AB 2243 Takes Effect January 2026: No Density Limits for San Diego Commercial-to-Residential Conversions

AB 2243 Explained: The 'No Density Limit' Revolution for Commercial Conversions

AB 2243 amends California's existing commercial-to-residential conversion framework established by AB 2011 and SB 6, creating an unprecedented pathway for unlimited density conversions. Approved by Governor Newsom on September 19, 2024, and effective January 1, 2025, the law contains a game-changing provision: conversion projects are exempt from maximum density restrictions if they convert existing buildings into residential use and new construction comprises 20% or less of total square footage. You can read the official AB 2243 legislative text on the California Legislature website.

This means a 50,000-square-foot office building in downtown San Diego could theoretically be converted into 80-100 residential units with no city-imposed density cap, limited only by the physical constraints of the building itself. Similar to how AB 2533 streamlines ADU legalization, AB 2243 creates a ministerial pathway for larger-scale housing production. The law specifically states: "A development project shall not be subject to any density limitation if the development project is a conversion of existing buildings into residential use, unless the development project includes additional new square footage that is more than 20 percent of the overall square footage of the project."

The implications are staggering. Traditional San Diego zoning might limit a commercial corridor to 30-50 units per acre, but AB 2243 removes those restrictions entirely for conversion projects. A three-story strip mall on El Cajon Boulevard that previously faced strict density caps can now be transformed into unlimited apartments, subject only to building code and structural requirements.

Key Provisions of AB 2243

• No density limits for existing building conversions (under 20% new construction)
• Development impact fee credits that offset existing use, charging only for incremental impact
• No additional common open space required beyond what exists on-site
• Ministerial approval pathway eliminating discretionary review delays
• 60-90 day approval timelines (60 days for 150 units or fewer, 90 days for 151+ units)
• Parking flexibility through State Density Bonus Law waivers

For San Diego specifically, this law targets commercially-zoned properties on corridors with right-of-way between 70 and 150 feet—precisely the width of streets like University Avenue, portions of El Cajon Boulevard, Garnet Avenue in Pacific Beach, and Newport Avenue in Ocean Beach. AB 2243 is part of California's 2026 housing laws creating new opportunities across the state.

How AB 2243 Differs from San Diego's Existing Office-to-Residential Program

San Diego has operated its own Office-to-Residential (O2R) program since before AB 2243, but the state law provides dramatically more favorable terms for developers and property owners. Understanding these differences is critical for cash buyers evaluating commercial properties.

The AB 2243 advantage is substantial. A developer converting a 30,000-square-foot strip mall on University Avenue under the city's existing program might be capped at 40 units based on underlying zoning. Under AB 2243, that same property could potentially accommodate 60-70 units with no density cap, receive development impact fee credits saving $15,000-25,000 per unit, and gain approval in 60 days instead of 6-12 months.

For cash buyers, this creates a valuation arbitrage opportunity. Commercial properties are currently priced based on their existing use or traditional conversion potential. Sellers who don't understand AB 2243's unlimited density provisions are undervaluing their assets by 30-50% or more. The cash buyer who moves quickly—with a 7-14 day closing and no financing contingencies—can acquire these properties before the market adjusts.

Low Vehicle Travel Areas in San Diego: Where 70-80 Units Per Acre Are Now Permitted

AB 2243 establishes minimum density requirements based on location, with the highest densities permitted in "low vehicle travel areas" and near major transit. The law defines eligible corridors as streets with right-of-way between 70 and 150 feet, and specifies minimum densities of:

• 40 units per acre for commercial corridors less than 100 feet wide
• 60 units per acre for commercial corridors 100+ feet wide
• 80 units per acre within one-half mile of a major transit stop

San Diego's geography and transit infrastructure create numerous high-density conversion opportunities. The city has designated Transit Priority Areas showing areas within one-half mile of major transit stops, including all San Diego Trolley stations on the Blue, Green, and Orange lines. The San Diego Metropolitan Transit System (MTS) Trolley map identifies these critical transit corridors.

Key San Diego Corridors and Their AB 2243 Density Potential

For cash buyers, the strategy is clear: target commercial properties within the half-mile buffer around Trolley stations. These properties qualify for the 80 units per acre minimum density AND the no-density-limit conversion provision—a double advantage that dramatically increases value.

Downtown San Diego: Which Office Buildings Qualify for Unlimited Density Conversion

Downtown San Diego's office market presents the most immediate AB 2243 opportunity. With vacancy rates at nearly 36% according to San Diego Union-Tribune reporting, and availability exceeding one-third of all downtown office space, numerous buildings are ripe for conversion. This stands in stark contrast to the overall San Diego County office market at 14.1% vacancy, highlighting downtown's specific distress.

The 101 Ash Street building exemplifies the conversion trend. The City of San Diego is advancing plans to transform this troubled office property into 100% affordable housing, with construction potentially starting spring 2026. While this project precedes AB 2243, it demonstrates the structural feasibility and market demand for office-to-residential conversions in downtown San Diego. For more details on this landmark conversion, see our article on 101 Ash Street's $146M transformation.

AB 2243 Qualification Criteria for Downtown Office Buildings

1. Commercially zoned (most downtown office buildings qualify)
2. Existing structure (built and occupied, not vacant land)
3. Conversion with minimal new construction (less than 20% new square footage for unlimited density)
4. Transit proximity (most downtown locations within half-mile of Trolley stations)

Office Buildings Particularly Suitable for AB 2243 Conversion

Financial dynamics favor conversion. Industry experts note that office buildings are selling at "generational buying opportunities" prices. The Irvine Company sold two Broadway office towers for approximately 35% of their 2005 purchase price—a massive discount that makes conversion economics viable even with construction costs of $200,000-300,000 per unit.

Development impact fee credits under AB 2243 provide additional savings. San Diego's multi-family development impact fees range from $15,000-30,000+ per unit depending on location and infrastructure demands. AB 2243 mandates that these fees be offset to account for the existing office use, charging only for incremental impact. On a 100-unit conversion, this saves $1.5-3 million in fees.

For cash buyers targeting downtown office conversions, the acquisition window is immediate. Office landlords facing 36% vacancy rates, declining rents, and tenant flight to suburban markets are motivated sellers. AB 2243 has been in effect for only 26 days as of this writing—most sellers haven't yet priced in the conversion value premium. Cash buyers have significant advantages in closing these transactions quickly before the market reprices.

Mission Valley Commercial Corridors: The Hidden Conversion Goldmine for Cash Buyers

Mission Valley represents San Diego's most underappreciated AB 2243 conversion opportunity. This central corridor contains extensive commercially-zoned properties, multiple Trolley stations, and aging retail centers that are perfect conversion candidates. Unlike downtown's high-profile office towers, Mission Valley's strip malls and second-generation retail centers fly under the radar—creating valuation arbitrage for informed cash buyers.

Mission Valley's AB 2243 Advantages

The conversion economics in Mission Valley are compelling. A typical 30,000-square-foot strip mall on a 1-acre parcel near the Hazard Center Trolley Station might generate $400,000-600,000 annually in retail rents. Under traditional zoning, redevelopment might be capped at 40-50 residential units.

Under AB 2243, conversion density of 80+ units per acre with no density limit means potential for 60-80 units. At rental income of $2,500-3,500 per unit monthly, this generates $1.8-2.8 million annually—dramatically outperforming retail returns.

Cash buyers can acquire these Mission Valley commercial properties at retail-based valuations (typically 8-12x annual rent = $3.2-7.2 million), then immediately convert to residential use worth $15-25 million based on comparable multifamily cap rates.

Pacific Beach Garnet Avenue and Ocean Beach Newport Avenue: Strip Mall to Apartment Conversions

Pacific Beach's Garnet Avenue and Ocean Beach's Newport Avenue represent San Diego's beach community commercial corridors where AB 2243 creates contentious but lucrative conversion opportunities. Both corridors feature aging strip malls, single-story retail buildings, and mixed-use properties that qualify for commercial-to-residential conversion—but local opposition to density makes AB 2243's ministerial approval pathway especially valuable.

Garnet Avenue (Pacific Beach)

Historically the "main street" of Pacific Beach since the early 1900s, Garnet Avenue has evolved from a coastal highway link to an automobile-oriented commercial strip. Post-war development created the one and two-story commercial buildings that line the corridor today—buildings now 50-70 years old and functionally obsolete for modern retail.

Recent Garnet Avenue developments demonstrate both opportunity and controversy. A five-story, 60-unit project at 2662 Garnet Avenue recently secured funding but faced opposition for exceeding the area's 30-foot coastal zone height limit. AB 2243 changes this dynamic—ministerial approval eliminates discretionary opposition for qualifying conversions.

Newport Avenue (Ocean Beach)

Newport Avenue presents a challenging commercial environment with high rents and business turnover. The corridor has seen antique stores decline while beer pubs expand, reflecting shifting demographics and commercial viability. Ocean Beach's rental housing demand significantly exceeds supply, creating conversion economics that overcome construction costs.

For both corridors, AB 2243's ministerial pathway is the key advantage. Beach communities historically resist density through discretionary review processes. AB 2243 removes discretionary review for qualifying conversions, allowing projects to proceed based solely on objective standards (building codes, height limits, setbacks).

University Avenue and El Cajon Boulevard: Transit Corridor Conversion Opportunities

University Avenue and El Cajon Boulevard form San Diego's premier transit-oriented commercial corridors for AB 2243 conversions. Both streets feature extensive commercial zoning, direct transit access, and aging building stock perfect for residential conversion. Together, these corridors span 6+ miles through City Heights, North Park, Normal Heights, and the College Area—communities with strong rental demand and limited new housing supply.

University Avenue

University Avenue serves as a primary east-west thoroughfare through central San Diego. The corridor's transit infrastructure includes freeway-level transit stations on State Route 15 at University Avenue, providing rapid access to downtown and suburban job centers. Properties within the half-mile buffer of the SR-15 transit stations qualify for 80 units per acre minimum density regardless of corridor width—and conversions still receive the no-density-limit benefit.

El Cajon Boulevard

El Cajon Boulevard is AB 2243's showcase corridor in San Diego. The 108-foot right-of-way qualifies for 60 units per acre base density, and proximity to SR-15 transit stations bumps this to 80 units per acre. The Boulevard Bus Way provides dedicated bus lanes serving 10,000+ daily passengers, creating a transit-rich environment that supports car-free living.

Recent development momentum validates conversion potential. Over 800 new rental units began construction along El Cajon Boulevard in 2024-2025—more than the entire previous decade combined. This demonstrates both market demand and city approval patterns favoring density along the corridor.

Conversion Targets on El Cajon Boulevard

Cash buyers targeting University Avenue and El Cajon Boulevard should focus on properties within half-mile of SR-15 transit stations (80 units/acre qualification), single-story strip malls with surface parking (vertical expansion potential), and properties with commercial zoning and corridor designation. The strategy: acquire quickly with all-cash offers, engage architects during escrow, and submit ministerial applications within 30 days of close.

Development Impact Fee Credits: The Financial Incentives Built Into AB 2243

Development impact fees (DIFs) represent one of the largest soft costs in San Diego residential construction, often exceeding $20,000-30,000 per unit for projects in areas requiring extensive infrastructure improvements. AB 2243's mandatory fee credit provision creates substantial financial incentives for commercial conversions—incentives that many property owners and even developers don't yet understand.

The statutory language is explicit: "The amount of a fee...imposed on the development shall be offset to account for the demolition or change so that the amount of the fee is attributable only to the development's incremental impact on public facilities or services." This means the city must credit the existing commercial use's impact when calculating residential fees.

How Development Impact Fee Credits Work

San Diego charges DIFs to fund infrastructure improvements necessitated by new development: parks, libraries, fire stations, transportation infrastructure, and public facilities. Traditional calculation assumes zero existing impact—a vacant lot or newly annexed land. Commercial-to-residential conversions are different: the property already generates traffic, service demands, and infrastructure load.

This example illustrates a critical point: residential conversions often generate less traffic and infrastructure demand than the commercial uses they replace. Retail, office, and restaurant uses produce significantly more vehicle trips per square foot than residential units. AB 2243's fee credit can reduce costs to zero or even generate credits applicable to other city fees.

On a 60-unit office conversion project, traditional DIFs of $1,500,000 could drop to $465,000 after AB 2243 credits—saving $1,035,000 or $17,250 per unit. This significant reduction in development costs improves project feasibility and profit margins dramatically.

Cash Buyer Strategy: Acquiring Commercial Properties Before the Market Adjusts

AB 2243 creates a textbook "knowledge arbitrage" opportunity: informed buyers understand a property's conversion value while sellers still price based on existing commercial use. This arbitrage window closes quickly—within 6-12 months of a law's effective date as market participants educate themselves. For AB 2243 (effective January 1, 2025), that means Q1-Q3 2026 represents the peak opportunity.

Cash Buyer Competitive Advantages

• Speed: Cash closings in 7-14 days vs. 30-60 days for financed acquisitions
• No Financing Contingency: Eliminate the risk that buyers can't secure loans
• Flexibility: Can acquire properties with vacancy, deferred maintenance, or tenant issues
• Immediate Action: Begin conversion planning during escrow, submit applications within 30 days

Strategic Acquisition Criteria

1. Location: Within half-mile of San Diego Trolley stations (highest density qualification)
2. Corridor Qualification: Streets with 70-150 foot right-of-way
3. Vacancy: 30%+ commercial vacancy indicates motivated sellers
4. Building Type: Strip malls, small office buildings, retail centers
5. Parcel Size: 0.5-2.0 acres (40-160 units at 80 units/acre)
6. Existing Parking: On-site surface parking allows residential use
7. Zoning: Commercial zoning (retail, office, mixed-use)

The urgency for cash buyers is immediate. Properties acquired in Q1-Q2 2026 at pre-AB 2243 pricing can close, gain approvals, and begin construction before Q4 2026 repricing occurs. Properties acquired in Q4 2026 or later will be priced at full conversion value, eliminating arbitrage profits.

Frequently Asked Questions