(a) With the exception of funds allocated for purposes of subdivision (b), funds appropriated for the purposes of this chapter shall be distributed by the department pursuant to Chapter 6.7 (commencing with Section 50675) of Part 2, and shall be used for downtown rebound projects to promote sustainable communities. These projects shall include residential infill projects, the adaptive reuse of vacant or underused commercial or industrial structures, and the development of higher density housing adjacent to existing or planned mass transit stations, as follows:

1. (1) Development projects in which vacant sites, or sites that are scheduled to become vacant, and are located within an established developed area of a community, are used for multifamily rental housing in conjunction with higher densities and flexible development standards that demonstrably reduce infrastructure costs and environmental consequences.
2. (2) Development projects rehabilitating existing commercial or industrial buildings that are at least 30 percent vacant that will result in at least 40 percent of the building floor area being used for residential dwelling units, live-work units, or both.
3. (3) Rental housing developments located within one-quarter mile of an existing or planned major transit node that are developed at a density level that meets or exceeds density standards to be developed by the department. A major transit node is a site where two or more mass transit modes, or one transit mode with three or more mass transit lines, are accessible to the public. Priority shall be given to projects developed within walking distance of schools, major employment centers, or public amenities, including shopping, parks, and major entertainment venues.

(b) Funds allocated for purposes of this subdivision shall be used for planning grants to local governments for either of the following purposes:

1. (1) Facilitating infill housing through developing site inventories, project specific feasibility studies, and strategic action plans to remove barriers and promote infill housing, mixed-use developments, and transit corridor development.
2. (2) Facilitating updates of general plans and zoning ordinances to encourage adaptive reuse, higher density residential development, mixed-use development, and residential development located within walking distance of schools, shopping, transit nodes, and major employment centers.
3. (3) Assisting owners of qualified buildings in obtaining seismic and structural feasibility studies specifically related to the purpose of adaptive reuse.