Jason and Kevin Yardi plan to build 14 units of housing inside the building at 12 E. Carrillo St. in Santa Barbara, formerly occupied by commercial tenants.
Jason and Kevin Yardi plan to build 14 units of housing inside the building at 12 E. Carrillo St. in Santa Barbara, formerly occupied by commercial tenants. Credit: Joshua Molina / Noozhawk photo

Most developers wouldn’t build a housing project if the return was only 5%.

But Jason and Kevin Yardi would.

The brothers and owners of Yardi Systems are working with the City of Santa Barbara on a visionary project to build 14 units inside a commercial office building at 12 E. Carrillo St.

“Commercial real estate, particularly traditional office buildings, have changed post-pandemic,” Kevin Yardi said. “Buildings historically occupied by office workers now have vacancies higher than any time in modern history.

“Converting these existing commercial buildings to housing downtown can be an important strategy for revitalizing State Street, with many ancillary benefits.”

The project comes as the City of Santa Barbara is wrestling with how to encourage development of its commercial office buildings downtown into residential dwellings. While people often call for more housing downtown, developers say that doing so is often not profitable enough because Santa Barbara does not allow enough density.

Instead, developers choose to build hotels, which are more profitable and involve less bureaucratic hurdles to jump.

The City Council and the Planning Commission are scheduled to hold a work session on Friday to look at ways to change the city’s rules to encourage more development.

A rendering shows what a bottom-floor unit and a loft home would look like as part of the project proposed for 12 E. Carrillo St. in Santa Barbara.
A rendering shows what a bottom-floor unit and a loft home would look like as part of the project proposed for 12 E. Carrillo St. in Santa Barbara. Credit: Cearnal Collective rendering

The Yardi brothers want to build 14 units, including one low-income unit and one moderate-income unit. They are willing to build with a projected 5% profit margin, but they believe that the city must relax its rules for commercial development in order to encourage other developers, who typically expect a 10% to 15% profit.

The developers want the city to eliminate inclusionary requirements and 90-year deed restrictions downtown, allow one main water meter to serve residential and commercial tenants in the same building, require keeping only 50% of ground floor commercial/retail on State Street, slash fees and make other changes.

“Ballooning construction costs, including labor, material and higher interest rates, add to the complexity of converting this existing building stock,” Kevin Yardi said. “Adaptive reuse will only work if it makes the process as simple as possible and removes barriers that undermine a project’s viability.”

Jason Yardi has had success with reusing commercial buildings. He built 14 units at 821 State St., above the former Sur la Table business. It includes three low-income units and one moderate-income unit. The site is currently fully leased with a 200-person wait list.

Yardi worked with the city on permitting, and the project received all permits within 10 months. Once completed, Yardi donated it to the Housing Authority of the City of Santa Barbara.

However, not all developers are willing to donate property. They are in the business of making money, which is why they are pushing the city to relax its building standards for development inside commercial buildings.

Members of the Santa Barbara City Council are on board with the Yardi proposal.

“Reusing buildings to create housing is an essential part of revitalizing our historic downtown,” Councilman Eric Friedman said. “This project and others like it are meeting a current need while also moving our city in a positive direction toward a vibrant future.”

Santa Barbara City Councilman Eric Friedman says he supports the Yardi proposal to build 14 units of housing inside the building at 12 E. Carrillo St. and other efforts to build more housing downtown.
Santa Barbara City Councilman Eric Friedman says he supports the Yardi proposal to build 14 units of housing inside the building at 12 E. Carrillo St. and other efforts to build more housing downtown. Credit: Joshua Molina / Noozhawk photo

Friedman said building housing downtown will also boost business.

“The redevelopment will not only create new housing opportunities, it will also provide smaller retail spaces that are more attractive for local small-business entrepreneurs to rent when compared to some of the excessively large spaces that are now prevalent,” Friedman said.

While most agree that more housing is needed downtown, Santa Barbara also has had a longstanding history of wanting to preserve its unique charm. Preservationists generally reject tall buildings that block mountain or ocean views.

Adaptive reuse, however, doesn’t involve construction of new buildings.

“This project effectively shows how adaptive reuse of an existing, underutilized downtown building can be converted to housing in a location that puts residents downtown, does not involve increasing building heights or footprints, and reduces vehicle counts,” Councilman Mike Jordan said.

— Noozhawk South County editor Joshua Molina can be reached at jmolina@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.