The broker's guide to selling development potential

"Development potential" is a legal claim wearing a marketing hat. When a setup says a parcel "supports 24 units with density bonus" or is "SB 35 eligible," sophisticated buyers hand it to land-use counsel, who checks it against the statutes — the Density Bonus Law's base-density and set-aside rules, SB 35/SB 423's site and city screens, AB 2011's corridor tests. A pitch that survives that check builds pricing power; one that collapses re-anchors the whole negotiation lower. The broker's edge is doing the buyer's diligence first and marketing only what the sources support.

The same discipline runs in reverse on the risk side. A building with tenants in the last five to seven years carries replacement and relocation obligations under the Housing Crisis Act and the density-bonus replacement rules — facts that cap what a redeveloper can do with the site and that surface in escrow whether or not the setup mentions them. Pricing them in up front keeps the deal from retrading; hiding them invites a broken escrow and worse.

The density-bonus pitch is arithmetic on a statutory base. Establish maximum allowable residential density from the general plan and zoning (where they conflict, the analysis matters — see density bonus basics), then apply the bonus scale for a stated set-aside, rounding up: the tables are in density-bonus percentage tables. Market the specific chain — "18 base units; 15% very-low set-aside → 50% bonus → 27 units, plus waivers of the height limit" — not a bare number. For house and small-lot product, the ADU/JADU and SB 9 layer is statewide and ministerial: an ADU plus JADU on most single-family lots, and SB 9's lot split + duplex right where the parcel passes its screens. Transit sites may also carry SB 79 upzoning tiers (reference table).

• Underwriting watch-outs:
• Base density is the most-litigated input — a wrong base makes every downstream number wrong. If the general plan and zoning disagree, say which figure you used and why.
• SB 9 excludes recently tenanted sites, historic districts and various hazard zones, and requires an owner-occupancy affidavit on lot splits — an investor buyer cannot always use it. Flag the screens.
• Bonus units are market-rate but the set-aside is covenanted for 55 years — a setup that counts 27 sellable market units on a 27-unit bonus project is wrong.

"SB 35 eligible" is a two-part claim: the city's current HCD determination sets the required affordability tier (10% or 50%), and the parcel must clear the site screens — no recent tenancy or demolition-of-protected-units history, not in listed hazard or resource areas, urban-infill criteria met. "AB 2011 site" claims turn on corridor width, frontage, and the office/retail/parking use test, with prevailing-wage (and, at size, healthcare-benefit) labor standards attached — see AB 2011 and SB 79 by-right housing. Both statutes are in the library verbatim; a broker who attaches the parcel-specific analysis to the OM converts a soft adjective into a priced entitlement path (see SB 35/SB 423 ministerial approval).

• Underwriting watch-outs:
• Determination tiers change with each HCD cycle — an old "10% city" designation may now be 50%. Date-stamp the claim.
• Ministerial statutes carry labor standards that materially change buyer cost models; sophisticated buyers price them, so surface them rather than letting them appear as a diligence surprise.
• "By-right" never waives building codes, coastal review where applicable, or objective standards — don't let the OM imply otherwise.

Redevelopment buyers underwrite the site's tenancy history as hard as its zoning. Housing Crisis Act protected units — occupied or rent-restricted units, including those vacated in recent years — must be replaced, with relocation assistance and right-of-return obligations layered on (see protected units); density-bonus law separately conditions any bonus on replacing lower-income units back five years. A rent roll, move-out history, and rent-board registration printout belong in the data room from day one: they determine whether the buyer's scheme is 30 units or 30 units minus replacement economics. On occupied assets, AB 1482 and local just-cause rules also constrain the "deliver vacant" fantasy — a broker promising vacancy at close is promising someone else's legal exposure.

Finally, sell the stage honestly — it is a ladder, and each rung has a market multiple: raw dirt with a story; a site with an SB 330 preliminary application vesting the rules (see SB 330 vesting); an entitled project through appeals; RTI with permits approvable on fees. Mislabeling the rung — "entitled" when the appeal window is open, "RTI" when conditions of approval are unmet — is the fastest way to a retrade.

• Underwriting watch-outs:
• Vacated-then-listed buildings do not shed protections: replacement rules reach back years, and buyers' counsel pulls the history. Disclose it and price it.
• Entitlements can be personal to a scheme: approvals tied to a specific plan set may not fit the buyer's program — state what the approval actually covers.
• Vesting quality matters: an SB 330 application, a vesting tentative map, and a development agreement lock different things for different durations. Name the instrument in the OM.