Big Opportunities in Small Lot Building

With the dearth of developable land in Los Angeles, developers are getting more creative. In the residential sector, that has meant using smaller, constrained land sites for home developments. In some areas of the city, small lot development has been used to bring low-cost single-family communities to the market. These communities have been possible under the small lot ordinance and have become popular in areas like Silverlake. In other parts of the city, small lots have been used to bring thoughtfully designed homes to built-out luxury markets. L.A. Build Corp. has ample experience working with small lots. We sat down with the L.A. Build Corp. president Ami Harari to find out the challenges and benefits of building on small lots.

GlobeSt.com: Why have small lots become a good option for development in Los Angeles?

Ami Harari: Small lots will usually have a small, old house that can be purchased for a lower cost than a larger house on a bigger lot. The trend for the last few years has been to maximize the allowable square footage and to produce a bigger house with an indoor-outdoor flow that is well suited for people who are working in the city and would like to avoid the traffic associated with living in the suburbs and those who want to easily take advantage of the city nightlife. The trend became very popular, prices were driven up by demand and developers seized the opportunity.

GlobeSt.com: How has your firm utilized these spaces?

Harari: We begin by finding the right lot, preferably in the middle of the block and on the most desired street. Then, we build a house that is just a bit better than the competition, along with focusing on the right market analysis on the desired square footage and the maximum price paid in the particular area we target.

GlobeSt.com: What types of projects are most common for these lots, and why?

Harari: The projects are mainly single-family homes because they turn the best profit. The majority of the lots are zoned as R1, meaning single-family dwellings, but there are some R2 lots around, allowing for Duplexes to be built. However, these do not bring the same return that building a luxurious single family home does.

GlobeSt.com: Last year, the city created a list or architectural guidelines for small lot development. How have those guidelines impacted the design of small lot developments? Are there other regulations for small lot projects that differ from standard lots?

Harari: The regulations have been handed out according to the area and zoning, rather than the size of the lots. They have substantially limited the possibilities of developing at the same rate as before. This area of Los Angeles/Hollywood passed a Mansionization ordinance, which limits the amount of buildable space per lot. It caused a lot reduction from 50% to 45%. In other words, a 7,500-square-foot lot previously, after a bonus, could max out at 4,500 square feet and is now reduced to 3,375 square feet. They also ruled on roof decks to have setbacks and a mandatory 45-degree encroachment plane to not cast shadows on neighboring properties.

GlobeSt.com: Do you expect to see more small lot projects in the future?

Harari: I would hope so, but as of now, the development opportunities are much less than they were last year with the new code changes. Additionally, prices have risen, so the profit margin is not as attractive to many developers anymore. This has caused them to move to less regulated areas where there are more lucrative building options. One thing is for sure, the market changes at a very fast pace and developers will continue looking in this highly desirable area for the next opportunity.