ADUs are set to pop up on large developments

“Before, you used to take this small little home and tuck it in the backyard, where they can use it any way they want,” Samara CEO Mike McNamara said. “Now, you’re allowing these apartment owners and condo owners to be able to do the same strategy, essentially — tuck a small home into extra space because, when you build a big apartment complex, you might have unused space.”

The companies have not disclosed the specific developments that will add the new 800-square-foot rental homes, but they will be located throughout the Peninsula — including San Mateo, Foster City and Mountain View — and will each comprise two bedrooms and two bathrooms.

Stimulating ADU production is often seen as low-hanging fruit in the quest for improving housing affordability, as it helps cities meet increasingly ambitious state-mandated housing goals and demands less capital, community engagement and planning efforts compared to multifamily developments. And as new affordable housing production fails to keep up with demand, ADUs are often considered an accessible option for households with elderly family members or young adults who can’t yet afford their own place.

Since 2016, numerous pieces of legislation have helped streamline and spur production, and it seems to be working. Less than 2,000 ADU permits were issued statewide in 2016 but, in 2022, that number rose to more than 20,000, according to data from California YIMBY and the Department of Housing and Community Development.

Most recently, due to Senate Bill 1211, developers can now add up to eight ADUs to their properties that currently house large apartment complexes and multiunit buildings.

“It’s for larger apartment buildings that have at least eight units. Before SB 1211, you could only have two attached ADUs on a multifamily site,” SPUR State Policy Director Michael Lane said.

Developers like Avalon Communities, Sares Regis and Essex Property Trust all have properties in the Bay Area where SB 1211 could be applied, Lane added, and it’ll work especially well in areas like the Peninsula, where there are attractive downtown and transit centers.

“Every apartment building owner is looking at this opportunity, but it won’t work on every site,” Lane said. “It’s going to be in larger suburban developments and in downtown areas where you have the extra space, and all the parking spaces aren’t maxed out.”

The legislation is the key reason why Samara is able to partner with Prometheus on such a project.

“We’re trying to go after this theme of housing which is very non-invasive. It’s gentle density,” he said.

Samara spun out of Airbnb in 2022 and is accustomed to producing ADUs and small homes one by one, but by partnering with large developments, it can more easily scale projects, which could be a boon for prefabricated, or factory-built, housing and ADU companies, as many have collapsed in relatively short time spans even with strong venture backing. Some Bay Area developers have stated they’re hesitant to go with prefab companies for larger projects, since they don’t know if they will still be around after construction is complete. Shortly after building and delivering the units for the Redwood City Navigation Center, for instance, prefab company Silver Creek filed for bankruptcy. Venture-backed Veev was valued at $1 billion not long before liquidating its assets, and Katerra made headlines several years ago when it raised more than $2 billion from investment juggernaut SoftBank before folding soon after.

Many of the companies require an immense amount of capital, in part to withstand the unavoidable bureaucratic delays — from permitting and inspection to planning commission and council meetings — even with increasingly relaxed housing policy. Developers using prefab have typically outsourced the manufacturing, architecture and design work, which also means they must make more financial payments and decisions up front, especially compared to traditional developments.

McNamara said Samara vertically integrates, conducting the design, manufacturing and installation in house, slashing reliance on outside companies and improving efficiency.

“You have to have a business model that actually yields profitability. We build our own products, we design our own products, and we engineer our own products. We manufacture them, and we do the installation,” McNamara said. “That is not what any other ADU company has done, and as a result of that, a lot of times you have all kinds of incremental costs associated with trying to get partners and then the partner wants to make a bunch of profit, and you have to take their costs and mark it up.”

The company also offers financing options for customers, further buffering itself from some of the downfalls of other prefab and ADU companies.

“A lot of these ADU companies went upside down when the interest rates went way up. When the interest rates were 3%, everybody was refinancing their homes, and they were taking that money and putting it into an ADU,” he said. “Now when it switches over to higher interest rates, 6.5% or 7%, all of sudden that financing becomes more difficult and makes it harder for these ADU companies to sustain the level of business they had.”

Construction on the homes is expected to start in 2026.