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.

State of the TIC Market in San Francisco

Despite their risky and complex nature, tenancy-in-common (TIC) interest sales made a strong showing in 2009.

A total of 403 TIC interests sold last year, for an average of $603,780. Units spent an average of 92 days on market (DOM), and that lengthy timeframe doesn’t seem to be shortening. Of the 403 TICs sold, 162 sold in the fourth quarter of 2009, at an average of $586,755. September and October saw 73 TICs selling, and surprisingly, 89 interests sold in the last two months of 2009. Buyers apparently weren’t slowed down by the holidays in this property category, either.

Though two- and three-unit buildings were popular—with 26 and 25 interests selling, respectively—the big winner was the six-unit building category. A total of 42 TICs sold in six-unit properties. Ultimately, all but 51 TICs were sold in 4-21-unit properties in the fourth quarter of 2009, meaning an awful lot of buyers qualified for the restrictive and often costly fractional/individual financing used on such properties.

As we head into 2010, I’m seeing 66 TIC interests in contract at an average list price of $568,561, and they’ve spent an average of 140 days on market.

There are 97 TICs on the market now, ranging in price from $330,000 for a 2BR/1BA interest that just came back on the market in a seven-unit building in Nob Hill, to a “house-like, eco-friendly” 2BR/2BA listed at $1,295,000 in a three-unit building that features Alcatraz and Bay views.

On the downside, it’s taking an average of 20+ years to condo convert three- to six-unit buildings purchased now, according to TIC attorney specialist Andy Sirkin, who recently gave in an-person update at our sales meeting. And for existing TIC owners who have been in the lottery multiple times, it’s looking like seven-year lottery candidates will be the big winners this year. So if you’ve been in the lottery for less than seven years, it’s unlikely you’ll “win” the right to condo convert this year (or, actually, next year).

Sellers, note that if all your ducks are in a row and your property presentation and financing details are solid, there is a good chance your TIC interest will sell—but it may take time to land the right, qualified buyer. It’s critical to have your financing, legal, title company, and Realtor team in place and on the same page before you come anywhere near putting your property on the market.

And buyers, consider TICs if you understand all the details involved (and of course, can qualify/afford the financing offered). There’s a lot of homework to do up front, and I pretty much give my buyers in this property category an unofficial seminar—and insist that they speak with a real estate attorney—before they (and I) are convinced TICs are the right option for them.