What You Can Buy: Smart Investments for Owner Occupiers

One of the most strategic and desirable investments you can make in San Francisco is to purchase a three- to four-unit property that has one or more units vacant, a garage, and a good neighborhood location. Let’s face it, rents in the city are high, and if your rents reflect today’s market, you’ll be ahead of the game in the long run.

It’s extremely important to be well versed in San Francisco’s rent laws before you consider such a purchase. I’ve been a successful owner-landlord for the past 16 years, and there’s definitely a list of do’s and don’ts to which you’ll want to adhere. You also will want to have a large down payment or you’ll have no cash flow. Here are three properties worth a look, particularly if you’re in this for a long-term hold:

1031-1037 Divisadero
Neighborhood: NoPa
The Deets: Two vacant Victorian two-unit buildings on one lot with a capacity for eight-car parking. There are two 1BR/1BA units, and two 2BR/1BA flats.
List Price: $3.7M
The Scoop: NoPa’s become all the rage in the past couple years, so finding tenants for three of these nice units shouldn’t be a problem. The property was built in 1880 and has all the period details people love. You can move in to one of the larger units in the front building for your primary residence, and rent out the rest. 1031-1037 Divisadero is on a double lot and has updated kitchens/baths, and hardwood floors. The building came on the market at the end of August for $3.9M, so the current list price reflects a reduction. [Read more...]

All Deeds Must Record At Same Time for Condo Conversion

As the current crop of TICs converts to condos, I’m seeing many owners listing their TIC interests prior to the actual condo conversion of the entire building. This means the buyer is expected to step in at the tail end of the condo conversion and work with all existing owners as they refinance and everyone completes the conversion process.

In other words, whether there’s a group loan or fractional financing in place, all new condo deeds have to record simultaneously. If there is one owner in the group who doesn’t have a loan, that owner needs to wait until everyone’s refinancing/new purchases are completed prior to obtaining a condo deed. [Read more...]

What You Can Buy: Vacant Two-Unit Buildings

The vacant two-unit building is one of the holy grails of San Francisco real estate. Two different owners can partner and pursue condo conversion, or a buyer looking to live in one unit and rent out the other can also benefit.

There are three such properties on the market right now, in transit-rich locations with plenty of restaurants, cafes and retail in walking distance. Let’s take a look at what’s out there:

159-161 Belvedere
Cole Valley

Two 2BR/1BAs
Parking included
List Price: $1.6M
159-161 Belvedere is one of those buildings that’s been in the same family for a long time. As such, it needs some heavy updating but is in a location (and has the square footage) that warrant the investment. There’s additional space in each unit that’s been used as a third bedroom, and there is also very nice preserved period detail that hopefully the next owner will maintain. The garage is huge and can accommodate three or more cars if parked in tandem. Excellent neighborhood location that’s near in heart of Cole Valley and also a block from Haight Street. [Read more...]

All About Location for TIC Sales

Tenancy-in-common (TIC) interests have traditionally been popular with buyers who value a more central location in a desirable neighborhood. Because when it comes to affordability, TICs still will get you more space in a better location than a condo will.

And the neighborhoods in which TICs have sold recently read like a who’s who of hot ‘hoods. Here’s where buyers purchased their TICs from October 2013-February 12, 2014:
Noe/Eureka/Cole Valleys
Lower Pac Heights
Nob/Russian Hills
Hayes Valley
Presidio Heights.

The average cost of a TIC in that time period was $1,035,252. But that high price is largely due to multiple sales in Nob Hill’s newly renovated Park Lane at 1100 Sacramento. Seven units sold in that building, ranging in price from $1,595,000-$7M. With the exception of that unit sold for $1,595,000, the six other Park Lane buyers paid cash for their units. [Read more...]

SF Overbidders Club: 2-Unit Building Edition

San Francisco’s two-unit building market has been quite busy in 2013. No surprises there, such properties—particularly when they’re completely vacant—are excellent options for buyer partners or those who want to owner occupy one unit and rent out the other.

A total of 303 two-unit buildings have sold citywide, year-to-date. And 29% of them were sold in all-cash transactions. Of the 112 such buildings sold from July-November 12, 2013, 66% were sold for more than the list price, which mirrors the selling pattern for single-family homes and condos in San Francisco.

Let’s welcome some new two-unit building owners to the SF Overbidders Club. Remember, you can only gain entry into the club if you pay 25% or more over the list price:

157-159 Collingwood
The Castro

List Price: $1,600,000
Sale Price: $2,125,000
Overbid Amount: 33%
Closed Escrow: 11/6/13

These two spacious, vacant units in a prime Eureka Valley location are exactly what a lot of buyers are looking for. Each unit had an oversized living room, formal dining room, large eat-in kitchen, and original hardwood floors. And the kitchens provided the opportunity to do your own remodeling. There was also a large, unwarranted in-law unit on the main level, as well as a large yard. (But only one parking space.) In the end, the seller received ten offers, five of which were all cash. The winning offer hit it out of the ballpark with a contingency-free contract and cash.

426-28 17th Avenue
Central Richmond

List Price: $899,000
Sale Price: $1,325,000
Overbid Amount: 47%
Closed Escrow: 9/23/13

This is another vacant two-unit building, with one 2BR unit and one 1BR. The property needed work, with broken back stairs and general TLC needed throughout. Kitchens and baths were in their 1950s original condition, too. In walking distance of Gaspare’s Pizza and Aziza on Geary, as well as four blocks north of Golden Gate Park, 426-28 17th Avenue is in a very convenient part of the Richmond.

29-31 Delmar
The Haight

List Price: $1,499,000
Sale Price: $1,988,000
Overbid Amount: 33%
Closed Escrow: 11/7/13

Yet another vacant two-unit building hit the market with a splash, in a popular Haight location. Each flat had 2BRs, split bath, living rooms with bay windows, formal dining rooms, and 1915 period detailing. The large garage had four-car capacity, and there was a landscaped garden. 29-31 Delmar was also sold in an all-cash transaction.

Two-Unit Building: A Good Bet for You & Your Friend?

Many buyers who start out looking for a condo in San Francisco often end up deciding that they’ll join forces with their friends or family members to purchase a two-unit building. This can be a good decision, but it’s important to be aware of the key factors to consider when deciding whether such a group purchase is possible—or a good idea.

Here’s what you should discuss before you take the plunge into the two-unit building market:
You’ll need to have shared goals. The biggest advantage of a two-unit building is the process by which you can condo convert. (It typically takes 1.5-two years.) Make sure all the owners are on the same page about wanting to condo convert, if that’s the ultimate goal. If you’re all in it just to own a two-unit building for a few years and then re-sell the property, that’s fine, too. Just make sure everyone knows what the end game is.

All buyers should be financially compatible. It’s ideal for all buyers to be in similar financial situations. You will have many shared expenses, particularly if you plan to condo convert the building. And you’ll want to make sure you have sufficient financial resources when it comes to maintaining the building and dealing with necessary repairs. Remember: You’ll each own half of the common areas, so it’s not great if only one buyer can afford to pay his or her share of the roof replacement.

You should all share similar attitudes about maintenance and repair. For every homeowner who calls the plumber at the first sign of a leak, there’s one who lets it go until the kitchen floods. If you’re the type who sketches out a repair and maintenance plan for each year, it may not be a good idea to team up on a two-unit building with someone who ignores the rotten wooden siding and hopes it’ll go away on its own.

Your loan will be different. Your choices will be either a shared loan on the building, or two fractional loans. Both loans will carry adjustable rate mortgages, but the rates and requirements will be different. The traditional group loan requires that all buyers get preapproved together, and this factors in everyone’s qualifications and credit scores. If one buyer defaults on the mortgage, all buyers are held responsible because it’s a shared loan. Buyers using a fractional loan would be individually preapproved and would not share a loan. It’s more common for buyers who already know each other to get one loan on the building and then refinance into condo loans within two years after pursuing condo conversion. I recommend looking into the details for each loan option, and seeing which one will make sense for your situation.

Put a TIC agreement in place. Even if you’re planning to condo convert, I highly recommend having the basic TIC agreement in place for the interim. You never know what can happen prior to conversion, and having this legal document to refer to can help simplify things.

Vacant two-unit buildings aren’t a bargain. You will probably end up spending as much on a vacant, two-unit building with equal-sized units as you would were you to purchase an individual condo. Vacant two units are very close in value to condos, due to the direct path to condo conversion.

Park Lane Raises Bar for Luxury TIC Market

The luxury TIC trend hits a new high with Park Lane at 1100 Sacramento in Nob Hill. About to become the largest and most high-end TIC project in San Francisco, 1100 Sacramento is positioned to be the mother of luxury TICs.

Tenancies-in-common (TICs) have traditionally been purchased by buyers who couldn’t afford condos, and who would assume the risk of sharing a mortgage and title so they could become home owners, preferably in desirable and popular San Francisco neighborhoods.

But TICs have hit luxury proportions in recent years, thanks to the fractional financing that precludes everyone being on the same mortgage. A total of ten TICs have sold for $2M-$3M since 2011 (four for all cash), and that doesn’t include off-market sales. Having this individual unit financing gave TIC owners their own mortgages, which significantly cut down the risk. Buildings with more than six units couldn’t qualify for condo conversion, anyway, so the idea was to pay cash or take on the fractional loan and accept the fact that you’d always own a TIC.

Park Lane flies in the face of tradition. The building is a 12-story apartment building with 33 units, 17 of which are now vacant. Owner Russell Flynn expects the remaining tenants to either purchase their units, or vacate (with the possibility of an Ellis Act looming). He’s renovating all the units now, and the first release of six units will range in price from $2.6M to just under $7M. Flynn projects a sellout of $100M.

Why would a building selling TICs in this price range—including a 4400-sq foot penthouse for $8M-$10M, depending on whether it’s sold finished—appeal to buyers who could obviously afford a less-risky condo?

Park Lane’s big draws are prestige and location. There’s very little inventory in a classic Nob Hill location such as 1100 Sacramento, which is adjacent to the Fairmont and across from the Pacific Union Club. It’s prime real estate, and there’s really no equivalent. Buyers who want that location won’t be satisfied with SoMa’s Millennium or the St. Regis, even if they are condos. If sharing title with their neighbors is what it takes to get in, they’ll do it.

And let’s face it, if your neighbor has the wherewithal to purchase the $3M TIC down the hall from you, the level of risk is probably lower for you as an owner. My guess is that many of the units will be cash sales from buyers who are downsizing from larger homes in the north end of town. In some ways, these buyers will likely view 1100 Sacramento as more of an east-coast style co-op. Though you don’t share title in a co-op, you basically buy shares of the corporation that owns the building. Co-ops are popular in New York, but there are only a few such buildings in San Francisco, and they’re ironically located in the immediate vicinity of Park Lane.

There are reportedly a handful of lenders willing to finance purchases; Sterling Bank is requiring 40-45% down, and interest rates are below 5%.

If Park Lane is successful in selling all 33 units, it will raise the bar for luxury TIC ownership in San Francisco—and undoubtedly encourage building owners in desirable neighborhoods to follow suit.

What You Need to Know About TIC Ownership

Given the competitive real estate market in San Francisco, many buyers are considering tenancy-in-common (TIC) units. These differ from condos in a few fundamental ways. And the Board of Supervisors recently approved TIC legislation that could affect the ability of many owners to ultimately convert their TIC units to condos. (For more details on the legislation, click here.)

Quite honestly, if you’re purchasing a unit in a 3+ unit building right now, it’s likely you will not be able to condo convert due to conversion restrictions. So here are the key things you need to consider about TIC ownership:

A TIC is different from a condo. Multiple individuals share ownership of a property in a TIC. Each individual has the right to reside in a particular unit, but does not own the unit itself. Rather, each person owns a percentage of the building. With a condo, you own your unit and a percentage of the common area.

The TIC holy grail has traditionally been condo conversion. San Francisco regulates how many TICs can convert to condo status. There is such a backlog in the system at this point, that it’s important to note that anyone purchasing a three- to six-unit TIC building now will probably never be able to condo convert. (And if the recent condo conversion legislation prevails, the condo lottery will be halted for the next ten years, and buildings with more than four units won’t be able to convert once the lottery ban is lifted.)

You need “fractional financing”—or cash—in order to purchase a TIC. TICs traditionally had group loans, where all owners shared one mortgage. However, fractional financing has taken the place of group loans over the past several years. These types of loans are different from those you would obtain for a condo or house. Only two or three lenders offer fractional financing. So if you’ve been preapproved for a condo or house loan, you will need to get preapproved separately for fractional financing.

There are still risks to owning a TIC, despite not sharing a loan. The bank can’t foreclose on the whole building if a co-owner defaults on his or her mortgage. (This is the case for a TIC group loan, by the way.) But there are still certain risks to be aware of. For example, property taxes are a shared effort, and everyone is on the hook if one co-owner suddenly can’t pay his or her portion of the property taxes. Additionally, a contractor who didn’t get paid for one of your co-owners’ kitchen remodel can slap a mechanics lien on the property, for which all owners are then responsible. But the main legal risk, according to a prominent attorney in the field, is that if there’s a dispute where a court will be called upon to interpret and implement the TIC agreement, it will have less guidance than a court interpreting a condo’s HOA documents, as there’s more law on the subject.

What are the basics on this fractional financing? There are no fixed-rate, 30-year loans—only one-, three- and five-year adjustable rate loans, with a minimum of 20% down payment. You also need proof of six months’ of mortgage payments in reserve in a bank account and high credit scores. Interest rates may be a bit higher than that of a more traditional condo loan, though the fractional loan rates have come down a lot. (They’re currently below 5% on the 5-year adjustable rate mortgages.)

Resale value will not be as strong as that of a condo or house. The main reason behind this fact is that you will be reselling a TIC interest, which has a smaller buyer pool. Buyers will need to qualify for the fractional financing, and will also need to be comfortable with the risks involved with TIC ownership.

So why even consider a TIC? Despite the risks, they offer more space and a better location than a condo at the same price point. If you think you may be interested in pursuing such a purchase, contact me and we can talk.

Condo Lottery Legislation Passes, High-End TICs Abound

The Board of Supervisors approved the controversial condo conversion lottery bypass this week, for better or for worse. Depending on whether you’re a homeowner or renter, you’ll be happy with the outcome.

Despite the shaky ground upon which some TICs stand, luxury TICs are out there and buyers are snapping them up. We take a look at a trio of high-end TICs that are worth considering.

It’s all here in this edition of the Zephyr MarketTracker!

What You Can Buy: Two-Unit Buildings

Two-unit buildings in San Francisco that are eligible for one or two owner occupiers are one of the most desirable multi-unit property types in San Francisco. Two buyers interested in partnering up and living in both units while they pursue a fast-track condo conversion are great prospects for such a building, as is an owner occupier who wants to reside in one unit and rent out the other. (The latter doesn’t allow that owner to circumvent the condo lottery, but it can be an excellent way to afford a home that you otherwise may not have been able to purchase without factoring in rental income.)

I wanted to highlight three two-unit buildings that I think are great prospects. If you’d like further details on any of these properties, or would like to talk more about the ins and outs of purchasing two units, please contact me. I’ve owned my two units in Noe Valley for many years, living in one unit and renting out the other. So I can tell you firsthand about the ins and outs.

Here are my two-unit picks at the moment:

2583-2385 Greenwich Street / Divisadero
Cow Hollow


This is an excellent opportunity to purchase a pair of flats which will be delivered vacant, as the owner resides in one unit and will be moving. There are two 2BR flats with a combined square footage of 2240. This is the first time 2583-2385 Greenwich has been on the market in 30 years, so you can expect a need for cosmetic updates—not a bad way to increase value right away. The property has its original 1930s detail intact, from a large fireplace to crown moldings. There’s a three-car garage that provides three independent spaces, one of which is rented. For buyers seeking outdoor space, this isn’t the property for you, as the building takes up the entire lot. But you can certainly look into the possibility of adding a roof deck, which would pave the way to Bay, Golden Gate Bridge and Alcatraz views. This location is central to Union and Chestnut Streets, North Bay commutes, and Muni lines.

17-19 Ford/Sanchez
Eureka Valley


17-19 Ford is a prime two-unit building in a great Eureka Valley location. Each flat has 2BR/1BA, and are roughly 1500 square feet each. The property has been improved with refinished floors, double-paned windows, new electrical and plumbing and seismic upgrades. Kitchens in each unit have been remodeled with new appliances. There are southern views from the bedrooms, plenty of storage, large bonus rooms, and both units will be delivered vacant. This is an excellent fit for two TIC partners looking to condo convert—and who’d rather not be bothered doing their own renovations. Though the location is technically Eureka Valley, Ford is only a block and a half to Dolores Park, three blocks to Castro Street, and is an easy stroll to the heart of the Valencia corridor.

1027-1029 Washington/Powell
Nob Hill


1027-1029 Washington is a two-unit building that will be delivered vacant and could use updating, so this is another one perfect for TIC partners looking to condo convert. There are two 2BR/1BA units that are around 1,000 square feet each, and a one-car garage. The building is situated in a busy part of Nob Hill/Chinatown, about two blocks from the top of Nob Hill and three blocks from the Financial District. So that makes it a good prospect for buyers who work downtown and want to be able to walk everywhere. There’s also plenty of public transportation nearby.

TIC Owners Await Condo Conversion Legislation Outcome

I’ve been contacted recently by many TIC owners, inquiring about my thoughts on what the legislation will mean for resale value related to their individual situations—which can vary widely. Some have been in the condo lottery for many years, others have rented out their TIC interest, and others have recently purchased an interest in a three-unit building but haven’t even entered the lottery yet.

The condo conversion legislation was initially introduced last year by Supervisors Scott Wiener and Mark Farrell. In response, tenants’ rights supporters voiced their opinions, which has led to Supervisors David Chiu and Norman Yee recently proposing several amendments designed to help reach a compromise.

The most current version of the legislation is fairly radical, in the sense that it offers current TIC tenants lifetime leases, potentially suspends the condo lottery for a decade following the initial slew of conversions, and would eventually limit condo conversion to buildings with no more than four units. The expectation is that the legislation will be finalized in some shape or form in the next couple of weeks, after which it will be ready for a vote from the Board of Supervisors.

Until legislation actually passes, it’s a challenge to say what the implications will be for TIC owners and tenants. My recommendation is to read through the legislation details, and also look at both sides of the issue. And for that, I think it’s helpful to read TIC specialist/attorney Andy Sirkin’s explanation of the legislation. Also useful is KQED/Sam Harnett’s recent condo conversion story.

Yours Truly, Quoted on KQED About TIC Legislation

The San Francisco Board of Supervisors Land Use and Economic Development Committee was scheduled to vote today on legislation that will potentially allow some TIC homeowners to bypass the condo lottery and pay a one-time fee to complete their unit’s conversion. As is typical with any legislation that affects homeowners and tenants, the issue is controversial.

And the vote has been delayed by a month, as Supervisor Mark Farrell reportedly wants additional time to talk with tenants’ rights groups.

I am, of course, a homeownership advocate (and former renter). And there are two sides to every issue. But I’m thinking that there’s something to this TIC legislation that should be able to work. In a city where two-thirds of all residents are renters—and property taxes help subsidize many things here—the Board of Supervisors should take a balanced view of the condo conversion issue and update its position so we don’t have a bunch of homeowners languishing in the lottery.

Check out the story (with link to the original audio broadcast) here: “San Francisco Struggles With Decision That Could Help Some Homeowners—And Hurt Renters.”

Buyers Turn to TICs in Tight Market

As condo prices climb and low inventory persists in centrally located neighborhoods, San Francisco buyers appear to be more willing to take on TICs.

A total of 66 TIC interests sold in the last quarter of 2011, at an average price of $594,127. However, buyers snapped up 94 TICs in Q4 2012, and the average price shot up by about 9% to $645,091.

In a city where the average condo price is almost $1M, TICs still represent a more affordable path to home ownership—particularly where 2BR units are concerned. Almost half of the TICs sold in the last quarter of 2012 were 2BRs, with 1BR TICs representing 32% of the total sold. The least popular TIC type was the 3BR+ unit; only 22% of buyers purchased those.

The TIC market has always been a niche one, with far less units selling than that of condos. (For example, 671 condos sold in Q4 2012 in comparison to those 94 TICs sold in the same time period.) But those TIC numbers could increase in 2013, particularly in neighborhoods such as the Mission/Mission Dolores, North Beach, Lower Pacific Heights and NoPa, which represented the most popular areas for TIC sales late last year.

I checked out a few TIC offerings on my broker tour last week, and in most cases, listing agents reported distributing multiple disclosure packages to interested buyers, as well as offer deadlines. There was a time when TICs would sit on the market for an average of 90 days, but that doesn’t seem to be the case in the current market.

TICs still carry unique risks. For example, the type of financing they require (fractional) lets you avoid a lender foreclosing on the entire building. But you’re still on title with multiple owners, which requires everyone to share responsibilities such as paying property taxes. And fractional financing is only offered through adjustable-rate loans, which can increase over time and leave you vulnerable to higher mortgage payments in the future. Additionally, your lender pool will be small. So if you’re looking to refinance, you’ll be limited to the interest rates those two or three lenders will be offering.

But a TIC is a bonafide homeownership opportunity in a city where rents have managed to hit all-time highs, and where a 2BR condo costs an average of $919,796.

Cash Sales Soared in 2012

Cash buyers hit the San Francisco market with fervor throughout 2012, across all price ranges, property types and neighborhoods. Foreign buyers seemed to also be very active, wiring in large sums of cash from South America, China, and Europe.

If you’re aiming to buy or sell a property this year, I think it’s helpful to have a sense for where the cash buyers will potentially be circulating. Here’s my 2012 breakdown by the numbers for each home type:

Single-Family Homes
2012: 473 sold (2011: 61)
Average price: $1,116,511
Up to $700,000: 229
$700,000 – $1M: 109
$1M – $1.5M: 31
$1.5M+ 80
$5M+ 13
$10M+ 4
The Backstory: Always the most popular property type in San Francisco, the single-family home market was cash buyers’ primary target last year. There were almost eight times as many cash sales last year vs 2011, particularly in the sub-$700,000 segment of the market. But not far behind was the “mid-market” of $700,000-$1M. And let’s not forget the most expensive sale at 2950 Pacific (above), which changed hands for $16M.
Most popular neighborhoods: Single-family home buyers with cash purchased their properties most frequently in the city’s southeastern areas such as Bayview and Excelsior, along with the Central Sunset and Parkside; Bernal Heights; Noe/Eureka Valleys.

2012: 570 sold (2011: 408)
Average price: $798,419
Up to $700,000: 318
$700,000 – $1M: 121
$1M – $1.5M: 85
$1.5M+ 51
The Backstory: Condo cash sales didn’t increase as dramatically, but they were still popular. The busiest price range was for properties up to $700,000. Luxury condos topped out at around $3.5M.
Most popular neighborhoods: Cash condo buyers were most prolific in Lower Pacific Heights; Pacific Heights; Marina; Downtown; Van Ness corridor; South of Market; South Beach and Mission Bay.

2012: 78 sold (2011: 68)
Average price: $648,244
$1M+ 10
The Backstory: The TIC market experienced a moderate increase in cash sales. Most sales were in the $400,000-$700,000 range.
Most popular neighborhoods: TIC buyers with cash were most commonly spotted in Russian Hill and the Mission.

2-4 Units
2012: 128 sold (2011: 89)
Average price: $1,107,348
$1.5M+ 23 sold
The Backstory: There aren’t typically a lot of lower-priced multi-unit buildings in San Francisco, so the activity in this market was all about the $1M+ range.
Most popular neighborhoods: Multi-unit purchasers frequented Noe Valley, the Mission, and the Hayes Valley area.

[Data courtesy of reported sales in the San Francisco Multiple Listing Service (MLS).]

State of the TIC Market: October 2012

A total of 144 TICs sold from June 1 – October 16th, 2012, with an average of 65 days on market and a median sales price of $602,000.

By comparison, more than 1100 condos sold in the same time period. Buyers obviously prefer condos, with the appeal being individual unit ownership and the availability of historically low, fixed-rate loans.

The most popular—and least risky types—of TIC sales are still occurring in two-unit buildings, as these properties have a much more direct path to condo conversion. After that, buyers appear to be open to TICs in three- to six-unit buildings offering fractional financing. (You can’t condo convert more than six units.)

Condo conversion wait time still remains an issue, with owners of three- to six-unit buildings hanging out for many years in anticipation of lottery wins. Owners of new TIC buildings are resigning themselves to the fact that they will probably never have the opportunity to condo convert in the course of their ownership, which affects TIC resale value along with a variety of other factors.

First and foremost is location; buyers are willing to purchase a TIC if it gives them entry into a central, desirable neighborhood that wouldn’t otherwise be affordable. Neighborhoods that saw the most TIC sales were Noe Valley, Twin Peaks, Eureka Valley, North Panhandle, and The Mission. Most of these TICs were in the one- to two-bedroom category.

But equally as important is the type of loan being offered. The traditional group loan for 3+ buildings has been largely replaced by fractional financing. Buyers are avoiding purchasing TICs in 3+-unit buildings offered through group loans, with very few exceptions.

For example, of the 55 TICs in contract in 3+-unit buildings, only a handful reportedly had group loans. And of the 144 sold, only about four changed hands with a group loan in place. A look at current listings in this category reveals that they are not receiving offers, even if the loan has a very low interest rate. And of the 40 TICs that were withdrawn or have expired since June, almost half had group loans.

Cash buyers are jumping into TIC purchases, but these sales are happening in buildings where fractional financing is being offered. And cash buyers are typically snapping up units in neighborhoods like Russian Hill or Noe Valley, where it’s a challenge to find, say, a two-bedroom view condo for the same price.

I’m not seeing investors flocking to purchase TICs; most tenant-occupied TICs have a very challenging time selling.

Financing options for TIC buyers continue to be led by fractional loans from Sterling Bank or NCB. In the rare group loan scenario for 3+-unit buildings, sellers are arranging for the existing TIC owners to qualify for fractional loans so they can refinance concurrently with the new TIC buyer into individual loans.

If existing TIC partners aren’t willing or able to go the fractional route, TIC sellers can consider providing seller financing. Or, they can hope that a buyer will come along who will be comfortable dealing with a group loan and who will have sufficient cash to cover the homeowner’s portion of the loan. (This option is only available if the group loan is assumable. If not, the group will have to refinance into a new group loan, which could be challenging.) Resale success in these non-fractional scenarios is unlikely; most such TICs ended up being withdrawn this year.

If you’re planning to buy or sell a TIC, it’s critical to do your due diligence up front so you’re aware of all the details. Please contact me at ebermingham@zephyrsf.com/415.823.4656 if you have any questions. I have an excellent team of resources in place that includes lenders, attorneys, and title companies.