An ADU is a secondary residential unit on a property with a primary dwelling — often a converted garage, basement, or backyard structure. California has streamlined ADU approvals since 2017 to address housing supply.
ADUs can be attached (converted interior space) or detached (new backyard structure). California state law preempts many local restrictions and accelerates permitting. For multifamily, ADUs are less common than in single-family contexts but can add a unit to a small lot with relatively modest construction.
LA ADU permit volume has been substantial since 2017. For multifamily sellers, the key question is whether existing ADU-converted spaces are properly permitted. Unpermitted conversions are diligence risks. Permitted ADUs are income-producing assets that trade alongside the primary building.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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