It’s a plugged-in reader’s comment that serves to demonstrate the difference between passive market “appreciation” and actively adding value (or improvements).

We bought a six unit in NOPA early 05; removed tenants, swapped old cabinets and appliances for new, re-did the floors, added w/d and painted. Paid $282/sq ft
to complete ALL of the above. Sold in early 07 for $454/sq ft net after [commissions] and transfer taxes. Made a nifty $986k or 62% ROI. Despite the fact that it took a full 14 months to remove the tenants, it was a fun project.

And of course, it’s also food for thought with regard to what’s driving an increase in many area’s “median sales price” (or even price per square foot).

48 thoughts on “The Difference Between “Appreciation” And Actively Adding Value”
  1. Oh yes, booting out combative tenants and going to court in this communist town is FUN. Oh yeah, good times!
    This person had good timing and whether the story is true or not, I doubt you could replicate this transaction nowadays.

  2. This was before the 4/06 change to the eviction regulations in the city. If you Ellis a building after that date, you cannot even enter the condo lottery for 10 years (and cannot enter it at all if one of the tenants was “protected”) – and then you have to wait 5-10 years to win the lottery. 15-20 years is longer than most people want to do fractional TIC ownership for (at least for now), so this type of development option is no longer readily available. Yes, you can buy out all the tenants in an apartment, but they ALL have to agree to the buyout or it doesn’t work. Have fun if you try this – I’ll bet your ROI isn’t anywhere near the original poster’s.

  3. On a macro level residential investment has been trending down for about 8 quarters now, if I remember correctly.

  4. This project certainly turned out to have very fortunate timing. It would seem that buying a rent controlled property, rehabilitating it and selling TIC’s would be a money maker in SF in any market, if you know how to do it. I hope some realtors, developers or investors with experience will add some perspective.

  5. Well done! Let the stampede begin for those 6 unit buildings in NOPA…sounds like you did all the right things to make money…including having pretty good timing. But I think there are opportunities out there in any market…but in San Francisco, it’s never easy. So hats off to you.
    Now replecate that a few more times and start giving how to seminars.

  6. this was a VERY cosmetic remodel done with over the counter permits. carrying costs were easily made up by rents. ellis act eviction: $7k, relocation fee to each tenant: $4,571. as i clearly stated $986k went into our pockets after brokers/city were paid (but before capital gains taxes were paid). the tenants were paying close to market rate rents and even so were very combative. they teamed up and demanded $40k/unit. we chuckled a bit at their attempted extortion. fractional financing makes condo conversion unnecessary. even if you do not evict anyone it will take nearly ten years for a six unit building to win the lottery plus the residency requirements make that conversion very difficult. therefore TIC is a fine alternative. as for this option being “no longer readily available” i say pshaw; if its good product at a good price (this was under $500/sq ft) it will sell.
    i notice that many on this site have strong opinions that lack the accuracy that true experience brings…

  7. not to be too cocky about it but i just want to add that we had to reject 19 overbids (we priced the units low to attract lots of interest) from people that wanted our product but were unable to qualify for the stringent loan requirements.
    p.s. ellising a building does not require going to court.

  8. lawyers charged $7k for the ellis filing. DRE public report cost us around $10k (and that gets you your TIC agreement as well) and back then it took a year to complete; thats down to 4 months now.

  9. ON Topic —
    If you Ellis Act a building, can you ever really sell it out as fractional TICs? I thought this was prohibited. Does it change if you have a protected tenant?
    Anyway, Paco, thanks for the story and the insights. Not sure why there are so many doubters. Obviously this isn’t a slam dunk type project, but it seems very realistic. Congrat’s on a great investment.
    Eddy

  10. “If you Ellis Act a building, can you ever really sell it out as fractional TICs? I thought this was prohibited. Does it change if you have a protected tenant?”
    In a nutshell, no. The state appeals courts have ruled that SF has no authority to regulate TIC’s, period. So to the extent that buyers are content to live with an essentially permanent TIC (albeit with fractional financing), there’s nothing to stop this kind of thing from going forward. And I say kudos to paco and anyone with the same idea – this is the perfect market response to a draconian, confiscatory system of rent control.

  11. unable to qualify for the stringent loan requirements.
    Out of curiosity, did the fractional loan require 10 or 20 percent down?
    Also, anybody know about the relative financial health of the banks involved in “fractional” financing? I noticed Bank of Marin doing a stock repurchase in November, so that should be a relatively good sign. If the fractional banking players ever get affected by the credit crunch, TICs will be in a world of hurt…

  12. You forgot the cost of selling your soul. I like how you refer to evicting tenants in the same breath as swapping cabinets. Nice. Lack of affordable rental housing is killing the character of this city, and you are responsible. Bet you grew up somewhere else. Have ‘fun.’

  13. Well done, paco. I’m impressed. I’m curious though how you covered you’re carrying costs via rents if you had to ellis act the existing tenants. Did they actually stick around piecemeal while you renovated other units?

  14. You forgot the cost of selling your soul. I like how you refer to evicting tenants in the same breath as swapping cabinets. Nice. Lack of affordable rental housing is killing the character of this city, and you are responsible. Bet you grew up somewhere else. Have ‘fun.’
    Um, sounds like he BOUGHT the place, so he, like OWNED it. And it sounds like the tenants got a great deal.

  15. Funny thing about the fractional loans; the banks never got that creative with the loan programs. Wall Street never sold on the secondary market so they did not get to extract their fees via the bundle/slice and dice as CDOs and other inflated rated “conservative” bonds and subsequent reapplication of investors $s. No 100% financing for a TIC buyer, gotta show some assets, I think you have to show income as well. I bet it is no coincident that BofM is buying back shares…The banks lending to TICs actually want to make sure the borrowers can make the payments (pretty crazy). And prove it. The other TIC partners want to make sure that the buyer is able to make their payments as well. They all have skin in the game…

  16. I’ve got a great deal for you, anonSF. Can I kick you out of your home for five grand? I’m sure you’ll land on your feet. You’ll still have a few thousand left over after paying for your move, assuming you find a place right away. Either way you can feel good for Paco, since he made a million bucks on the deal.

  17. “Funny thing about the fractional loans; the banks never got that creative with the loan programs…”
    Exactly! Fractional TIC loans are super-prime -buyers who lack high FICO scores and large downpayments need not apply. Note that we’re not hearing about a rash of TIC foreclosures, which is exactly what you’d expect giving the stringent lending requirements. Bank of Marin and the other lenders who made these loans are sitting pretty.

  18. What’s amazing is that, if *I* were one of the few people who knew a profitable angle to real estate, do you think I would come on here and blab about it?
    Hell no. I’d keep my mouth shut. If it were really this easy to make a mil a year, I don’t think he’d be blabbing it for the rest of the world to compete with him on his next project.
    So I have to call BS. Methinks someone owns a rent controlled property he’s about to try to unload… Buyer beware.

  19. hey sf native, if you are so concerned about making housing affordable then maybe you should offer to rent your buildings for less than market rent. if the govt. wants to give people cheaper rent then let them subsidize housing rather than forcing the owners of the buildings to do so. hey davieq, you forget that tenants RENT the home; its not theirs. as any student of economics can learn, if you reduce supply of available units by keeping the rents artificially low (rent control=price control) you will drive up the price of the remaining available units. at some point you will create such a huge incentive that developers will not be able to resist capitalizing on. anyway, as i stated before, these units were rented by young people paying close to market rents with an average tenancy of two years. they all received 100% of their security deposits (wholly undeserved) plus about 3months worth of rent in city mandated “relocation fees”. we spent more on removing tenants from our property than we did on the remodelling of it. kevin, we waited on the DRE (dept. of real estate) for eleven months to receive our public report (which you need to subdivide a building into individual units for sale) and then waited on our ellis act, which allows the tenants four months to relocate. the tenants paid rent all during this time. ebguy, the fractional loans required 20% down. half of the buyers paid all cash, half took financing. miles, the rules and regs for condos and tics afford buyers virtually equal protection; fractional financing was the last piece of the puzzle.
    to be frank, the city created this opportunity and i don’t feel one bit bad about exploiting it. people who commit to buying in the city obviously really want to be here and they are voting w/dollars.
    sfnative, when i did not have much money i lived in the ‘loin for six years so that i could save up for the future-that opportunity still exists. the city is alive and dynamic; to resist change in the name of preserving the great deal of the existing tenants who have below market rents is short sighted and raises the barrier of entry for newcomers. i am always amazed about how bitter so many “sf natives” are regarding this issue. if you are a native and want to claim a birthright to the city then i suggest you put your money where your heart is. remember, the city has not always been so expensive, but i guess you knew that since you are a native…

  20. hey tipster, tic sales volume in 2001 was $50million and by 2007 that volume reached $500million. that is public info, but don’t tell anyone b/c that might um, increase my competition? i would not say that i am one of the few; there are many people who do this obviously. i never said it was easy either, but i must admit that its not rocket science.
    the fact is, fractional financing and unaffordable alternatives have increased the pool of tic buyers tremendously. i have dabbled in real estate in the city for 15years; owning and renting apt. buildings back when they were much cheaper, selling them off when they became much more expensive, watching them get even more expensive and periodically jumping back in when a reasonable deal came around. always buying fixers b/c adding value is not too hard. learning how to fix them is fun and rewarding (esp. when plumbers want more than $100/hr LOL!) as to your assertion that i may be talking my book/trying to unload a building i can tell you that is false; but i have always liked being a seller over these years b/c its been a sellers market and if you do not overreach/overlever/overprice the rewards are satisfying. but please, tipster, don’t tell too many people about my secret angles 😉

  21. Paco,
    I’ll chime in here and congratulate you for spotting a market opportunity, using your talents and experience, taking some risk, and earning a well-deserved profit. It is astounding that the SF real estate market is as inneficient as it is – you obvously get economics, and you know that there should be a hundred other “pacos” arbitraging away the obvious economic profit that exists when you convert a multifamily to TICs. Now, since you are “winning”, what does that say about the TIC buyers? I am a professional securities trader/investor and I would not want to be on the other side of the trade from someone like you!
    BTW, you are ABSOLUTELY right about rent control – it RAISES rents, not lowers them, over time. That’s what people don’t get. It took a few generations to screw up the rental market in SF no doubt (that’s what it took in my hometown NYC and I’m guessing it is the same here), and eliminating rent controls would lead to MUCH more affordable rental stock, although it might take a few generations….
    On the other side, Prop 13 keeps SFH prices artificially HIGH, and rents for SFHs artificially LOW (because the legacy owners judge their carrying costs very low – low tax base – and many want to preserve their properties for their children to grandfather the tax base). IMO, renters who complain about the high marginal cost of renting apartments should look into the SFH home rental market, which is almost absurdly cheap on a relative basis.
    Again, congrats, and as long as people keep trying to buy and flip “trophy” SFHs (where profits are going to be very hard to come by IMO going forward) I’m betting that your competition will stay limited.

  22. hey satch,
    thanks for the comments. btw i used to be in your biz and started dabbling in RE as a pressure release valve, taking advantage of free time after the close.
    i like to believe that converting multifamily to tic creates winners on all three sides: seller buys units, brings them up to ‘condo quality’, does the legal and administrative tasks and reaps a reward by providing the market with a product that looks,smells and feels like a condo but at a (relatively) better price; buyer gets on the ladder that he otherwise could not access, and financer gets a better rate (125bps!) for taking virtually the same risk. win-win-win!
    as to flipping SFRs i sortof agree. they are more scarce in northside nabes and highly coveted. but its a high stakes game these days and though profitable you need to have the stomach for the risk-something i retired from the floor to be done with.
    of course you are right about prop13.
    OT but i usually read your CR posts and often concur…

  23. paco, with all due respect, would you mind sharing how much liquid capital you had going into this and/or whether you needed to leverage?

  24. heya q-s-s. though we typically favor bank financing on this project we raised the $1.5m by subscription and proposed a preferred return to investors(8%). after paying back capital we split the profit according to equity participation. the reason for excluding the benefit of bank leverage was to preserve our ability to close each unit as they came. usually you need to have enough buyers to pay off the bank loan before you can close anything and we did not want to try to herd cats if you get my meaning. its a lovely and conservative strategy and we are all good buddies so it was not stressful. the preferred return is technically “discretionary” so there is no payout until the end; no ordinary income-all cap gains, and what you may give up in compounding you get back thru profit participation.

  25. Again, this was done before the change in the condo conversion regulation change with regard to Ellis Act regulations in the city – the TIC units in this example could be converted to condos. Look at all the TIC listings and sales on the MLS – the majority of TIC units can be converted to condos. The market for TIC units which cannot be converted to condos is very thin and is pretty unproven due to the recent change in the regulations. These Ellis Act TIC conversions were commonplace prior to 2006 and produced such tenant displacement that the condo conversion law was changed. Since then, Ellis Act evictions have dropped off dramatically and the market for small occupied apartment buildings of 3-6 units has softened considerably as TIC investor/conversion purchases have tumbled. So the market seems to be speaking that it’s not feasible to do a TIC conversion where you cannot enter the condo lottery for 10 years (or ever if there is a protected tenant). Furthermore, fractional financing for a unit in a 6 unit building is significantly more expensive than a shared loan or a typical condo loan and is still a fairly new program that was initiated by just a handful of small banks in a more frothy lending environment. These fractional loans typically have a call in 5-7 years at which point you better hope this niche program is still around. If you buy an Ellis’d TIC unit where your long term financing is going to be significantly more expensive than a similar condo and you don’t have a near term out to condo convert, well, you better get a pretty good discount on the price. Again, prior to the change in the condo conversion law with regard to Ellis Act evictions in 2006 this kind of development was a home run (albeit politically unpopular), since then it’s not nearly as clear cut and could be a strike out as these units are on the bottom of the desirability food chain (houses-condos-tics that can convert-tics that cant convert). I don’t think that level of profitability is repeatable in this market Paco – and if it is – do it again and throw another mil in your pocket just to prove me wrong.

  26. miles, i have read your posts before. often, i wonder why your experience seems different from mine. you seem to be very confident and give out lots of advice/opinions particularly regarding tenant issues. are you a lawyer in town? have you done many evictions? buyouts? ellis filings?
    in my 15 odd years of landlording i’ve had the pleasure of watching the rent board and supervisors change the rules.
    in fact, as a landlord i’ve been obliged to be up to date regarding these myriad rules. and its a good thing too b/c there is soooo much misinformation out there, so much fear and hype. i’ve come to realize that this is a great benefit to those who know what is what, who know when to dive in and when to
    run away. ignorance can be very costly and the wise verify before they testify.
    anyway i’d like to comment on your remarks above based on my limited ACTUAL experience…we completed our ellis act after the law changed- that building will not be permitted to condo-convert.
    the state authority in these subdivsions is the DRE. they make the rules and they have a mandate to protect the consumer. therefore they make sure that if a bank is going to offer a mortgage then they MUST commit to a 30year deal. granted, its fixed for five years, adjustable thereafter and tied to libor plus the margin (1.875 i think?) BUT with a cap of 3% over the original rate of 7.25%. you are correct that condo financing is cheaper and easier to find-but the differential is not that substantial.
    b/c the condo conversion process in the city is so dysfunctional
    with its low quota, long list of requirements and multi-multi-year backlog you’ll find that many who aspire do not succeed.
    but with fractional financing and a solid TIC agreement in place(plus about 125bps) you can have a condo in all but name
    without all the fuss, bother and expense. and indeed the market knows this-as you and i and any brokers who are out there can attest-the competition for buildings remains FIERCE!
    at least that’s my take on it and i confess that i spend far too much time looking for buildings to buy. of course its frustrating to be outbid over and over (there’s the market telling me again!)
    i need to find that “considerably softened market” you mentioned, and when i do i’d be happy to prove you wrong…again.

  27. Paco, thanks for the info and congratulations on the nice work on your building. I agree with you that with the availability of fractional financing starting a few years ago, the real difference between a TIC and a condo is pretty slim. However, there remains one difference that might be significant to some buyers. A condo is exempt from the rent control laws whereas TICs are not. So if you think you might want to rent the place out at some point in time, a condo offers distinct advantages.

  28. Paco,
    All really fascinating info that you’ve given us to ruminate on. Although I appreciate what you’re saying about all sides “winning”, I still maintain that (in light of the small cost in the remodel) you are basically capturing the spread between what a rental tenant is willing to pay (interesting that even with rent controls, you say that the tenants were basically market – so in the end, the rent controls confer little subsidy but they do their job of restricting supply and ensuring steady demand – precisiely the opposite of their supposed “intent”) and what people will pay to “own”.
    7.25% + interest rate risk on a 5/25. And some are committing all cash to a nondiversifiable indiosyncratic asset. At these prices, it’s not a risk I would take, but obviously many many would. As you said, SF has not always been expensive – and as in all great cities the cycles turn, and I’m betting it will be significantly less expensive (in real terms) at some point in the future.
    OT – it sounds like you were a floor trader – is that right? BTW, what did you trade? I was an “upstairs” buy-side guy, spent my entire “career” – if you could call it that as I only worked for 6 years or so – at one of the big 3 hedge funds in the mid- to late-90s, trading all the macro-sensitive instruments, but mostly derivatives on currencies, interest rates, equity indices, always with a directional view. I chucked all that after I hit my personal “number” but I’m still in the markets every day (just for myself and a few family/friends now). I am getting VERY interested in real estate now. If you’ve seen my CR posts, you know I’m expecting a credit deflation (severe), but I am feeling the need to hedge (using 100% OPM if possible) the small risk of a policy error and hyperinflaionary blowout over the next 10 years or so.

  29. hey satch,
    coupla points; you are correct that condo quality floors, paint and appliances do not have to cost much. the key metric in our deal was that we could offer small 1bdm units that had style for
    $420k or less. at the time there was not much available for that price point and indeed we had these units sold many times over.
    and it is still possible to purchase units in bulk for $300k or less
    and sell them for $350k-$450k w/out too much risk. most people do not have the time to put together a group, buy a building, and remodel it so we can add that value pretty easily
    and still come to market at a competitive price.
    i was a market maker on the PSE for 13years;stock equity options was my game, and i bet on volatility rather than direction. i still dabble and watch but after being in the biz i now have a hard time trusting the game.
    i think you are correct about deflation, AND about being concerned about policy error but IMO if we get the hyperinflation i don’t think RE is a good hedge b/c its too illiquid and the risk of populist reprisal by govt. is high. property owners are an easy target. as an example, in the city the supes have no problem letting the water and garbage rates go thru the roof b/c they know this mostly affects landlords. anywhere that has suffered inflation has seen the populist response.
    of course i’m looking for hedges too so if you have any ideas i’m all ears.

  30. hey trip,
    good point. in fact b/c we ellised the rentability is restricted in a coupla ways; no renting out for 2yrs after the ellis, only allowed to rent at the previous rent if after 2yrs but before 5yrs, and no limit to the price you can charge after that. once the tenant is in you are subject to rent control rules but if you started the tenancy at market rate then this may not be too bad. of course this is not legal advice and should not be taken as such.
    i would venture to say that the lower entry price of TIC v. condo
    may tip the scale of rent profit potential towards TIC but really it would be hard to justify the purchase of either with the view towards making money in renting it out. i wish the market would correct enough to make positive cash flow a possibility.
    if and when it does i’d love to get some more income property.
    (satch, i’m with you there but the market won’t cooperate… yet.)

  31. Paco – thanks for the clarification that you did your Ellis after 4/06 and the units are not able to enter the condo lottery for 10 years. And sorry if I come off as a know it all or whatever, but I am a real estate professional with plenty of experience and will not comment on something unless I have direct knowledge of it. I’m really not trying to puff my ego here or anything so if you know anything I’m saying here is wrong – let me know please – that’s why I’m here is to better my knowledge. So, thanks for taking the time to clarify my misunderstanding about the fractional financing (basically that they are committing to a 30-year term and the loans are adjustable rather than called). And really, I’m surprised you pulled off such a successful deal with a 6-unit building that you Ellis’d – you’re obviously pretty in tune with the market and saw a big opportunity – congrats. So here’s my experience with TICs and where I got my info – I have looked at the TIC market in detail on several occasions over the past few years – both the unconverted 3-6 unit buildings and the finished TICS. When I looked at this market last in late 2007 I noticed a distinct dropoff in the sales volume of 3-6 unit buildings which were occupied – especially with protected tenants (basically needing an Ellis to convert them). I then spoke with several investors who indicated the TIC conversion game was dramatically changed by the change to the condo conversion law – they basically said it was no longer a slam dunk if you couldn’t condo convert. Their opinion was that if you could pull off a conversion with a buyout that it was still feasible, but that they didn’t want to Ellis a building due to the uncertain market for Ellis’d TIC units. Then I looked at a ton of available TIC units and noticed that the ones that were selling best (fastest/highest prices) had the condo convert option available and the ones that were sitting and were discounted were the small number of Ellis’d units. I also noticed that the majority of TIC units available city wide are in 2-4 unit buildings which as you mentioned are much less tricky to convert than a 6 unit building due to occupancy requirements. I also spoke to several people who were in the process of buying TIC units who looked at fractional financing and ultimately passed on it due to the significantly higher cost of it and went with the more risky shared financing. So from what I’ve seen, you ventured into pretty untested waters on two accounts – converting a 6 unit building and converting a building where you had to do an Ellis Act after 4/06…and you hit a home run – bravo…really. But my point is that this in not a straightforward deal at all (at this point at least) – it is pioneering, as the market for Ellis’d TIC units in 6 unit buildings is still in its infancy. I thought the profit was squeezed out of these types of conversions by the change in the legislation, but your experience tells me maybe not and to keep an eye on this dynamic, so thanks for the info BTW.

  32. Paco,
    Thanks for the informative posts. Question – as the developer, how do you shield yourself from future claims and liability from your buyers? Is there an easy way for a small developer to do this?

  33. I’m relatively new to this site and don’t get a chance to read these posts too often, but as a SF residential agent and rehab investor myself, I should try and get on this site more…especially after reading this thread. Paco, when I said earlier that you should give how to seminars, I didn’t think that you’d do it right away! Thanks for sharing your knowledge and opinions. This is great stuff.

  34. hey miles,
    good points you made. its true that many seem to be freaked out by the ellis but for a six unit i don’t think its a big deal b/c the condo conversion is really more of a pipe dream being sold by realtors (i’d love to be proven wrong there if anyone wants to jump in!). for the 4unit or less market i would agree that the buyout is the better option. i’ve heard of many high priced buyouts ($20-30k) and they were mostly in smaller buildings. and i think that the developers doing this are focusing on 2bdm trade-up units. these typically get higher end remodels and sell for alot more money. and though i think this has been profitable i am wary of joining that party so late in the evening.
    the niche that we ventured into is, to my mind, much less risky.
    lower buy-in, lower remodel cost, lower selling risk and yes, lower profit potential but higher comfort level. our pro-forma
    called for $350k/unit sales price which promised a fine return with less risk than the DJIA and our worst case scenario had us owning a sweet building in a good nabe w/views. if we could not sell it we could re-rent it at the old rents and still return around 4%-not great but not a loss either. and here’s the kicker;
    these units were cool-sunny, airy w/views, yard, roof deck, storage and close to my house. in other words, i am proud of the product we made and would not hesitate to put a younger sister or friend into them. i lined up some alternative financing options in case the banks shied away (yeah circle bank, i’m lookin’ at you) and in this retiree rich environment a steady revenue stream backed by a 1st DOT was not a hard sell (3 phone calls!).
    fractional financing has really opened this market up. i still think demand exists for small units at small prices; in fact thats what paris is all about! as i said before, i’m not trying to make it sound easy, but its not that hard.

  35. hey fsbo,
    fortunately we had very little to do on this building and therefore have very little liability. the cabinets, tile, flooring, paint and appliances are all new and covered by transferable manufacturers’ warranties. when you subdivide a building the DRE requires inspections and a forward looking budget so that the buyers know how much life is left in the roof (for example) and how much it will cost to replace it. this benefits both buyer and seller b/c it makes for a very thorough disclosure package. in my experience (which has been selling in a seller’s market) i’ve always over-disclosed b/c this is a small town and i’d never want to be run out of it! as i mentioned earlier, this building is close to where i live and the buyers are now neighbors. and of course, we’re talking about pretty staightforward nuts and bolts
    issues- construction/remodelling is not rocket science and its not that hard to do things perfectly well (or to fix any latent deficiencies). good luck (and beware of water damages before you buy!)

  36. I believe paco, bc I have similar returns. Also, rent control is a fools’ errand. It is very poor economic and social policy (proven in academic studies), rather it is used as a political tool. Rent control encourages parasitic behaviour from tenants who just want a free ride off a landlord’s back. Don’t let the door hit your a** on the way out when you are Ellised and welcome to the adult world of personal accountability. I had tenants who were demanding $35K ea, I offered $25K, they wouldn’t budge – then wham, Ellis.
    Free markets is what creates wealth and not the lightweights we have on the BoS.

  37. Shame on those deadbeat tenants who would play by the rules of a market in an attempt to extract as much value from a transaction as they can. What jerks! How un-American! I’m glad that the discussion so far on this thread has illuminated the important difference between a wealthy person who plays by the rules and is lionized by his peers for making big fortune bigger and a poor person who plays by the same rules from a position of weakness, loses, and gets laughed off of the property he can’t afford to buy.

  38. @DavidQ
    The difference, to my mind, is that because of the insane anti-landlord laws passed in SF, the tenant greatly benefits from a distortion of the market. And frankly, whoever owns the unit should be able to do what they want with it, after giving the tenant some reasonable time to vacate.

  39. Agree with DavidQ.
    I am ok with people acting in their self-interests, even tenants who may try to aggressively push for a large buy-out. What I object to is that the playing field is so tilted against landlords, to the point that SF is so out of whack with the rest of the country. Even San Mateo & Santa Clara counties don’t have anything near the draconian assault on property rights that SF has. And those two counties are as expensive (for the most part) and have a similar shortage of housing as SF does. The buy-out amounts in those counties would be zero. The way the game is tilted against landlords is purely a wealth-transfer mechanism from landlords to tenants. It serves no other legitimate purpose. Socialism is morally and economicically bankrupt. I speak from experience, having lived in France, Germany and pre- and post-Thatcher Britain.

  40. hey davieQ,
    i think your response is known as ‘a knee jerk reaction’.
    let’s break it down shall we? these were not ‘poor people’. 5 of the 6 units owned at least one high end (think bmw, audi, and lexus) vehicle. they are young, upwardly mobile and nearly all professional.
    when you say they were playing by the “rules of the market” i say
    extortion is not an ethical means of “extracting value”.
    you say they could not afford the property and that’s debatable.
    the rents they were paying amount to nearly the amount they would pay to own at the prices we offered them and we even proposed some help on the down payment. no doubt the rents today are more than enough to cover ownership.
    had the tenants accepted our offer we would have made money
    and been done quicker and not have had as much risk. b/c they did not we learned quite a bit and made a bit more.
    finally, we did not ” laugh them off” the property.
    i hope i don’t sound like an a***ole. i’m not trying to brag. i really feel that we are adding value and i believe that tipping the ratio of renters and buyers a little bit is better for the long term health of the city.

  41. Calling paco and tic developers 🙂 Someone is trying to sell TIC units at 1580 Lombard in the Marina. It’s a 6 unit building that they bought 2/2/7 for $1.8M paying about $395 psf. Unit#4 2bd/1ba and #5 1bd/1ba came on the markets as TIC about 40 days ago at $589K and $479K. They have just dropped the price to $569K and $439K. They don’t reveal the psf on these units but I’m estimating that they are now priced at about $665 psf. If they are able to sell at this price, considering that they paid $395 at just about the peak, that’s still a healthy markup. Or is it? What do you guys think? What’s going on in TIC development?

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