Capitola Mall redevelopment stalls on affordable housing plans

Feb 16 , 2024 Bay Area, Northern California

By Jesse Kathan, Santa Cruz Local

Link to original article

CAPITOLA >> Capitola city staff want to spur development of the Capitola Mall by allowing taller buildings. But hundreds of required affordable homes make the project financially infeasible, a developer said this month.

Developer Merlone Geier Partners submitted a conceptual plan to overhaul the mall in 2019. It  included 637 new homes and some buildings taller than the city’s 40-foot limit. Planning stalled during the COVID-19 pandemic.

At a Feb. 9 Capitola City Council meeting, council members supported new building heights on the site up to 75 feet. David Geiser, managing director of Merlone Geier Partners, said the changes would allow them to build about the same number of homes in the 2019 plan.

A city mandate to build 419 affordable homes in the project remains. “We don’t think that makes the project work,” Geiser said.

Geiser said the project should have 15% of its homes built as deed restricted affordable, which is the city’s minimum for new construction. That would mean about 96 of the 637 homes would be affordable based on state-set income limits.

Capitola’s recently submitted Housing Element of the General Plan relies on the Capitola Mall redevelopment for hundreds of planned affordable homes required by the state.

Capitola City Council members said they would consider changes to the affordability requirements.

“I have concerns that this still is a project that isn’t economically feasible for you,” Capitola Vice Mayor Yvette Brooks said to Geiser during the Feb. 9 meeting. “I hope that you find time to work with staff so that we can keep this project moving.”

Mayor Kristen Brown said, “I’m not thrilled with the idea of lowering the number of affordable housing units that we’re going to have here when we’re the most expensive housing market in the country.” She added, “I feel like our hands are kind of tied here.”

Brown is running for District 2 Santa Cruz County supervisor in the March 5 election.

A drawing of a proposed redevelopment of the Capitola Mall from 2019.

A 2019 concept to redevelop the Capitola Mall included 637 homes. (Merlone Geier Partners)

The height changes come in response to comments from the California Department of Housing and Community Development on the city’s Housing Element of the General Plan. The plan, required of every city and county in the state, allows for more homes over the next eight years. City staff submitted a Housing Element in November but state authorities have not certified it.

Local governments without a state-certified Housing Element are ineligible for some housing grants and are subject to a state law that prevents them from denying an affordable housing development because it exceeds height limits or zoning designations.

The proposed changes to the Housing Element would allow buildings in the mall redevelopment up to 75 feet tall. City rules currently allow buildings up to 40 feet tall, or 50 feet with city council approval. The changes would also exempt parking structures or lots from the building’s density calculations, meaning the project could build on a greater portion of the land.

If all mall buildings were 60-75 feet tall, the project could fit 1,000 to 1,300 homes, according to a staff report. But developers have no intention of building that many homes, Geiser said. Even with the height increase, Merlone Geier would only build 645 homes, about the same number included in the 2019 plans, he said.

Capitola Planning Director Katie Herlihy said “there was a bit of a disconnect” between the city and the developer. City staff thought the height increase would allow more homes than were included in the previous plan, because not all buildings in that plan were 75 feet tall, Herlihy said. “There were areas that were still two stories,” she said.

The city council commented in support of the changes, but did not vote on them at the Feb. 9 meeting. City staff plan to publish an updated Housing Element for public review and return to city council for a vote.