The Builder's Remedy Reality Check: What Actually Pencils Going Into 2026

Dec 22

Over the past three years, The Builder's Remedy has gone from an obscure legal provision to one of California's most consequential housing development tools. Bay Area cities received at least 98 Builder's Remedy applications totaling over 13,000 units between 2023 and 2024. As we head into 2026, the question every investor is asking: Are these actually getting built? And more importantly, where are the real opportunities?

What Qualifies and Who's Exposed

When cities miss their state housing element deadline, developers can bypass local zoning—height limits, density caps, setbacks—if projects meet affordability thresholds. As of January 2025 under AB 1893, projects need to satisfy any one of these options: 7% extremely low-income units, 10% very low-income units, 13% lower-income units, 100% moderate-income, or no deed restrictions if proposing 10 or fewer units on sites under 1 acre. These affordability restrictions last 55 years for rentals.

Four Bay Area jurisdictions remain vulnerable as of December 2025: San Mateo County, Half Moon Bay, Belvedere, and Clayton. But a November 2025 court ruling found that housing overlay zones don't satisfy state requirements if underlying zoning permits non-residential uses. This could reopen Builder's Remedy exposure in dozens of cities heading into 2026.

Important: AB 1893 now requires that Builder's Remedy projects comply with objective standards and can't be significantly out of scale with surrounding neighborhoods. Projects must meet minimum and maximum density thresholds, though projects within half a mile of major transit stops get greater density allowances. This changes the economics—developers can't just propose massive towers anywhere.

Beverly Hills: The Test Case

Beverly Hills provides the clearest picture. After three years out of compliance, the city received 16 Builder's Remedy applications. By October 2025, the Planning Commission approved nine projects ranging from 8 to 19 stories. A 19-story tower at 145 S. Rodeo Drive (30 units, 6 affordable), multiple 13-story buildings by Fisch Properties along Olympic Boulevard, and an 8-story development at 232 Tower Drive—representing roughly $500 million in total development value.

The Bay Area? Palo Alto has a 145-unit project moving toward approval. Menlo Park proposed towers up to 37 stories. But actual construction starts remain limited. The affordability requirement makes projects hard to pencil, so most successful applications add just a few strategic stories to offset fees and regulatory costs.

One key 2025 change: AB 1886 clarified that cities can't "self-certify" their housing elements anymore—only HCD determines compliance. And AB 2023 now presumes HCD's non-compliance findings are valid unless cities prove otherwise. If cities challenge HCD and lose, all Builder's Remedy applications submitted during litigation could be validated. This potentially extends the window for developers.

The CEQA Game-Changer

The biggest 2025 development: AB 130 and SB 131, signed June 30, 2025, exempted qualifying Builder's Remedy projects from CEQA review. What previously added 18-36 months is now gone, subject to tribal consultation and environmental assessments. This accelerated Beverly Hills approvals dramatically after an August court ruling forced processing.

Why New Construction Doesn't Compete

Here's the problem: construction costs don't make sense against distressed inventory.

Bay Area construction runs $550-650/SF all-in. A 100-unit building at $600/SF costs $51 million plus $12-15 million for land—$630,000-660,000 per unit before lease-up risk.

Meanwhile, distressed multifamily is trading at significant discounts across the Bay Area. Oakland foreclosures have traded as low as $110-170K/unit, but these properties face serious operational challenges including high vacancy rates and crime concerns. The real opportunity is San Francisco and Silicon Valley.

In San Francisco, Class B and C properties are trading at $314,000/unit—14% below the five-year average. A 76-building SF/Oakland portfolio sold in May 2025 at $305,367/unit, a nearly 30% discount from what it traded for six years ago at $423,729/unit.

This is where you want to be. SF Class B and C vacancy dropped to 4.5-4.7% in Q1 2025—tightest in years. Rents are climbing (2.8% growth—highest since Q2 2022), AI jobs are driving demand, and Peninsula submarkets (San Mateo, Redwood City, South SF) are seeing strong absorption near life science employers.

Buy SF Class B/C at $314K/unit, invest $40-50K/unit in value-add repositioning, and you're all-in at $354-364K/unit. Your basis is still 40-45% below new construction. Better yet: these are quality SF locations with strong fundamentals, not distressed East Bay markets.

Time value kills new construction. Builder's Remedy projects need 18-36 months entitlement, 18-24 months construction, 6-12 months lease-up. That's 3.5-5 years to stabilization with $14-20 million in interest carry on a $60 million project. Compare that to acquiring stabilized SF assets and executing 12-18 month value-add repositioning.

The Rent Control Trap

Even in SF, rent control is real. Buildings built before 1979 have strict rent control. If 30% of tenants pay $1,800/month while market is $3,200/month, your underwriting needs adjustment. SF rent increases are tied to CPI and capped annually.

Focus on quality SF and Peninsula locations where fundamentals support value-add execution, not distressed East Bay markets with serious operational headwinds. Builder's Remedy projects have predictable rent trajectories—affordable units are locked at known rates, but market-rate units in new construction have no rent control.

Due diligence requires forensic rent roll analysis:

What's the in-place vs. market rent gap per unit?
What's tenant tenure and historical turnover?
What are specific local rent control provisions?

A building with $2,000/month in-place rents vs. $2,800 market is manageable. A building with $1,400/month in-place vs. $2,800 market is a value trap. Those $220K/unit prices might reflect economic reality, not distress.

Under AB 1482 (statewide for properties not under local ordinances), the maximum increase as of August 2025 is 6.3% in most Bay Area counties. Local ordinances like San Francisco, Oakland, and Berkeley can be stricter.

Builder's Remedy projects have predictable rent trajectories. Affordable units are locked at known rates, but market-rate units have no rent control (new construction is exempt). You know exactly what you're buying.

What Pencils for 2026

Projects work where: Market rents exceed $3,800/month for 1BR, land basis is controlled, zoning relief adds 40%+ density, and construction stays under $550/SF.

Projects struggle where: Market rents dip below $3,200/month, land was acquired at speculative post-application prices, local appeals create delays, or costs exceed $600/SF.

Beverly Hills projects work because rents approach $5,000-6,000/month and land had controlled basis. Peninsula projects are marginal—strong rents but high land costs and delays.

Even successful Builder's Remedy projects achieve mid-teens IRRs with 4-5 years of execution risk. That doesn't compete with low-twenties returns on 18-24 month value-add existing properties—if you've properly underwritten rent control.

The 2026 Opportunity

Recent multifamily data shows Bay Area vacancy dropped to 4.9% in Q3 2025, with rents at $2,692/month (up 3% year-over-year). SF specifically hit 5.5% vacancy—lowest since 2019. Construction pipeline contracted 35%. Supply constraints are real, and AI-driven job growth is supporting demand.

The contrarian play for 2026: buy SF/Peninsula Class B/C multifamily at $310-330K/unit (with proper rent control due diligence), execute value-add at $40-50K/unit, and compete against new construction delivering at $630-660K/unit. Your basis advantage is insurmountable in quality markets with strong fundamentals.-over-year). Construction pipeline contracted 35%. Supply constraints are real.

The contrarian play for 2026: buy existing distressed multifamily at $220-280K/unit (after thorough rent control due diligence), reposition at $25-35K/unit, and rent at comparable rates to new construction delivering at $630-660K/unit. Your basis advantage is insurmountable.

What to Watch

Beverly Hills groundbreakings: If 3-5 approved projects break ground in early 2026, that validates the model.

Overlay zone litigation: The Redondo Beach decision is on appeal. If upheld, dozens of Bay Area cities could reopen to Builder's Remedy applications.

Distressed sale volume: Watch for SF/Peninsula Class B/C properties trading below $330K/unit—that's where the best risk-adjusted returns are for 2026, not Oakland.

Rent control expansion: Several Bay Area cities are considering new ordinances. This directly impacts the distressed asset strategy.

Bottom Line

Builder's Remedy isn't a gold rush. The CEQA exemption improved timelines significantly. The financial structure works in high-rent submarkets. But ground-up development with affordability constraints can't compete with buying distressed SF/Peninsula Class B/C at $310-330K/unit—in quality locations with strong fundamentals.

For 2026, watch Builder's Remedy developments, but execute on distressed SF and Silicon Valley assets with proper rent control due diligence. Oakland might be cheaper, but the market has serious operational challenges. Focus on quality Peninsula submarkets near life science employers and SF neighborhoods with improving fundamentals. While everyone focuses on shiny new high-rises, smart money is accumulating existing SF/Peninsula multifamily at discounts—but only in markets worth owning.

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