State of the TIC Market: August 2017

The tenancy-in-common (TIC) market remains strong in popular neighborhoods like Noe Valley and Russian Hill, especially if that TIC is in a two-unit building.

Buyers haven’t shied away from purchasing TIC interests, despite limitations related to 2013 legislation that significantly reduced the number of properties allowed to condo convert. Many TIC owners have resigned themselves to the reality that they hold title to “permanent” TICs.

TICs in two-unit buildings aren’t affected by that legislation if each unit is 100% owner occupied. In that case, both owners can pursue “fast track” condo conversion.

And when it comes to TICs, the best-case scenario is being able to eventually condo convert and own your unit outright (vs. share title to the building with your fellow owners, with the right to reside in a particular unit). After all, that was the whole point of TIC ownership in its early days—to assume the risks involved with being on a group loan or sharing title with the other owners, only to ultimately spend the time and money condo converting and enjoying a more independent form of property ownership.

So it’s no surprise that TICs in two-unit buildings command top dollar. Most of the TICs that sold for $2,000,000 or more were in two-unit buildings that offered fast-track conversion possibilities.

However, TICs are still garnering high prices for their sellers. For example, the average two-bedroom TIC sold for $1,127,769—almost $1,000/square foot. Most of the TIC sold this year were in buildings with three or more units, many of which are likely permanent TICs. But the fractional financing has mitigated much of the risk assumed in the early days of TICs. And some buildings with three or more units may still be eligible to condo convert if their TIC group had a TIC agreement in place as of May 1, 2013. This is a big deal if you own a unit in a building where this applies, as your TIC’s value should be more than that of a unit in a permanent TIC situation.

Buyers are overbidding for some TICs; a handful of units sold this year saw 20%+ overbids. Most of these units were at price points of under $1,000,000. And in general, it’s worth noting that TICs take longer to sell (48 days on average). But the TICs commanding $2,000,000 or more had a few things in common. In addition to being predominantly in two-unit buildings, others were newly renovated from top to bottom, or had “house-like,” two-level floor plans. Neighborhoods like Russian Hill were big targets for luxury TIC buyers.

TICs have sold most frequently this year in Noe/Eureka Valleys, Pacific Heights, Nob/Russian Hill, Bernal Heights, and the Mission—testament to the fact that buyers are willing to take on TIC ownership risks in order to be in a desirable location.

Loan options are still limited, and come down to four banks at the moment: Sterling Bank and Trust, Bank of Marin, NCB and Bank of San Francisco.

As always, it’s a wise idea to consult an attorney who specializes in TICs before you buy or sell such a property. Local ordinances shift periodically, and will definitely play a role in TIC values.

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Get in touch:

Eileen Bermingham

Zephyr Real Estate

415.823.4656

ebermingham@zephyrsf.com

BRE# 01352627

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