Reductions On A Comp In The Making On Clay (1865 Clay Street)August 1, 2007
1865 Clay Street is a newly renovated and converted six-unit TIC building in Pacific Heights that first hit the market at the beginning of the year. And while it appears that five of the units were sold, a reader notices that after 152 days on the market, and two price reductions (down a total 12.6%), 1865 Clay #6 remains active, available and offering a “fractional loan!”
And while the price reduction is being viewed as a positive thing by our interested reader (and perhaps yourself), we do have to wonder if it’s being viewed as positively by those other five (at least in relation to their new “comp” in the making).
∙ Listing: 1865 Clay Street #6 (3/2) – $1,044,000 (TIC) [MLS]
Comments from Plugged-In Readers
I’ve been there. Its on the top floor (4th floor I think) and there is no elevator. Those stairs would be major pain in the arse!
I’ve been in this unit. It is beautifully done, the materials used are exceptional and the work itself is very high quality. They obviously did not hire schleps to install anything. Bravo on that point. It is very spacious and well laid out. That’s the pros for this unit.
The cons: it’s on the top floor (3) and those of us who are lazy will tire easily of walking up and down the stairs. Although it’s in the back of the building and would be quiet, you might get claustrophobic because you are literally boxed in by all the other buildings around you. It is south facing, but I’m not sure how much light it will get. So lack of privacy is a huge issue.
Overall: I think this unit was overpriced to begin with. If they had priced it at $999K, they probably would have had multiple offers and overbids, and we wouldn’t be talking about the property today. That’s my humble, non-Realtor opinion.
What do you mean by “comp”?
If the other 5 owners in the building wish to sell their units, this new reduced price will be the one that is referenced as a “comp”arable sale to try to determine the asking/market price.
Stretching the definition of pac heights slightly, but it’s a really nice unit and convenient to transit. Tempting at a reasonable price.
^ Lol.. Ewww.. 94109!
What the heck is a fractional loan?
The price looks more than fair for a 1633 sq.ft 3/2 of this quality ($640 psf). Agree with Lori that the seller should’ve under-priced this unit more to just below 1mil to get buyers off their couch. What’s the HOA dues, anyone?
A fractional loan refers to the fact that this is a TIC. Legally, you co-own the entire property, in fractions, with your co-owners.
In this situation, it used to be that you’d have to get a shared loan with all your co-owners. A “fractional” loan lets you get your own separate loan on just your fractional ownership share on the whole property.
I’m not entirely sure why, but not too many lenders will do that type of loan, and some builders will help arrange such a loan. Not a huge deal, but I guess it takes some of the pain out of the purchase.
So what exactly are the ramifications if one of your co-owner’s defaults on their loan? Just curious, I don’t know very much about TICs and was always wondering why we are seeing more and more of them.
In these days of widespread defaults, I can’t imagine having to worry if my neighbors are going to be able to make their monthly payments or if I am going to have to make it for them (otherwise the mortgage is in default). TIC, no thanks.
If it’s not Pac Heights, Jeff Baker, what neighborhood would you call it?
From the little I know about TICs, they are not the preferred option for most people… in this price range why would a person choose a third floor walk up TIC when you could easily get a condo in a new building or a SFH in a different neighborhood. Is it simply personal choice (love the neighborhood, love the space, not concerned about being tied to finances of your co-TICers) or is there another bit of logic I am missing out on (more bang for the buck, etc)?
No TIC for me either…
Individual tenancy in common financing is separate loans for each fractional owner. Each loan involves a note signed only by the owner of a particular tenancy in common interest, secured by a deed of trust covering only that owner’s TIC share. If a particular owner defaults on his/her loan, the lender can foreclose on only that owner’s share. The foreclosed share is then sold, and the buyer acquires the defaulting owner’s interest. Unlike with group financing, none of the other tenancy in common owners are affected by the default or foreclosure.
As for why TICs are so popular here and essentialy unknown in other places, it’s a scam designed to side step the condo conversion laws.
I wouldn’t call it a “scam.” More like a textbook case of free markets in action. People want to buy semi-affordable homes in SF but city government makes it difficult and costly to build anything new, much less permit condo conversions. Hence TIC’s. The SF experience with TICs should be taught in Econ 101.
Feel like we have had this conversation before…If this was a condo, price would be at least 10% higher. So is the “hassle” worth $100K-200K? To some yes, to some no. You get to vote with your $s. Anyway you slice, shared ownership/condo living has challenges. Kinda nice in the TIC model to get financial info about your co buyers. I can tell you there are very, very few 100% financed TICs (if any). You have to have some skin in the game to get into a TIC with the vast majority of the financing arrangements.
In past decades, a “Condo” in San Francisco included some features required under the Building Code and Planning Code, like:
One hour rate fire seperation walls between each unit.
One parking space per unit…
TIC’s were one of the first mechanisms to soften or get around those requirements. You first started seeing TIC’s in lower cost buildings where you could never re-coup the cost of fixing things like the above.
Don’t current condo conversions under the lottery have to come into compliance with all building codes?
Actually, the huge number of TIC’s are the result of a city policy. I can’t say I actually understand the policy, but it has something to do with common ownership being better for neighborhoods or something.
Doesn’t actually make any sense, but there are a few city councilpeople dedicated to the policy. Condo conversions are nowhere near as difficult anywhere outside of SF.
Does anyone understand it enough to enlighten me?
We’ve talked quite at length about TICs here and if you are completely new to the concept check out these two websites – they will bring you right up to speed
As far as the fractional loans – they used to be at nearly usurious rates but have gotten more competitive lately – regardless, you pay a premium loan rate for a fractionalized loan, but then you get less risk about other TIC owners defaulting on the loan.
As for the building code question – yes, the building has to be brought up to current “building ” code regarding electric and so forth (though I don’t think you need to install condo/1 hour fire rated common walls). However, you do not have to comply with the zoning code for legal and non-conforming uses (1 parking space per unit and other zoning laws regarding density, height, setbacks, etc.).
I converted my 2 unit TIC into condo and DBI did not require the building to be brought up to ALL building codes. An inspection is required by plumbing, electrical, & building inspectors who do a building run through and provide a detailed list of items to be corrected.
TIC’s are hardly a scam and have been around for years. TIC ownership structure here seems to be similar to CO-OP ownership in NYC.
“Stretching the definition of pac heights slightly…”
It might be on the fringe but it is district 7-B and officially Pacific Heights.
If there are three co-owners of a hypothetical four dwelling TIC, to what extent do those people have any control over who buys the fourth dwelling? The distinguishing feature of the NYC co-op is the co-op board, which serves as a gatekeeper to the building and can require massive liquid and historical earnings and still turn down supplicants– I mean, applicants– without explanation.
Is this handled on a case-by-case basis, depending on the structure of the TIC paperwork? Or is there a standard operating procedure?
Exactly David – each TIC building has its own TIC agreement which spells out a lot of things like reserves, what happens if someone doesn’t pay their maintenance charge, what kind of majority is required for major capital expenditures – lots of things. Generally if you get one done by those two firms who specialize in it, you’re probably going to have most of your i’s dotted and t’s crossed – I’d be concerned if a TIC had an agreement drawn up by anyone else and would definitely pay a lawyer (probably Sirkin or G3mh) to look over such an agreement to make sure it covers all the bases.
another reason TICs are popular in SF is the high number of same sex couples in committed relationships. Denied the legal rights of married heterosexual couples, a TIC allows unrelated adults to own a single property and maintain control of the property if something should happen to other member of the household.
“The SF experience with TICs should be taught in Econ 101.”
Agreed – Along with credit counseling.
@badlydrawnbear: Also, there’s this thing called a “will”. Can you give a reference for your statement? A will is legally less-complicated.
I am the listing agent for the above property, and feel that I should clear up some misconceptions about TIC’s in general and the marketing and rollout of the units at 1865 Clay.
1865 Clay is a property that was recently renovated by one of our major clients, without invoking the Ellis Act or evicting any tenants. The client did an outstanding job of modernizing the flats while retaining the original charm, all with city permits,
Unit #6 was the first to be renovated, so it was listed first on MLS. However, once buyers walked through the building we allowed them to write an offer an any of the available flats, pending completion. They sold for: #1-$1,075,000, #2-$1,075,000, #3 $1,160,000, & #5 – $1,150,000 and have all closed. (#4 was pre-sold before we took the listing). To move the last unit, we reduced the price from 1,199,000 to $1,099,000, and then did a second, market-based reduction to its current price of 1,044,000. We too feel that it is a good value for almost 1,700 square feet & is priced considerably lower than a comparable condo.
The subdistrict is indeed Pacific Heights.
In regards to the misconceptions about fractional TIC loans (currently offered on this bldg. from Bank of Marin at 7%, 5 year fixed, no pre-pay), the lender CANNOT foreclose against any of the other units if payments are not made, and the co-tenants do NOT share financials or even approve of each other as co-tenants. The items they do share are building maintenance and the property tax bill, as the City still considers this one parcel. There are reserve accounts established for both. By setting it up this way, it enables the homeowner to freely buy and sell their unit and NOT co-mingle their financials with the other co-tenants. I personally feel that this is a better option than a co-op (where a corporation is formed with a board of directors & units are sold as shares of stock in the corporation) because unlike a co-op there is no board of directors to subjectively accept or reject a potential buyer.
This building will be eligible for the condo lottery in three years, assuming that three units stay owner-occupied during this time.
It will be open this Sunday 2-4pm and we are accepting offers on a first-come, first serve basis.
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