Legislative Edge by CLS CRE — Issue #1: SB 1123

Legislative Edge

by CLS CRE

The developer's insider guide to California's hottest incentive legislation.

Issue No. 1 · May 2026

From: Trevor Damyan

This Issue

SB 1123 — Small Multifamily By Right

California's SB 1123 is now in effect — and it quietly eliminates the single biggest obstacle small developers face: discretionary approval. If you hold a commercially-zoned lot near transit in Los Angeles, you may be sitting on a by-right multifamily opportunity with no hearings, no CEQA, and a ministerial approval process that moves in weeks, not years.

The Bill

SB 1123 Explained in Plain English

Signed into law in September 2024 and effective January 1, 2025, SB 1123 grants ministerial, by-right approval to small multifamily residential projects — meaning the local planning department must approve qualifying projects administratively, without any public hearing, planning commission vote, or discretionary review.

CEQA review is also eliminated for qualifying projects — removing the most commonly weaponized tool used to delay or kill infill development in California.

Qualifying Criteria

① Zoning: Commercially-zoned parcels, or residentially-zoned lots that allow multi-unit housing.

② Unit Count: Projects of 2–10 residential units. Larger projects do not qualify.

③ Transit Proximity: Site must be within ½ mile of a major transit stop or high-quality transit corridor.

④ No Protected Demolition: Site cannot involve demolition of affordable housing, rent-controlled units, or occupied housing.

The Opportunity

Hypothetical: 8-Unit Development in Van Nuys

ZIP 91405 · Victory Blvd corridor · 10,000 SF commercially-zoned lot · Vacant / single-story retail

Under SB 1123, this vacant commercial lot qualifies for an 8-unit multifamily project with ministerial approval — no hearing required. Here's how the numbers pencil on a market-rate build with 800 SF average units:

Metric	Value
Residential Units	8 Units
Hard Cost ($285/SF × 800 SF × 8)	$1,824,000
Total Project Cost (incl. soft costs + land carry)	~$2,200,000
Monthly Gross Rent ($2,100/unit × 8)	$16,800 / mo
Stabilized NOI (95% occ., 35% expense ratio)	~$130,000 / yr
Stabilized Value (5.5% cap rate)	~$2,360,000
Development Spread	~$160,000 + Equity Build

*Hypothetical illustration. All figures are estimates. Actual costs, rents, and values will vary by site. Not a guarantee of investment return.

The Financing

Construction Financing for SB 1123 Projects

CLS CRE structures construction loans for small multifamily projects like this at 70–80% LTC, with interest rates currently ranging from 9.5%–11.5% depending on borrower profile and market conditions — meaning you'd need roughly $400K–$700K in equity to fund the Van Nuys scenario above. We work with a curated network of private lenders and debt funds that specialize in LA infill construction, and we can close in 30–45 days once a project is scoped and approved.

If you have a site that qualifies under SB 1123 — or want us to evaluate one — the first step is a loan quote. We'll tell you exactly what's available and what it costs.

Get Your Construction Loan Quote →

Site Screening

Which Properties Qualify Under SB 1123?

Use these four criteria to do a quick screen on any parcel you're evaluating:

1	Commercial or Multifamily Zoning Look for C-1, C-2, C-M, CR, or comparable commercial designations — or residentially-zoned lots that permit multi-unit development by right (R2, R3, RD zones). Strip retail corridors and commercial avenues in the Valley, South LA, and East LA are prime candidates.

Within ½ Mile of a Major Transit Stop

Metro Rail stations, BRT stops, and high-frequency bus corridors count. In LA, this covers huge swaths of the city — the Orange Line, the B/D/E/G Lines, and dozens of Frequent Service bus routes. If you're near a Metro station or a frequent bus, you likely clear this bar.

3	10 Units or Fewer in the Proposed Project The ministerial by-right pathway is capped at 10 residential units per SB 1123. Stay at or below that threshold to qualify. This makes smaller lots — 5,000 to 15,000 SF — the sweet spot for this statute.

No Demolition of Protected Residential Units

The site cannot currently contain rent-controlled housing, deed-restricted affordable units, or occupied residential housing. Vacant lots, parking lots, and single-story commercial buildings are ideal. Confirm the last residential use — if applicable — was vacated voluntarily and at market rate.

Legislative tailwinds like SB 1123 don't stay under the radar forever. The developers who move first on qualifying sites will capture the best land basis and the cleanest approval timeline. If you want us to evaluate a specific parcel — or if you already have a site in contract and need a construction loan — reach out directly.

Until next month,
Trevor Damyan
CLS CRE · Commercial Real Estate Finance

CLS CRE

Commercial Real Estate Finance · Los Angeles, CA

trevor@clscre.com · (310) 853-0694 · clscre.com

You are receiving Legislative Edge because you are a client or contact of CLS CRE. All content is for informational purposes only and does not constitute financial, legal, or investment advice. All financial projections are hypothetical illustrations. Verify all legislative criteria with qualified legal counsel before relying on any bill for project approvals.