The Difference Between a TIC and Condo

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It’s not always obvious whether a property is a condo or tenancy-in-common (TIC) when you’re a buyer who’s searching online for properties. You have to click in to all the details, for example, on Redfin, before you realize that the photos of the wonderful flat that seems listed kind of low is actually a TIC.

But what’s the difference between a TIC and a condo? All things being equal, couldn’t you just buy a TIC if it has the space and location you want? [Read more…]

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.

Bright Future for TIC Lending in San Francisco


I was invited to a TIC Roundtable last Friday sponsored by Sterling Bank and Trust. The officers and lender reps were in attendance, as was TIC attorney Lyssa Paul. We had an interesting Q&A about Sterling’s goals in the TIC lending arena, as well as identified a few trends in the TIC market—all while sitting 40 stories up in the Transamerica Building.

A few highlights:
The outlook for long-term TIC financing is strong. Sterling has consistently underwritten TIC loans, while other lenders have been in and out of the market. The bank’s conservative underwriting approach allows it to assume less risk and therefore grant loans. They also plan on increasing their TIC loan volume, and are pleased with the headway they’ve made in the past six years in San Francisco. Also, it’s unlikely that a secondary market is going to materialize for TIC loans.

TIC loans will continue with three-, five- and seven-year ARMs. The reason there are not longer-term loans that can more effectively fix low interest rates is because Sterling is a community bank that funds loans through its security deposits and short-term funding sources. So they have to match what they loan with what they pay on interest-bearing accounts. So there are no plans for a 30-year fixed loan in the near future.

First-time home buyers still rule as TIC purchasers. Sterling reports that 80% of its TIC borrowers are first-time home buyers. The other TIC purchasers seem to be cash buyers looking for pied-a-terres in the city, most notably in north-end neighborhoods.

TIC loans continue to perform well. Of the 800 or so fractional loans Sterling has on its books, only about eight of those loans were connected to foreclosure or a short sale. And the latter only occurred in the past couple years. The foreclosures were related to homeowners who had gone into the purchase with only 10% down; Sterling briefly offered that option, but doesn’t do so any longer for obvious reasons.

TIC agreements are still critical. Attorney Lyssa Paul says that one of the main issues that consistently arises is the lack of a TIC group’s ability to produce a current TIC agreement. Either some groups didn’t have one drawn up, or they haven’t updated them.

Buyers and sellers need to update TIC agreements during a sale. Sellers and buyers need to be aware that whenever there is a TIC interest transfer, it’s necessary to engage an attorney to remove the seller’s name from the TIC agreement and replace it with the buyer’s name. And all TIC group owners need to additionally sign the updated agreement. This has apparently been a factor that has delayed TIC closings.

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 / ebermingham@zephyrsf.com.

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.