Leo Pustilnikov Used California’s ‘Builder’s Remedy’ to Push Multifamily Development

If you’re a real estate professional in Los Angeles and the name Leo Pustilnikov hasn’t caught your eye lately, you haven’t been paying attention. The self-made developer and investor’s pioneering use of California’s “builder’s remedy” rule, employed in an attempt to erect thousands of apartment units in wealthy enclaves around Southern California, has earned Pustilnikov headlines and the attention of city officials ever since he filed his first application in 2022. 

Enacted in 1990 as part of California’s Housing Accountability Act, the builder’s remedy provision was intended to be a tool for developers to bypass local zoning restrictions on affordable housing projects if a given city had not met the state’s housing goals. To qualify under builder’s remedy, housing projects must have either 100 percent moderate-income units, or 20 percent of units set aside for low-income residents. 

Until relatively recently, that “out-of-compliance” status applied to many dozens of jurisdictions, particularly wealthy areas that resisted state mandates to add more houses and apartments. Yet for decades the provision sat out in the cold, little known and barely used. Then Pustilnikov came along.

The tenebrous developer had quietly amassed a diverse portfolio in L.A. over the previous decade or so. Pustilnikov at one point worked under investor Naty Saidoff, according to the L.A. Times, and even partnered with L.A. legend Izek Shomof on a number of high-profile acquisitions for adaptive reuse projects, like the historic Alexandria Hotel and the 1.8 million-square-foot Sears Building, both in Boyle Heights. 

But Pustilnikov’s 2020 acquisition of the AES power plant in development-averse Redondo Beach was a turning point. Pustilnikov has big redevelopment plans for the 3.5 million-square-foot site — some 2,700 units (more than 500 of which would be set aside as affordable housing), a 300-key hotel, and 500,000 square feet of office space, among other features — but has encountered resistance from the city, which had long debated how best to use the now-
decommissioned plant. 

Just a few short years later, Pustilnikov dropped his builder’s remedy filing for the site after researching his best path forward, opening the real estate development floodgates. Since then, more than 150 projects citing builder’s remedy have been filed in cities across California.

Pustilnikov himself has filed at least 10 other builder’s remedy-driven projects in Redondo Beach, Santa Monica, West Hollywood and his home base of Beverly Hills. One of the most notable is the 19-story residential tower planned for 125-129 South Linden Drive, which if built would instantly become the tallest building in Beverly Hills. Yet the project faces a legal battle and an uphill procedural climb, as the Beverly Hills City Council in July effectively rejected the project by denying an appeal from Pustilnikov, who fought the city’s assertion that his development plan was incomplete. 

And therein lies the Achilles’ heel of builder’s remedy: Its central premise, if mildly revolutionary, is largely untested. Many, if not all, of Pustilnikov’s applications have hit legal or procedural snags as cities reluctant to permit his projects scramble to fight them. 

However, recent litigation, along with new state legislation, is beginning to provide more guidance. 

Law firm Holland & Knight earlier this year won the first California Superior Court case affirming the viability of builder’s remedy on behalf of Cedar Street Partners, which has attempted to use the provision to build apartments in the Southern California city of La Cañada Flintridge.

On Sept. 19, California Gov. Gavin Newsom signed Assembly Bill 1893, which replaces the builder’s remedy free-for-all approach with a more restrictive, but protected, path for use by developers. The new law includes changes to affordability requirements for new projects.

Putstilnikov’s innovative, if cheeky, approach has spawned a statewide debate about how to cut development red tape, and is noteworthy enough on its own. But he clearly isn’t one to stay out of the headlines for long. 

In August, an L.A. court approved Pustilnikov’s purchase of a 1,200-unit, 17-property low-income housing portfolio in Downtown L.A.’s Skid Row neighborhood, with the court arguing that the sale was in the best interest of the formerly homeless tenants who live there. The court also said the sale benefited the taxpayers who had footed the bill for the properties since their former landlord, the Skid Row Housing Trust, fell apart last year. Pustilnikov will pay $19 million for the properties — receiving $9 million of that back to fund renovations and other costs — and has committed to preserving social services for the tenants.

Nick Trombola can be reached at ntrombola@commercialobserver.com.