Six homes at 407 Pacific Ave. in Downtown Santa Cruz could be replaced by 102 apartments. (Alexandria Bordas — Santa Cruz Local)

SANTA CRUZ >> In the first potential redevelopment of residential units after parts of Downtown Santa Cruz were upzoned, developers are proposing a 102-unit apartment building at 407 Pacific Ave., where Neptune Apartments is located. Built in the 1930s, the apartment complex includes six rental homes and would be demolished.

The proposed eight-story building would include all below-market-rate homes and satisfy the affordability requirements for a 245-unit market-rate project proposed at 201 Front St., currently an Ace Hardware. A new city rule called the “Downtown Density Bonus” allows developers to build required affordable units in a separate building in exchange for limiting the height and providing a greater number of affordable units.

Dallas, Texas-based developer Lincoln Property Co. is proposing the market-rate development at 201 Front St. and San Diego-based developer CRP Affordable Housing and Community Development is the applicant for the below-market-rate development at 407 Pacific Ave. 

Both eight-story apartment proposals come after the city upzoned properties in a newly named “South of Laurel” or “SoLa” area downtown. The zoning changes are part the expansion of the city’s Downtown Plan and is intended to foment housing development and commerce, and make way for a permanent Warriors basketball stadium. 

The Downtown Plan Expansion cleared its final hurdle in August with approval from the California Coastal Commission.

CRP submitted a preapplication to the Santa Cruz Planning Department for the 407 Pacific Ave. project on Oct. 15. They seek to utilize a state law that would allow the project to be approved without local hearings. The project may need a hearing to be granted a Coastal Permit as it falls within the Coastal Zone, said Santa Cruz Planning Director Lee Butler.

The Neptune Apartments are on a 0.49-acre parcel that CRP purchased for $4.25 million in June, according to the county assessor’s database. 

Butler said developers have not discussed the levels of affordability for the proposed units, but the developer will be incentivized to make the units for income levels at or below 80% of area median income. Affordable housing developments are more competitive for tax credits, grants and other funding if all units meet that threshold. 

“More of this will come to light as we get additional info as a formal application is filed,” Butler said. “When that is officially nailed down, we do what’s called an ‘affordable housing development agreement’ with them.” 

The Downtown Density Bonus includes several options to satisfy affordability requirements and developers can utilize multiple options. The offsite option requires developers to build at least 26.7% of bedrooms as low income, defined as 80% or below area median income.

The 102 units proposed are more than required by that rule — if the new apartments at 407 Pacific Ave. are all set for low- or very-low-income renters, the developer could “bank” the extra units to count toward affordability requirements in future projects.

As for the tenants who live in the Neptune Apartments, Butler said there are “both state and local rules that apply anytime that new development projects are displacing individuals.”

The renters will get relocation assistance and “first dibs on going to the new units once they’re constructed,” he said, and Santa Cruz city also requires the developer hire a third-party consultant to ensure the rules are followed.

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