City Council OKs Paseo Nuevo Redevelopment That Will Forever Change Downtown State Street

After years of failed proposals and a pair of hulking vacant storefronts that have defined downtown Santa Barbara's struggles, the City Council voted 6-0 Tuesday to approve a suite of development agreements that will fundamentally reshape Paseo Nuevo — and with it, the State Street corridor.

The June 16 vote, which came with one abstention from Councilmember Wendy Santamaria, introduced the ordinance to authorize the deals. The agreements return for a formal second reading and final approval on June 30, according to the City of Santa Barbara's Paseo Nuevo project page.

What's Actually Being Built — and Who's Behind It

The redevelopment hinges on two parallel adaptive-reuse projects, both preserving the existing structures rather than demolishing them.

Yardi Systems — the Santa Barbara-based real estate software firm currently headquartered in Goleta — will convert the long-vacant former Macy's building at the corner of State and Ortega streets into corporate offices and an event space. As Noozhawk reported, Kevin Yardi told the council the company has 610 employees "anchored" to its Santa Barbara office and expects "it would be many hundreds per day" commuting to the new downtown building. Yardi will also acquire ownership of the inline shopping center and Parking Lot #1 from Paseo Propco LLC — the entity also known as AB Commercial, a subsidiary of global investment firm AllianceBernstein.

On the other side of the mall, DSP Santa Barbara — a joint venture of Dune, Shopoff Realty Investments, and Praelium — will convert the former Nordstrom building at 817 State St. into between 80 and 112 rental apartments. Ten percent of those units will be deed-restricted as affordable for moderate-income households earning between 80% and 120% of the area median income, and those affordability restrictions will remain in place for at least 90 years, Noozhawk reported. None of the units may be converted to short-term vacation rentals. Unit types will range from studios to two-bedrooms, according to Noozhawk's June 2 coverage. One notable design feature: DSP plans to cut an opening in the roof to create a central courtyard inside the building.

The theaters, art museum, shops, and restaurants that currently operate within Paseo Nuevo will remain open during and after the transition.

The Money and the Land

The combined private investment across both projects is estimated at approximately $100 million or more, with DSP and Yardi covering all renovation and construction costs.

A key element of the deal is the transfer of city-owned land. The City of Santa Barbara owns the ground beneath Paseo Nuevo, but — as City Administrator Kelly McAdoo and City Attorney John Doimas explained to the council — legal limitations on current land uses have effectively rendered that land value at zero and blocked redevelopment for years. McAdoo told the council that a long-term ground lease, rather than an outright land transfer, was a "non-starter" in negotiations with both parties.

Under the agreements, the city transfers fee title to the land under the former Macy's, the inline retail parcels, and Lot #1 to Yardi Systems, and the land under the former Nordstrom to DSP. In exchange, the public receives substantial financial commitments: Yardi will contribute $5 million to the city's Local Housing Trust Fund and $700,000 toward the downtown parking program, while DSP will contribute $1 million for downtown improvements and $700,000 to the housing trust fund. In total, the public benefit contributions to affordable housing and downtown infrastructure reach approximately $1.7 million in downtown and parking investments and $5.7 million to the Local Housing Trust Fund.

How Santa Barbara Got Here

Passeo Nuevo has been a study in false starts. The mall was born of the city's 1980s redevelopment push and opened in 1990, according to edhat. The Macy's anchor closed in 2017 and has sat vacant ever since. The Nordstrom followed.

A previous proposal — which at one point called for demolishing the Macy's building and constructing more than 200 housing units — was effectively killed in December 2025 when the City Council declined to move it forward, demanding more affordable units, the Santa Barbara Independent reported. That rejection opened the door for Yardi Systems, which approached AllianceBernstein and city staff about an entirely different vision: preserving the structures and moving hundreds of workers into the heart of downtown.

Negotiations involved three separate parties — the city, Yardi/AllianceBernstein, and DSP — "each having veto powers, each having to come along," City Attorney Doimas told the council, as Noozhawk reported. The council first reviewed and enthusiastically endorsed the framework at its June 2 meeting, then voted on the actual written agreements June 16.

Council Praise — and a Note of Caution

Most council members were effusive. Mayor Randy Rowse praised Yardi's commitment to bring its workforce from Goleta into the urban core. Councilmember Eric Friedman called it "a great day." Councilmember Meagan Harmon — who is also a real estate attorney and reviewed the agreements personally — said "I believe this is the best deal that there is," according to Noozhawk. Councilmember Mike Jordan said the ripple effects would exceed any bullet-point list of benefits.

But the vote was not without friction. Councilmember Kristen Sneddon objected to a provision offering discounted parking permits to Yardi employees when other downtown commuters — including city workers — pay full price. She also raised concerns about the city potentially covering trash services for the properties after ownership transfers.

Santamaria, who ultimately abstained, urged the city to renegotiate the smaller points rather than treat the deal as a foregone conclusion. "While I see there are wonderful benefits to this project, I very much hesitate to call this a done deal, a miracle, it's a slam dunk, let's just do it," she said, according to Noozhawk. Several members of the public also asked the council to reconsider transferring what one speaker called the "heart of downtown."

City staff noted that the other parties had already executed their agreements before the council's vote, meaning all the interlocking agreements must be in effect simultaneously — or none of them are.

What Happens Next

The ordinance returns to the council for a second reading and final adoption on June 30, per the city's project timeline. Assuming that vote passes, both Yardi and DSP will file formal land-use and entitlement applications in the summer or fall of 2026. Construction on both projects is targeted to begin in 2027, subject to those approvals.

Tess Harris, the city's State Street master planner, put the stakes plainly. The two projects represent roughly $100 million in private investment and could bring hundreds of people downtown daily, she told the council, as reported by Noozhawk. "This is a really defining moment for downtown Santa Barbara and for State Street," Harris said, "and at the center of State Street sits two long-vacant anchor buildings that have generated no activity, no jobs, no revenue for years."

For State Street merchants who have watched foot traffic thin for nearly a decade, the clock is now ticking toward a very different downtown.