State of the TIC Market: May 2010

I’m often asked how different segments of the San Francisco market are doing, and inquiries about the TIC market are at the top of the list. We’re almost halfway through 2010 (I know), so I thought a market update on our tenancy-in-common activity was in order.

The bottom line: The TIC market is definitely hurting a bit, but it’s not in dire straits by any means. There are, however, two key factors that have contributed to the weakness in the TIC segment. The first is that the condo market has declined, so buyers who may have once only been able to afford a TIC are now looking at the possibility of a condo purchase. And second, if there are less qualified buyers in general these days, there are even less qualified buyers for TICs. The most common TIC loan type—the fractional, or individual loan—carries a high interest rate, has a 25%+ down payment requirement, significant cash reserve requirements, and is only available in adjustable-rate form.

There are 203 TIC interests on the market to date, and they’ve been sitting on the market for an average of 72 days, at an average list price of $646,467. And there are 82 TICs in contract (two are above $1M). A total of 117 TICs have sold since the beginning of the year at an average of $594,637. (So clearly there’s room to come down in price for the current average list price.)

A bulk of the TICs purchased since January sold for under their asking prices—something to consider when you’re making an offer on one. The most prominent example of this pattern was over at 2461 Post (at Baker), a 5BR/3BA TIC unit with two levels listed in May 2009 at $950,000. It sold this past March for for $777,000.

If you’re considering a TIC purchase because you think you’ll get more space or a better neighborhood for your money, you could be right. But consider all the angles, and know that if you’re buying a TIC interest with a fractional loan, it’s likely you’ll be selling a TIC interest with a fractional loan. That means your resale buyer pool will be limited to those who can meet those strict requirements. And the jury is out regarding which lenders will continue granting fractional loans by the time you’re ready to sell. Make sure you work with a very experienced, knowledgeable real estate agent, mortgage broker/lender, and title company. And have an attorney review key documents. It might cost you a few hundred dollars for a legal review, but you can’t imagine the headaches those few hundred dollars may save you in the long run.

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