McAdoo told Noozhawk. “The city can’t do anything with the buildings or the airspace above the land because of the way that the ground lease is structured.”

Because the city owns the land, it has never received any property taxes from it. But once the deal goes through, the city, Santa Barbara County and the Santa Barbara Unified School District will start receiving property tax revenue, according to McAdoo. 

It’s estimated that the city will earn $120,000 in property taxes annually. 

However, there have been some concerns about giving public land away.

When reviewing the previous proposal last October, planning commissioners criticized transferring away the land to developers.

Harmon said she understands the concerns, but due to the legal complexity around the land, it isn’t worth anything to the city. 

“I don’t love it. I wish that we didn’t have these series of incredibly onerous arrangements covering this land, so we did have some say, and so we did have some flexibility,” Harmon said. “But the truth is, this is just a wildly involved set of legal constraints, and this was a necessary action in order to get a project going.”

Considering the city’s lack of control over the land, Harmon said they are lucky that they got a proposal reflective of the city’s needs.

Yardi Systems plans to convert the Macy’s into offices and an event space. The company will also take over the rest of the shopping center and Parking Lot #1. 

As of now, there will be no changes to public parking at Lot #1. It will be managed and operated by Yardi Systems, meaning they will receive parking revenue and pay for the lot operations. Paseo Propco LLC (also known as AB Commercial) currently owns the lot, according to McAdoo.

Ten percent of DSP‘s 80-112 rental units at the former Nordstrom will be affordable for moderate-income households for at least 90 years. None of them can become short-term vacation rentals.

Harmon said she’s excited about the housing proposal and the combined $5.7 million contribution to the local housing trust fund from Yardi and DSP.

Harmon said one of the biggest benefits is that with Yardi employees downtown, there will be more daily activity and spending. 

“I think it’s naturally going to lead to a renewed sort of sense of excitement about the possibilities for State Street,” Harmon said. “Because it’s no longer just a weekend or an evening thing, it’ll be an all-day, lunchtime crowd, just life on a more regular basis, so I think that is key.”

On top of the $120,000 in property taxes, city staff estimated that the project would bring in a $180,000 increase in transient occupancy tax revenue and $95,000 annually in sales tax.

Thirty days after the council’s approval, escrow will close, and the agreement between all the parties will go into effect. 

From there, Yardi and DSP can move forward with getting building permits and planning applications, McAdoo said.