HAC-Ed Highlights: Evaluating Development Potential + Tax Strategy for Emerging Developers
What does it actually take to go from spotting an opportunity on Zillow to breaking ground on a multifamily project in California? And once you've made money on a deal, how do you make sure you actually keep it? At this HAC-Ed session, two speakers tackled the full arc of that journey, from site evaluation to exit strategy, with a level of candor and practical detail that's rare in a public forum.
Felicia Nitu, Founder of CityStructure and InstaDev, walked through a live case study of a project she's personally developing right now, pulling back the curtain on everything from financing hurdles to planning department dynamics. Kristian Taylor, Managing Director and CEO of Elite Tax Partner, followed with a deep dive into a tax mitigation strategy that most developers, especially emerging ones, have never heard of, but probably should.
What Can You Build and What Can You Actually Afford?
Felicia Nitu | CityStructure + InstaDev
Felicia came to proptech the way a lot of founders do: out of frustration. As an architectural designer who spent years working on large multifamily developments in San Francisco, she kept running into the same problem: it was nearly impossible to give clients a clear, fast answer about what they could actually build on a given property. So five years ago, she left her job and built the tool she wished existed.
CityStructure and its development-focused platform InstaDev automated zoning analysis across more than 100 jurisdictions in California, covering San Francisco, San Diego County, and LA County, so that anyone can enter an address and immediately see what state laws apply, what development scenarios are possible, and what the preliminary financial picture looks like. Every address gets a development score. The question the platform asks first: what's your goal?
The state law landscape for small-scale developers
Felicia oriented the room around three state bills that have fundamentally changed what's possible on smaller sites and that are still not fully understood even by many practitioners:
SB 9 allows most single-family zoned lots to add up to four units, transforming them from single-family into small multifamily sites.
SB 684 allows multifamily zoned lots to build up to 10 units (as many as five times what local zoning would otherwise permit) through a streamlined, ADU-like permitting process.
SB 1123 extended those same SB 684 benefits to vacant single-family zoned lots, opening up another category of underutilized land.
All three bills are still being implemented at the local level, which means developers can apply directly under state law in jurisdictions that haven't yet updated their local ordinances.
The case study: one small lot, many options
To make this concrete, Felicia walked through a current project she and her business partner are developing in Bernal Heights: a 25 by 70 foot single-family zoned lot with a dilapidated structure built in the late 1800s. The project started when a real estate agent ordered an InstaDev analysis and a buyer who thought she was looking at a fix-and-flip discovered she could do far more.
The lot is zoned RH2, which kicks in SB 684. Interestingly, the Bernal Heights Special Use District (SUD) would ordinarily impose a 45% rear setback, meaning nearly half the lot is unbuildable. But under SB 684, the rear setback drops to 4 feet. As builders know, that's a massive difference in buildable area.
InstaDev surfaced three distinct development scenarios for this lot, each with a very different capital requirement and return profile:
Scenario 1: A vertical expansion (adding square footage to the existing structure per RH2 zoning) would require roughly $450K in cash, covering down payment, monthly loan payments, and closing costs, and generate an estimated market value uplift of around $1.6M against a ~$700K investment.
Scenario 2: A full horizontal and vertical expansion (demolishing the existing structure and building new under SB 684, adding one unit to trigger the streamlined process) would require approximately $865K in cash, with an estimated return of $4M on a $2.5M investment.
Scenario 3:A mid-rise build (maximizing the SB 684 envelope) would require around $4M in upfront cash and could generate returns well above that, but is largely out of reach for emerging developers without deep pockets or established lender relationships.
The financing reality
The barriers are as real as the opportunities. Felicia was refreshingly direct about what she and Liisa ran into when they approached lenders: hard money lenders (the only viable option for this type of project) typically require three comparable projects completed within the past five years, homeowner status among the borrowers as implicit collateral, cash reserves to carry the loan monthly, and floating cash to pay contractor invoices before the lender reimburses them. They ultimately secured a $2M construction loan covering both acquisition and construction at approximately 9% interest and noted that a longstanding relationship with the same lender can meaningfully lower that rate over time.
A key structural insight Felicia shared for developers who are also designers or architects: setting up a separate entity to provide professional services to the development entity allows those services to be invoiced against the construction loan budget, creating a legitimate pathway to pay yourself during the development period without relying solely on outside income.
Working with SF Planning
Felicia's project is on track to be the first SB 684 project approved in San Francisco, which means the planning department is learning the process alongside her. Far from being adversarial, she described a collaborative relationship with the team at SF Planning responsible for state law implementation. Entitlement is running approximately one month and building permits approximately three, with a fresh checklist issued by the city just last week for SB 684 applications. One important note for anyone concerned about neighbor opposition: projects using SB 684, SB 9, SB 1123, or SB 423 go through ministerial, not discretionary, review. Neighbors have no formal mechanism to stop the project.
→ Enter any California address at instaDev.com to see its development score and applicable state laws. Questions or want to connect? Reach Felicia Nitu at felicia@citystructure.com.
Keep More of What You Make: Advanced Tax Strategy for Developers
Kristian Taylor | Elite Tax Partner
Taylor opened with a provocation: taxes are probably the most expensive line item in your project, and they're almost always the last thing people think about. His pitch is simple: it's not about how much you make, it's about how much you keep. And for developers in California, where combined state and federal tax rates on ordinary income can approach 50% and long-term capital gains still run around 37% when you factor in the 3.8% net investment income tax, the stakes are high.
Why conventional tax strategies fall short
Taylor walked through the limitations of the strategies most developers encounter. 1031 exchanges defer taxes but create a "deferral time bomb” of sorts; eventually you want the cash, and unless you keep rolling into new properties indefinitely or pass them to heirs at a stepped-up basis, the tax comes due. They also come with strict timelines (45 days to identify, 180 days to close) that can be nearly impossible to meet in a tight market. DSTs (Delaware Statutory Trusts) and similar structures often involve holdback periods of 9-10 years, tying up liquidity that developers need to keep building. Standard deductions like home office, equipment, the Augusta Rule, help at the margins but rarely move the needle on a significant exit.
The 704B partnership special allocation strategy
The core of Taylor's presentation was a tax mitigation structure built around IRC Section 704B, which allows partnerships to disproportionately allocate gains and losses among partners regardless of equity ownership. Developers are already familiar with this concept; it's the same principle behind a GP taking 20% of profit while contributing only 5-10% of capital.
The strategy works by forming a partnership between the developer (or their entity) and an active foreign exchange trading firm. That trading firm generates real, substantial trading losses. Those losses are allocated to the developer's partnership entity as a negative K-1, which offsets their taxable gains dollar for dollar, bringing their effective tax rate to zero in the year of the exit.
The cost: for capital gains, the net fee is approximately 11% (16% initial funding into the partnership, with 5% remaining in the partnership indefinitely). For ordinary income, it's approximately 12.5%. On a $1M capital gain, instead of paying roughly $370K in taxes, you'd pay $110K in fees and keep the rest liquid, with no holdback period.
The structure is designed to outlive the developer: the partnership and its deferred tax obligation remain in place until death, at which point the step-up in basis for heirs eliminates the remaining tax liability entirely. Taylor's firm has been through 11 IRS audits since 2014, all successful, and can provide legal opinions from both their own counsel and AM 100 law firms for clients who want that level of validation.
Practical details for emerging developers
The strategy is most impactful on exits of $1M or more, but Taylor confirmed he can work with developers at the $400-500K level given the audience. It applies to both capital gains and ordinary income (including W-2 income up to approximately $602K, and unlimited for business or investment income). It must be initiated in the same tax year as the gain and Taylor noted that Q3 and Q4 get extremely busy as developers realize their tax exposure, so earlier conversations are better.
In response to a question from Felicia about developers who are also earning professional services income during a project, through a separate design or consulting entity billing into the development entity, Taylor confirmed that income from that structure could also be meaningfully offset through this strategy.
For RMDs (required minimum distributions) from retirement accounts, the same negative K-1 mechanism applies: the allocated loss offsets the ordinary income created by the distribution, eliminating the tax bill.
→ Run your numbers at elitetaxpartner.com/calculator. Ready to talk through your specific situation? Reach Kristian Taylor at Ktaylor@elitetaxpartner.com to schedule a call.
The Throughline
Both sessions came back to the same reality: the tools and opportunities exist for emerging developers to build in California, but knowing they exist is only the first step. You have to know what you can build, what you can afford to build, how to get a lender to believe in you, and how to structure your exit so you actually come out ahead. None of that is intuitive, and almost none of it gets taught anywhere. Stay connected with HAC to keep learning, keep building, and keep moving the needle.
Want to connect further? Reach Brianna at brianna@housingactioncoalition.org.
