What a Difference a Door Makes?

By Dave Fratello | August 12th, 2021

At first blush, it was very tempting to try to draw a value inference from two recent Sand Section sales.

229 30th is midtown walkstreet lot (with existing, dated structure) with nice ocean views facing south.

The listing came out at $3.700M and it has just closed, after multiple offers, for $3.895M.

That's a healthy and not super shocking number for a buildable property just west of Highland. (All things in context; we know it's like 10x+ the amount most people spend on a home to live in, all over the USA.)

And then there was 3101 Highland, another walkstreet lot, south-facing, just a few steps away, one beach block north.

This offering emerged at $3.499M and just closed lower at $3.340M.

The greatest apparent difference explaining the $555K gap in price?

One lot's on Highland, while the other is set one door further down from Highland, protected to some degree from traffic noise etc. by that one-property buffer.

If you wanted to put it out there that it's a ~15% discount to be on Highland versus not, it wouldn't sound outlandish.

Alas, this almost-perfect comparison is complicated by some important realities.

The walkstreet lot at 229 30th is a very straightforward proposition. It's an SFR on a full, 30' x 90', 2700 sqft. lot now. Redeveloping that lot means you can build another SFR with today's rules for heights, etc. (generally 30' high and 3 stories in the Sand).

And over at 3101 Highland... whoops, this is breaking down now.

That's because the offering at 3101 Highland was actually two separate lots with two separate parcel numbers.

You can see the two separate buildings in this image taken from the middle of Highland Ave. (Watch out!)

The front unit is a 1br single unit, while the rear sports a little duplex.

Both buildings and lots were being sold at once as a package, but new development rules here would mean any new building effort would be a whole different kettle of fish.

That's because if there are 3 units there now, you can't build fewer than 3 units in the future. (Whether keeping the lots separate, or merging them into one lot.)

A relatively new California state law is the hitch. That's SB 330, the Housing Crisis Act, which is to be in effect from Jan. 1, 2020, to Jan. 1, 2025... for now. (Oh, BTW, we're giving you our best-faith understanding of all of this, but please check yourself as to how any development rules or laws might impact you. This blog is not your lawyer.)

SB 330 prohibits new development from reducing the number of units on a site. So whatever the current density, new development must have the same density.

They say "prohibition never works," and that only outlaws will reduce density in a situation like this, but, hmmm, yeah, in land-use policy, prohibitions actually do work.

So the buyer for 3101 Highland came in eyes-wide-open, evidently appreciating a little land bank with some cute, producing rental units, with no urgency to doing any new development.

This makes for an interesting observation on two nearby recent Sand Section sales, but any effort to draw value differentials for location on/off Highland fails because of the additional wrinkles as to land use for the Highland lots.

Still, you learn something every day. Even in Summer!

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