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.

Comments

  1. Darryl says:

    Thanks for your insight, Eileen –

    I wish I had the insight on fractional TICs when I purchased my current home, being told that fractional TIC loans would become more popular and thus have more competition. Now there is only 1 bank offering these. So now fractional TIC owners are stuck with 7.5%+ interest rates when a 30-year fixed is averaging 4-5%. I know there is a price for buying in San Francisco, but I think agents were a little to eager to sell a bill of goods.

  2. insidesfre says:

    Hi Darryl–Thanks for your comment. I have always maintained that the future of fractional loans was never guaranteed. Personally, the only people buying TICs should be the ones with a large down payment (who would be in a position to pay off the loan when it adjusts), and people who plan to stay in their unit for the long haul, potentially using it as income property down the line if they themselves don’t want to live in the unit.

    You make a very good point when it comes to comparing interest rates among the various loan products. Fractional loans will always carry the higher interest rate, so they are no bargain. But the upside is that you can live in a neighborhood, perhaps, that you might not have otherwise been able to afford. I hope that is the case for you, at least.

  3. hangemhi says:

    loans for everything are more difficult right now. Darryl’s comment could have been said by anyone who got a traditional loan on a home or condo from ’04 thru ’07. since late ’08 it’s been one of the worst loan environments for everything. things seem to have improved somewhat for homes and condos, but they are still bad. expect both lending environments to improve in time… how much time is the open question

    also, i see quotes of 5.25% for 30 yr fixed vs 6.85% for TIC loans…. not 4% vs. 7.5%.

  4. insidesfre says:

    You are right, Hangemhi. My clients’ loans seem to be going through without any issues, but for all the smooth transactions, there are still many out there that get held up. I think it’s a challenge for TIC owners to stand by and pay significantly higher interest rates. The justification for doing so, however, is that they have more space and are potentially in a better neighborhood than they might otherwise be able to afford.

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