Lots of people are working on solving the storage issue and modernizing the grid, which will help.

I recently found a listing agent that had a bunch of apartments that I thought looked like great deals for sale, emailed him and asked if he would share any thoughts on how to make my way toward being in his shoes, and he took me out to breakfast at a restaurant he owns and helped me with how to move forward for 2 hours, and it cost me nothing!

Here is what I would do, if I were in your shoes.1.

There are also other potential revenue streams such as extra storage bays and coin laundry in the basement.

Having the units so close together, you can create economies of scale by sharing internet service, sharing laundry service area, sharing supply storage areas, and your cleaners should charge less to clean 2 units right next door to each other.  

City will not allow development of a home on the lot.Rent space to billboard company - Called 2 billboard companiesNOT ALLOWED - city does not allow any new billboards to be erected inside the city limits.Build multi-bay garage and rent each bay out for car storage NOT ALLOWED - local law prohibits erecting of secondary structures without a primary structure.Rent to seasonal businesses like flower tents, local farmer, etc.

In Wilmington as well, working with investor group that looks at SFRs, multis, self storage and MHPs.

@Brock Bowen set it up as a storage unit, or put in partitions and make it multiple units.

These days insurance companies have the right to inspect back, front and notice household storage excess extended to the side and front refusing to approve renewal.PS: In Northern CA I am unaware of any R2s that have a housing variance. 

Extra storage space & a garage for added convenience.