All Deeds Must Record At Same Time for Condo Conversion

As the current crop of TICs converts to condos, I’m seeing many owners listing their TIC interests prior to the actual condo conversion of the entire building. This means the buyer is expected to step in at the tail end of the condo conversion and work with all existing owners as they refinance and everyone completes the conversion process.

In other words, whether there’s a group loan or fractional financing in place, all new condo deeds have to record simultaneously. If there is one owner in the group who doesn’t have a loan, that owner needs to wait until everyone’s refinancing/new purchases are completed prior to obtaining a condo deed. [Read more...]

All About Location for TIC Sales

972Dolores
Tenancy-in-common (TIC) interests have traditionally been popular with buyers who value a more central location in a desirable neighborhood. Because when it comes to affordability, TICs still will get you more space in a better location than a condo will.

And the neighborhoods in which TICs have sold recently read like a who’s who of hot ‘hoods. Here’s where buyers purchased their TICs from October 2013-February 12, 2014:
Noe/Eureka/Cole Valleys
Mission
Lower Pac Heights
NoPa
Marina
Nob/Russian Hills
Hayes Valley
Presidio Heights.

The average cost of a TIC in that time period was $1,035,252. But that high price is largely due to multiple sales in Nob Hill’s newly renovated Park Lane at 1100 Sacramento. Seven units sold in that building, ranging in price from $1,595,000-$7M. With the exception of that unit sold for $1,595,000, the six other Park Lane buyers paid cash for their units. [Read more...]

Two-Unit Building: A Good Bet for You & Your Friend?

Many buyers who start out looking for a condo in San Francisco often end up deciding that they’ll join forces with their friends or family members to purchase a two-unit building. This can be a good decision, but it’s important to be aware of the key factors to consider when deciding whether such a group purchase is possible—or a good idea.

Here’s what you should discuss before you take the plunge into the two-unit building market:
You’ll need to have shared goals. The biggest advantage of a two-unit building is the process by which you can condo convert. (It typically takes 1.5-two years.) Make sure all the owners are on the same page about wanting to condo convert, if that’s the ultimate goal. If you’re all in it just to own a two-unit building for a few years and then re-sell the property, that’s fine, too. Just make sure everyone knows what the end game is.

All buyers should be financially compatible. It’s ideal for all buyers to be in similar financial situations. You will have many shared expenses, particularly if you plan to condo convert the building. And you’ll want to make sure you have sufficient financial resources when it comes to maintaining the building and dealing with necessary repairs. Remember: You’ll each own half of the common areas, so it’s not great if only one buyer can afford to pay his or her share of the roof replacement.

You should all share similar attitudes about maintenance and repair. For every homeowner who calls the plumber at the first sign of a leak, there’s one who lets it go until the kitchen floods. If you’re the type who sketches out a repair and maintenance plan for each year, it may not be a good idea to team up on a two-unit building with someone who ignores the rotten wooden siding and hopes it’ll go away on its own.

Your loan will be different. Your choices will be either a shared loan on the building, or two fractional loans. Both loans will carry adjustable rate mortgages, but the rates and requirements will be different. The traditional group loan requires that all buyers get preapproved together, and this factors in everyone’s qualifications and credit scores. If one buyer defaults on the mortgage, all buyers are held responsible because it’s a shared loan. Buyers using a fractional loan would be individually preapproved and would not share a loan. It’s more common for buyers who already know each other to get one loan on the building and then refinance into condo loans within two years after pursuing condo conversion. I recommend looking into the details for each loan option, and seeing which one will make sense for your situation.

Put a TIC agreement in place. Even if you’re planning to condo convert, I highly recommend having the basic TIC agreement in place for the interim. You never know what can happen prior to conversion, and having this legal document to refer to can help simplify things.

Vacant two-unit buildings aren’t a bargain. You will probably end up spending as much on a vacant, two-unit building with equal-sized units as you would were you to purchase an individual condo. Vacant two units are very close in value to condos, due to the direct path to condo conversion.

Condo Lottery Legislation Passes, High-End TICs Abound

The Board of Supervisors approved the controversial condo conversion lottery bypass this week, for better or for worse. Depending on whether you’re a homeowner or renter, you’ll be happy with the outcome.

Despite the shaky ground upon which some TICs stand, luxury TICs are out there and buyers are snapping them up. We take a look at a trio of high-end TICs that are worth considering.

It’s all here in this edition of the Zephyr MarketTracker!

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.

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.

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.

RSVP for 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 on October 18th. 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 ebermingham@zephyrsf.com 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 / ebermingham@zephyrsf.com.

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.

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.

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.

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.