House & Condo Prices Rise, TIC Market Picks Up

Yes, it’s true. Single-family home and condo sales are up 11% in the past six months, with days on market decreasing to 11.5% and 22%, respectively. Good news for those property owners who are thinking of putting their homes on the market in the Fall.

This week’s MarketTracker Report takes a look at these stats, as well as the slow and steady rise of the TIC market. We also highlight three cool TICs and turn the spotlight on NoPa so you can get a sense for what this North Panhandle neighborhood offers.

Plus, the most recent citywide sales and more! It’s all here in the Zephyr MarketTracker.

Offset Your Mortgage in a Multi-Unit Building

For buyers who are looking for a home in a centrally located neighborhood, an excellent option is to owner occupy a flat in a multi-unit building and rent out the other units. That’s how I was able to afford to purchase my own property in Noe Valley in 1998; renting out the lower flat afforded us the opportunity to own our home, as well as have a long-term income stream. I’ve had several clients purchase such properties this year, and the purchase price could often be workable when you have at least 20% down and factor in projected/existing rents. And the presently hot rental market is certainly making this housing option more appealing.

Of course, being a landlord isn’t for everyone, and it’s no secret that San Francisco has very specific tenant-landlord laws that you should be aware of if you’re going down the multi-unit building path. I highly recommend at least reviewing some fundamentals; a good place to start is the Small Property Owners of San Francisco. And it’s also best to first consult with your lender or mortgage broker regarding your loan options. Multi-units are a different animal, and loan details vary from that of a single-family house or condo.

I thought I would spotlight two multi-unit buildings I’ve viewed recently, to give you an example of what’s out there:

795-797 Elizabeth at Douglass
Noe Valley
Two units

795-797 Elizabeth features a large 3BR/1BA upper flat that’s well appointed and has room to add a second bathroom. The kitchen has been updated and has nice outlooks to the park across the street. The 1BR/1BA lower unit has a private entrance and an eat-in kitchen, washer/dryer and newer windows. There’s no yard, but two garages occupy the rear of the property in this corner building. You’re a block from the popular 24th Street corridor, with plenty of restaurants and services in walking distance. Both units are vacant, but as they’re somewhat unequal in proportion, I’m betting that one buyer for the whole building goes to bat for the property. It would be easy to reside in the upper unit and rent out the lower one.

827-829 Fillmore at Grove
Alamo Square
Three units

I was impressed with the scale and Victorian details of 827-829 Fillmore, which is four levels high and has a solid annual income. The above photo is the large, vacant 1BR/1BA top-floor unit at 827-829 Fillmore. This unit has great space and lovely rear outlooks (though the finishes are a bit dated). The middle and lower units are 3BR/1.5BAs and 2BR/3BAs, respectively, and are getting good rents. There’s also a bonus unit that is currently rented. The basement has a workshop/storage area, and there’s a garden with hot tub. No garage, but there’s leased parking nearby at roughly $80-$150/month. Buyers looking for a perch in a historical, convenient neighborhood within a quintessential San Francisco building will definitely appreciate what this property has to offer.

Are the TICs at 226 27th in Noe Valley for You?

Whenever a gaggle of new units hits the Noe Valley market offering 2BRs in the $400,000-$500,000 range, I start receiving inquiring emails from various prospective home buyers. I explain to everyone that the units are tenancy-in-common (TIC) interests, and then am usually asked to explain how TICs are different from condos. From there, I’m either scheduling a showing or being told that TICs are not an option.

So I thought I’d cut to the chase and write a public service blog post that will help any buyers out there who are curious about the TICs at 226 27th Street in Noe Valley. I viewed four of the units this week on broker tour, and have also been watching the former apartment building being renovated over the past several months.

226 27th Street is a ten-unit TIC building originally constructed in 1963. There are one-, two-, and three-bedrooms available, and all have covered independent or tandem parking spaces. Prices range from the high $300,000s for the 1BRs, to the high $400,000s for 2BRs and into the $600,000s for the 3BRs. Monthly HOAs are in the $385-$578 range. There are in-unit washer/dryers and a small yard for a common area.

Here are shots of a typical kitchen and bedroom in the building:

Nothing fancy, but decent space. The living/dining areas are fairly small, as are some of the bedrooms. The proposition here is reasonable space in a convenient location, half a block from the J Church and about a ten-minute walk to the BART 24th & Mission station. There are also many restaurants and shops nearby. (I live around the block, so I can personally attest to that fact.)

Obviously, the prices are much lower than the typical condo prices in the neighborhood. But it’s important to have a full understanding of the ownership and loan details for TICs. Give me shout at if you’d like to chat.

TIC Market Slower, But Still Strong

The tenancy-in-common (TIC) market in San Francisco may not be the busiest it’s ever been. After all, condo prices have fallen since the 2005-2008 market heights, and most buyers would prefer to own their own unit (vs an interest in a building, with fellow owners all on the same title).

But the TIC market is certainly not dead. A total of 120 TIC interests have sold year to date, at an average of $598,422. TICs are taking longer to sell than other property types, and those 120 TICs took an average of 80 days to sell. There are 90 TIC interests currently in contract, and 54 TICs on the market (including a newly renovated, seven-unit building on Dolores at 22nd Street).

The bottom line is that buyers will consider TICs if they can get a better location, space and price than that of a condo. Taking one of these attributes out of the mix results in a property that will sit longer than its competitors. For example, a 2BR/2BA TIC listed at $749,000 in the more remote neighborhood of Clarendon Heights has been sitting on the market since March. On the flip side, the 2BR/1BA TIC with leased parking at 31 Camp in the hot Mission Dolores area went into contract in 14 days—much faster than the average TIC.

Fractional financing for TICs is still widely available, though only a couple lenders are issuing such loans. Interest rates are much lower than they were in the past. (I remember when 7% was an expected interest rate.) And these loans continue to perform well, with little to no foreclosure activity involved, according to Sterling Bank & Trust, the leading TIC lender in the city. However, if you’re trying to sell a TIC in a building that has a group loan (i.e., everyone on the same loan), you’ll probably have an extremely difficult time selling unless the other owners are open and able to a fractional loan refinance situation.

What fractional financing has done is make it acceptable to own a TIC, without factoring in the goal of condo conversion. I tell my TIC clients that if they’re purchasing an interest in a 3+ unit building that’s never set foot in the condo lottery, they will most likely be selling that property as a TIC.

Just Sold: Russian Hill TIC

I’ve just sold my 1BR/1BA tenancy-in-common (TIC) listing at 1145 Green #5. Listed shortly before Labor Day weekend, a very motivated buyer submitted an offer almost immediately and we were in contract within five days. List price was $439,000 and the sale closed at the asking price.

The unit is actually well on its way to becoming a condo, as the building won the condo lottery earlier this year.

Give me a shout if you’re looking for a similar property, or would like to sell the one you own. I’m well versed on the ins and outs of TICs, condos and everything in between.

Announcing The TIC Workshop

Tenancy-in-commons (TICs) aren’t always the most straightforward of property types. I get regular inquiries from confused home seekers who’ve come across a large remodeled flat in, say, NoPa, that seems like a good deal. And it might be. But it’s not a condo, it’s a TIC. And there are big differences between condos and TICs.

TICs are very unique to San Francisco, and many home buyers new to San Francisco–as well as locals who are tired of paying rent–could always use a quick refresher on the basics. In conjunction with Sterling Bank & Trust, I’ll be hosting The TIC Workshop next month. We’ll cover the pros and cons of TIC ownership, what fractional loans are all about, and what you can expect in today’s TIC market. And yes, we’ll definitely be discussing the value difference between TICs and condos.

By the time you leave our workshop, you’ll have a good idea as to whether a TIC is truly an option for you.

Here are the deets:

DATE    Tuesday, October 18

TIME     7:00-8:30PM

PLACE   Sterling Bank & Trust, 2122 Market Street at Church

We’ll serve light refreshments, too.

Please email me at or call me at 415.823.4656 if you’d like to attend, and we’ll reserve a space for you. We honestly have a limited amount of chairs, so if you’re interested in being there, please call sooner rather than later.

And if you can’t attend but would like to hash out TIC details on a one-on-one basis, give me a shout and I’d be happy to schedule a meeting at my office with you.

Just Listed: Classic Russian Hill TIC

My new listing at 1145 Green #5 has been teeming with activity ever since we officially put it on the market at the end of last week. Offered at $439,000, the top-floor 1BR/1BA unit is situated in a prime Russian Hill location. Yes, the unit is a tenancy-in-common (TIC) at the moment. But the six-unit building won the right to condo convert earlier this year (after 17 years in the condo lottery). So condo conversion will most likely take place in the next few months.

#5 has lovely views of the city and surrounding hills, and gets great natural light. There’s a formal dining room, sunroom and roomy entrance hall. The unit comes with a large deeded storage room, too. Here’s the view from the living and sun rooms:

If you know of anyone who might be interested in this home, do give me a shout at 415.823.4656 /

State of the TIC Market: August 2011

The tenancy-in-common (TIC) market in San Francisco has seen its share of ups and downs. I’m happy to say that this market is alive and well—and actually thriving—despite economic uncertainty.

That’s because the rise of fractional loans has enabled buyers to purchase a building together without having to be on the same loan. The latter has always been the inherent huge risk in a TIC situation. The goal of purchasing an interest in a 3+ unit building was always that of converting the building to condos down the line. However, given the constraints of doing so, buyers have given up on that goal. They’ve been happy purchasing a TIC that will provide more space than a condo can offer in a central neighborhood in the city. And they can live without the threat of losing their building in the event one of their TIC partners on the group loan experiences financial hardship.

A total of 198 TIC interests sold from January-July 2011, at an average of $696,622. The least expensive unit was a tenant-occupied, 1BR/1BA garden TIC in a three-unit building in Lone Mountain that changed hands for all cash at $115,000. At the other end of the spectrum was the 4BR/3.5BA two-level townhouse in a five-unit building with massive views in Pacific Heights that sold for $3,185,303. So clearly, even buyers on the high end are realizing that purchasing a TIC may get them the space and location they need.

There are currently 125 available TICs on the market, and about 59 in contract. Most involve fractional loans, and the market for TICs with group loans is not a very popular one. Again, economic uncertainties are giving buyers pause when it comes to stepping into a group loan. As a result, existing TIC groups are attempting to refinance into fractional loans if they can afford to do so.

The most popular neighborhoods for TICs year to date have been Nob, Russian and Telegraph Hills; Noe and Eureka Valleys; NoPa; Pacific Heights and the Mission. These neighborhoods have many multi-unit buildings and continue to be the most likely bets for TIC inventory. They’re also some of the most desirable areas in San Francisco, which is a plus for buyers who want proximity to public transportation, shops, cafes, and parks.

The fractional loan market is pretty much run by Sterling Bank and NCB. So you don’t have your pick of lenders. The good news, however, is that fractional loan interest rates are much lower than they were a year ago (6-7%). For example, a five-year ARM with 25% down will likely let you attain a 5.25% interest rate. Yes, fractional loans require at least 20-30% down, substantial cash reserves, good credit scores and are only available in three-, five- and seven-year ARM flavors.

TICs have generally been anywhere from 10-20% less expensive than condos, but that can vary depending on the number of units in the building. For example, a two-unit property really does stand a chance at condo converting fairly quickly in two to three years. But 3+ unit buildings require a very different, very time-consuming path to condo conversion. As a result, you’ll see more of a discount. (And note that Sterling only lends on buildings with a max of 15 units.)

TICs aren’t for everyone, and I typically sit down with my clients and discuss the ins and outs before they even bother with fractional loan preapproval. I’ll also be giving a TIC seminar in September in conjunction with Sterling Bank, so stay tuned for that info. And don’t hesitate to contact me if you’d like to attend. I can follow up with the date and time.

You’ve Won the Condo Lottery–Now What?

The annual condo lottery took place in San Francisco earlier this year, resulting in suddenly lucky TIC owners winning the right to start the path to condo conversion. I thought it would be a good time to take a look at the TIC and condo markets and give everyone a heads up on what to expect–whether you’ve just won, or may be on track to win next year.

Things are a bit more complicated in the current economy, and that means buying and selling TICs or condos can present their own sets of challenges. If you’ve just won the lottery, you’re probably a couple months in to the conversion process. And all your TIC partners are excited about what they’ll be doing after you’ve converted the building. Many TIC owners have held their properties for far longer than they’d ever dreamed, so moving the family out of that one bedroom now finally feels possible. Others love where they live and will just appreciate owning their own condo.

It’s important not to overlook every detail as you take a step closer each month to conversion. For example, if more than half the units in your building are rented vs owner occupied, you’re going to have to work through that detail so it doesn’t become a roadblock during a refinance or sale. And everyone’s ability to refinance will depend on how much equity exists.

Both the TIC and condo markets are doing reasonably well, particularly in high-demand neighborhoods that provide easy access to public transportation, restaurants, retail areas and freeways. A total of 496 condos and 63 TICs sold in the first quarter of this year. Compare that with 403 condos/63 TICs sold in the same quarter of 2010, and we’re looking at some pretty respectable numbers. So I believe we’re heading into an increasingly better market where these types of properties are concerned.

The best tip I can give condo converters is to do your homework up front. You’ll need your resources up front (attorneys, contractors, surveyors, etc) and now would also be a good time to chat with your favorite Realtor and loan rep so you have a heads up on what to expect at the time of conversion. Get a sense for your building’s value, as well as what your own unit would be worth as a condo. And recognize that all TIC owners have to work together regardless of what happens. I often consult with building owners about these situations, and I have a strong team in place. So feel free to give me a shout anytime, and we can find a convenient time to talk details.

Duboce 3BR Trips Up Downward TIC Trend

It’s no secret that the 3-6 unit TIC market is softer than it’s ever been. Condo prices are also weaker, and why would a buyer pick a TIC over a condo if given the chance to own his or her unit outright?

So the activity at 2194 15th Street in Duboce Triangle (off the tree-lined stretch of Noe) surprised even me. Last sold in late 2009 for $890,000, the unit was listed earlier this month for $865,000. Yes, this is a great location, but the parking is leased half a block away for $250/mo, with HOAs of $344/mo. And it’s located in a five-unit building supported by individual/fractional financing on all the units.

The property received four offers, and went into contract three weeks after its list date.

That means there were four buyers out there who could qualify for the stringent fractional financing requirements, and who were okay with owning a TIC that will most likely always be a TIC due to condo conversion challenges. But it goes to show you that nice properties in good locations (and priced with the current market value in mind) will sell.

The 8 Most Common TIC Group Disputes

The waiting time for condo conversion has lengthened from three or five years to more than 20 years over the past two decades. That’s a lot of waiting time for TIC owners who have gotten involved in shared ownership and its risks, thinking the arrangement would only be temporary. And unfortunately, some such owners have experienced their share of unexpected disputes among TIC partners. 

I thought it would be a good time to round up the most common TIC partner disputes, courtesy of my friends at Goldstein Gellman (G3MH).  Their recent FAQ on TIC Dispute Resolutions (1/11/11) was a great source of information that I thought I’d share. If you’re considering purchasing a TIC or are in contract to purchase one, make sure you pay attention to the following eight critical areas:

1. Noise and nuisance. Goldstein Gellman points out a very good fact about Victorian and Marina-style buildings, which are the most common TIC buildings in San Francisco. Sound transmission can be an issue. Though renters tend to be more tolerant of their neighbors, owners often have a heightened expectation of peace and quiet as their reward for paying mortgages and property taxes. Make sure everyone is clear on how much of those hardwood floors should be covered with area rugs, and whether you’d all prefer not to hear each others’ clanking heels across the floors.

2. Parking and storage. Make sure you all test your cars and examine the storage available—and are comfortable with the spaces that are “deeded” to you.  

3. Window maintenance. There are some common components of a building that are typically shared expenses (i.e., roof). Goldstein Gellman says that in TIC arrangements, it’s a common assumption that the individual owners are responsible for their own windows. If you and your group want to clear up any confusion, have the details spelled out in the TIC agreement.

4. Unbalanced TIC financing. There are cases in which a TIC group will buy its building with one partner paying all cash and the others using loans. With a shared mortgage, the all-cash partner could assume more risk than everyone else. Should the value of the TIC property decline to the point where the partner who purchased with a loan chooses to walk away from the loan and property, the all-cash partner could be stuck repaying the defaulting partner’s mortgage. Yikes.

5. Sale of TIC interests. Reselling your TIC interest depends on the ability of the entire group to refinance. Things can get messy if any of the other group members can’t qualify for the refinance.

6. Eligibility for condo conversion. Many TIC agreements require that the owners occupy their units until condo conversion is achieved. But if  a TIC partner moves out too soon, complications can ensue. The agreement may specify a certain amount of dollar damages owed to the other partners, or may not mention the subject at all. Goldstein Gellman says there’s no universally accepted standards as to the dollar value of the loss of anticipated condo status.

7. The post-condo conversion period. The more clearly your TIC agreement details items such as which unit gets a parking space or how conversion costs will be allocated, the less chance there will be of a dispute after the conversion happens. Another thing to note is the possibility that one TIC partner can’t qualify for a refinance into a condo loan. With a group loan, the entire balance must be paid off before any units can be deeded out to their respective owners (or sold to new buyers). If one partner can’t refinance, no one else can, either. Many TIC agreements include a provision forcing a partner to sell if he or she is unable to refinance. Of course, enforcing this provision is up for grabs.

8. Reserves. May TIC groups have agreements that mandate a reserve fund that can eventually be tapped for maintenance and repairs. The problem arises when TIC partners decide to adopt a pay-as-you-go arrangement, and no provision is made in the agreement for handling partners who are short on cash.

Sorting Out Post-Condo Lottery Confusion

Whenever San Francisco holds its annual condo lottery in February, the winning homeowners put their game plans together. Some immediately embark upon the condo conversion process, while others quickly decide to sell.

My colleagues and I have noticed a few listings coming on the market that are being classified as condos—but which are really TICs in buildings that recently won the lottery. It’s important to note that until a building is fully converted and all units are officially condos, you can’t call a TIC a condo. Even if everything is on track for condo conversion.

This is a good distinction to make if you’re a buyer who’s not interested in completing someone else’s condo conversion. And sellers, it’s important to recognize that condo conversion does incur quite a few fees, so expect buyers to factor those costs into the price they pay for your TIC.

Condo Conversion Can’t Come Soon Enough

The annual condo conversion lottery took place last week, with more than 2,000 property owners hoping that they’d win the right to convert their tenancy-in-common (TIC) interests to condos. However, under existing regulations, only 200 units were selected for conversion—leaving most owners out in the cold.

A recent story in The Bay Citizen notes the currently diminished TIC sales and loan markets. Sales are down, and not many lenders are participating in the more popular “fractional” loans that grant TIC owners individual mortgages (as opposed to the more traditional group loans, wherein all owners share the same mortgage). Indeed, TIC sales have decreased gradually since 2008. At that time, 436 TIC interests sold for an average of $628,295. A total of 407 TICs sold in 2009, at an average of $602,325.

And in 2010? Only 273 TICs changed hands, at an average of $579,048. The softened condo market has become more attractive to buyers who at one time could only afford TICs. More importantly, qualifying for a fractional TIC loan is difficult, as they carry down payment and cash reserve requirements. They also have substantially higher interest rates than regular loans. Additionally, many buyers also aren’t into adjustable-rate mortgages these days, and the few lenders who offer fractionals don’t provide 30-year fixed products.

There are 125 TICs on the market right now vs 582 condos and 462 single-family homes. So the TIC market is substantially smaller. But I think the larger issue lies in the fact that there are many, many owners (more than 2,000, anyone?) who would otherwise like to sell their TIC interests—but can’t.

I’m talking about those owners with units in 3-6 unit buildings who are still on group loans. These individuals never dreamed that almost five or ten years after purchasing their portion of the property, they’d still be sharing a mortgage with other people (especially given the turn in the economy over the past two years).

Frighteningly, many owners are now unable to sell their TICs because doing so will retrigger a refinance for the group—and the group can’t qualify due to diminished values and stricter loan requirements. Perhaps these owners went into a purchase with only 10% down, and now do not have enough equity to refinance for either a group or fractional loan.

One couple I met in 2009 had purchased their TIC interest in Corona Heights in a four-unit building several years prior. We discussed the possibility of selling their TIC and buying a larger home. Unfortunately, the group couldn’t qualify for a refinance, so everyone was essentially trapped in their TICs. The rare good news, however, came last week when the group “won” the lottery after entering it for seven consecutive years. 

The couple to whom I spoke can now put plans in motion for acquiring a larger home that can accommodate them and the two children they’ve had in the interim. But unfortunately for many other TIC owners in San Francisco, having the ability to sell will probably not be a reality until they can get through the city’s conversion system.

One of my real estate predictions for 2011 is that our new, more moderate Board of Supervisors may finally make some headway with all the groups that oppose lifting the 200-unit annual cap on conversions. We’ll see if that comes to fruition. Ironically, the objections to easier condo conversion from tenants’ groups and others who are concerned with preserving rental stock are not having much effect on the numerous, newly renovated TICs that are coming on the market and selling fairly easily with fractional financing.

I’m all for preserving rental stock; I’m a landlord myself. But when I see tenants in San Francisco paying upwards of $2,500/mo for a two-bedroom apartment in a central neighborhood, I start wondering if it might make more sense for them to purchase a home. TICs, as you can see by the average sale price, are not exactly in the luxury price range. Most are below $500,000–which essentially is San Francisco’s middle class.

It’d be nice to clear out the conversion backlog and free up some of these units so more buyers in this price range would have a place in which to live and invest.

Good Luck in the Condo Conversion Lottery!

Our city’s annual condo conversion lottery takes place today. I’d like to extend my best wishes to all those TIC owners who have been waiting years for their multi-unit buildings to earn the right to condo convert. TIC ownership in San Francisco is no cakewalk, especially for those sharing loans with their TIC partners.

I’m hoping that our current Board of Supervisors will make headway toward clearing the backlog of homeowners who live in their units and aren’t causing any threats to the housing stock or renters in the city. These are folks who purchased TIC units as a way to own a home they could not otherwise afford were it a condo or single-family.

I spoke yesterday to The Bay Citizen/New York Times reporter Scott James about the current state of the TIC market, so more to come on that. But today is for congratulating lottery winners and sending positive energy to the homeowners I know who have been waiting four or more years to win.

How To Figure Out If You Can Sell Your TIC

I’ve been fielding calls and emails regularly from TIC homeowners on long-standing group loans in 3+ unit buildings who want or need to sell their TIC interest. Unfortunately, many of these homeowners are unable to sell, and that turns out to be quite a surprise.

I wanted to put together a checklist to help these prospective TIC sellers determine whether they’ll indeed be able to sell their interest. So here goes:

1. Pull together all the information for the group loan. You’ll need the original purchase price/date for the property; the current loan amount on the building, and your portion of the group loan. You’ll also need to note the type of first mortgage and current interest rate (i.e., five-year adjustable rate mortgage with interest-only payment at a rate of 5.5%, etc)—and the name of the lender(s) for all outstanding mortgages.

2. Find out if your portion of the loan is assumable. Check with your lender to confirm whether your loan is assumable, meaning whether a new owner can step into the existing group loan without triggering a group refinance. Keep in mind that although your loan may have been assumable at the time of your purchase, the lender may have changed its policy (or the lender itself may have changed). If your loan is not assumable, you will have to qualify for a group refinance if a new buyer enters into the picture.

3. Obtain an estimated current value for your building. Getting the current market value for your building is more important at this point than the value of  your TIC interest. If you’re consulting a TIC loan specialist, he or she could potentially put you in touch with an appraiser who’d do a “mini appraisal” of the property and give you a ballpark value at a reduced fee.

4. Know that your property will be appraised as an entire building, not TIC interests. This is something most TIC owners don’t realize when they’re thinking about simply selling their portion of the building. An appraiser will be determing the value of the building, not the combined value of multiple TIC interests. So if you own a TIC in a four-unit building, your relevant comparative sales will be other nearby four-unit buildings—some of which may be income properties.

5. Determine how much of a loan your group could get in today’s market. Your loan consultant can assist you in obtaining a ballpark value of your building, and then disseminate all your information to arrive at the maximum loan amount you’d be able to obtain on the building. You’ll then have to back out what the other remaining co-owners would have to refinance to see what’s available for the new buyer of your particular interest to borrow on the new group loan. This, in turn, would determine the down payment required by the new buyer.

6. Consider fractional financing for the group. There aren’t many lenders doing these loans right now, and such loans typically require owners to have a lot of equity in their building. The loans also carry higher interest rates and potentially more stringent cash reserve requirements. But this is a good option if all owners can qualify.

7. If the group is able to refinance, confirm the value of your TIC interest. This is where your Realtor comes in; he or she can assess the market and gauge the value of your TIC. As you can see, this is the last step because everything else needs to check out before you can even think of selling.