With Capitola Mall site rezoned, city aims to focus state-mandated growth on 41st Avenue corridor

While the mall site is almost certainly not able to fit all of Capitola’s state-mandated housing units, the 41st Avenue corridor as a whole will be the city’s biggest area of focus for development in coming years.

The City of Capitola took a big step forward in finally reimagining the Capitola Mall on Monday, when the city council approved zoning code amendments on the site, opening the door for an applicant to submit a project proposal. The council approved three “tiers” of development scenarios — one with just commercial space, one with just housing, and one with both. A developer can use the tiers as frameworks to plan a project.

The plan to redevelop has been in the works for years, going back at least a decade. At one point in 2019, the 50-year-old mall’s owner, Merlone Geier Partners, proposed a project that included 637 units and 339,000 square feet of commercial space, which never came to fruition.

While a new project is definitely going to look different from that previous plan, as there is likely to be only about 35,000 square feet of commercial space in a mixed-use scenario, the path is now paved to actually make it a reality. That’s particularly important now, since Capitola, like the rest of the cities in Santa Cruz County, looks toward the daunting, state-mandated task of planning for 1,336 new housing units by 2031.

Capitola officials planned for this, having identified the mall as a vital piece of the process before updating the city’s general plan in 2024 to allow taller buildings and larger floor areas for future projects. Katie Herlihy, Capitola’s community and economic development director, told Lookout that the mall is the city’s main priority for development.

“It’s really where the opportunity exists,” she said. “Over the years, we’ve had strictly commercial and not mixed-use, so by opening that door, it’s where a project could be feasible.”

Herlihy added that beyond the mall site, the city expects to explore the potential for development along the broader 41st Avenue corridor. That’s similar to how Santa Cruz is focusing much of its state-mandated growth in the south of Laurel Street area downtown.  

“We’re really built out through most of Capitola, and the only true potential for the really large number of 1,336 units is that we have to look at our bigger sites,” she said.

Of the 1,336 units the city is required to plan, the majority must be low-, very-low-, and moderate-income units. The city has to permit 430 very-low-income units, 282 low-income units and 168 moderate-income units, according to its housing element. That high level of below-market-rate housing means there’s essentially no way the city can count on the mall site holding all of the units it needs.

The city initially proposed 65% of the units in the low- to moderate-income range and 35% at market rate for the mall site, but the state said it was not economically feasible. It adjusted the proposal to 80% market rate and 20% affordable. That’s why the city is zoning for 1,777 units, more than the 1,336 the state is requiring.

A few sections of the mall site — the Kohl’s store, adjacent parking lots and a section of the main mall and parts of the parking lots around it – are not in consideration for housing due to lease terms and parking agreements. But while those were not included in the latest rezoning, Herlihy said the city won’t rule out those parcels in the future.

“That could be the next thing in our next housing element, to develop that Kohl’s site,” she said. “We have other sites, too, like the corner of Bulb Avenue and Capitola Road, but the mall really is our primary focus to plan as many units as possible.”

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