“Building owners can spend years vying for one of 200 condo-conversion slots awarded annually via a lottery. But this year San Francisco is considering letting people skip the line, offering a one-time chance to the hundreds of folks on the lottery list to go condo now – for an extra fee. The goal is to generate more revenue for the cash-strapped city and to create building-industry jobs, because condo conversions generally require some construction work to bring buildings up to code.”
Proposal: Pay fee, skip condo-conversion line [SFGate]

84 thoughts on “Condo Conversion For A Fee? Yes Please (But Not Just Once)”
  1. This could be huge. I have a feeling that the “extra” fee will be far less than the value added by the conversion.

  2. Phil Ting says in this morning’s Examiner that revenue projections from the transfer tax had to be halved.
    This could make up for the shortfall; very nicely.
    M.R.

  3. While the devil is in the details, this sounds like a great idea. I would love to see more condo’s and fewer TICs in SF.

  4. It’s a good move. By removing artificially imposed market constraints and regulation, housing will hit bottom faster. The bottom will still be whatever it is, this won’t move it, but we’ll hit it faster if this goes through.

  5. This is such an incredible idea, it’s almost hard to believe it came from government officials. If Phil Ting thought up this idea, kudos to him.
    It does need to be priced so that the city of SF makes some money, and I have questions as to current renters who do not want to or do not have the finances to convert to condos?

  6. While I think this is a great idea, I am sure the Socialists on the Board of Supervisors will strongly oppose it because, in their opinions, home ownership is evil.

  7. That would be amazing. I’m sure those folks who have been in the lottery for years will jump all over this.
    I think it’s a phenomenal idea.
    I’m finished the process in my 2 unit apart from the recording. and refinance.

  8. While it may be true that TICs and subsequent condo conversions remove rental units from the market, it’s absurd to claim they cause a bunch of evictions. Owners have only two options to evict without cause in SF, Owner Move In (OMI) and the Ellis Act. The former allows an owner to evict and clear a single unit in a multi-unit building for the purpose of moving him/her or his/her relative into the unit. Only one unit can undergo an OMI, and once that unit has the OMI label, it’s the only one that can ever go an OMI in the future, for all time. The Ellis act allows an owner to evict an unlimited amount of people to clear a building to take it off the rental market.
    It seems as though every TIC would undergo an ellis prior to creation, but if a building is ellis acted, and it affects more than one unit in a multi-unit building, the entire building is permanently banned from ever entering the condo lottery. Only a fool would buy one of those units, since TICs are only in demand due to an artificial housing market, and if you can never convert them to condos, it may be almost impossible to ever sell your share in the future.
    An OMI eviction in unlikely, as it would only work for one unit in an occupied building, and other owners would be reluctant to grant you an OMI on the unit you want to buy, since you would have permanent OMI rights in the future.

  9. I don’t know who would be more excited, the lottery entrants or the surveyors who would cash in even more so than they already do for conversions.

  10. The only thing stopping evictions is losing the ability to condo convert. If they pass this, nearly every renter in a 6 unit building or smaller will be ellised overnight.
    And that’s why the renters will never allow it.

  11. Existing non-TIC owners should hate this idea. When TIC-owners pay their tiny fee and get a huge increase in their property values, that increase doesn’t magically come into existence. Instead, everybody else sees a hit on their values — whether a lot if the property is in the same competitive space or a little if the property is just on the move-up chain — to subsidize the converted TIC owners. There ain’t no free lunch in the market.

  12. Parsing the consequences of this will take a while. The fractional financing on TICs come with higher interest rates – as much as a 2% difference. You’d expect to see lower prices on TICs than comparable condo units, but I don’t see sellers doing that. Just floating the possibility of this law will make TIC sellers even more reluctant to lower their prices because they can dangle the possibility of condo-conversion to potential buyers. There may be landlords who are more motivated to evict tenants, but I doubt that any units that have evictions would be eligible. If they are, this will go down in flames.
    I doubt this passes. My main hope is that folks actually engage in an analysis of the consequences before reacting to it impusively.

  13. San Francisco will have thousands of new units placed in the rental market in the next 10 years. The Tenants Union notion that we must not remove even one unit from the market points to a political position rather than one based on fact. The TIC’s will not even dent the rental market.

  14. The only thing stopping evictions is losing the ability to condo convert. If they pass this, nearly every renter in a 6 unit building or smaller will be ellised overnight.And that’s why the renters will never allow it.
    Um, no. There is already an ordinance in place that makes a building that was ellised and more than one unit was emptied due to eviction ineligible for condo conversion, in perpetuity. Nothing about this would change that (and least nothing mentioned here indicates that).
    Would it give landlords an increased incentive to try and buy out renters or use nasty tactics to get them to move on their own? Probably.

  15. Dont ya’all forget. This is still a pipedream. I think its unlikely that the BOS would pass this.
    Even if passed, it would only apply to tic owmers currently on the list. It would not effect rental bldgs
    But this os telling of how precarious our city budget is. There was so much effort during the boom years to curtail development. Well no need to worry, as half the staff at dbi and planning dept are twifdling there thumbs as there is so little activity in new development. But its nice to have the reactionary socialists at tenamt’s union doing their usual scream, as remts are dropping and vacanciy incresing in the city.
    Dont’cha just luuuuvvee san fran-cis-CO!

  16. This is nothing more than the latest bi-annual attempt at eliminating rent control. They always get crushed and so will this one.
    Whether this would allow people to evict or just put more incentives in place, it’s pretty clear that this will reduce the rental stock.
    So this ends up being a divide a try-to-conquer strategy: first get rid of the renters in the smaller buildings, then when the majority is lost, go after the renters in the larger buildings too.
    The renters in SF are pretty good at seeing through this sort of thing and CRUSHing it. I’ve seen all sorts of threats to rent control like this and the renters hit them right out of the park. It won’t stop the landlord groups from trying, like they always do. They always think they are so clever, but it never works.
    I am for stimulating the economy, and this WILL do it. It will do it because the Landlords will spend, spend, spend to try to get this passed. And by the time it is pummeled in to the ground, like all the others before it, the helpful spending for the economy will have been done.
    So go ahead and try: like all the other measures before this one, it won’t even be close.

  17. Ha ha…hilarious. 44yo hipster is right. I’m also skeptical that the BOS lets this fly. Would make too much sense.
    But it sure is fun to watch the voracious maw of our city government writhing with hunger pangs. Funny how they suddenly embrace a capitalist solution now that they’re no longer flush with our money. Our dining philosphers seem to have misplaced a fork. What’s next…chain restaurants in North Beach for a fee?

  18. hahhaha. Tipster believes in something. RENTING. Are you on rent board payroll?
    Although probably exactly one of you have actually been down to DBI recently, I can concur that it is indeed moratorium-like.

  19. Agree with 44yo hiptster – this is a pipe dream that the SF Chronicle jumped on to try and give it legitimacy. This legislation favors rich TIC owners over less fortunate owners for one first of all. More importantly, if it clears out most of the TIc/condo conversion waiting list then it will increase the demand to convert existing apartments to TICs/condos and thus decrease the rental stock. And for what – more condos in an already saturated market? Sorry, not a chance this is going to pass.

  20. A agree it’s a long-shot at the BOS given the pro-renter bias in this city. OTOH, deep financial holes like the current one can change the motivations. The BOS may be more interested in having the added revenue to blow. If this were crafted so that only owner-occupiers with no Ellis eviction were eligible — i.e. no plausible claim of any rental stock reduction — I’d say it is not impossible. The city would not only get these fees but also the higher property taxes from the condo reassessment (and the package could include a take-it-or-leave-it high reassessment value).

  21. this is a pipe dream that the SF Chronicle jumped on to try and give it legitimacy.
    Wrong. This is a story the SF Chronicle jumped on because they got scooped by their lowly former rival, The SF Examiner. The SF Examiner’s motive is selling papers.

  22. I have to agree with a few of the people above: this will get mired in the controversy over rent control and evictions (despite the fact that it will probably only apply to TICs currently in the lottery).
    As rents drop, will the rent control lobby lose power in local politics? As condo prices continue to fall, do conversions become less attractive? As financing becomes harder to get, do TICs become real weights around the necks of owners? As transfer taxes and assessments drop, what desperate measures will the city enact to raise money?
    I can’t wait to see what ridiculous measures our government can come up with as these issues work themselves out.

  23. Most people who buy TICs are not wealthy enough to afford SFHs in the city (obviously), which means that most of the TIC owners would probably be renters if TICs were not available. That means that, although the number of rental units is going down, the number of renters is also going down concomitantly.
    I also am amused by how any issue that might affect a renter negatively is always framed as an ‘attack on rent control’. Tipster, this has nothing to do with rent control! It doesn’t change how much a landlord can charge for rent.
    The lottery is designed as a disincentive to TIC ownership. Though, once a TIC is created, the damage to the rental market has already been done (most TICs do not revert to rental stock). Removing all of those TICs currently waiting in the queue for the lottery does not damage existing rental stock any further.
    In addition, the building inspector has wide leverage to force all sorts of code compliance issues and other projects on lottery winners, which has the net effect of increasing the safety of the building, no matter who occupies it, and would result in lower disaster payments paid out in case of earthquake if the city forces a retrofit.

  24. I was under the impression that once you get on the waiting list you already own the unit as part of the tic. And you have to be living in it before it can convert. That means no one gets kicked out that is not already living in it. Part of the process requires a history of all people that have lived in the TIC itself to make sure no one was dealt with inappropriately. It just makes the process quicker, again for those that already own a TIC. This is good because those owners live and pay for these properties, not to a landord, but to a bank and the city for taxes, and can’t rent it out or take equity. They are basically tied to the unit until it converts.

  25. “Tipster, this has nothing to do with rent control! It doesn’t change how much a landlord can charge for rent.”
    Bullshit. One year after a multi unit property is converted, it is forever exempt from rent control. Condo conversion converts rent controlled properties into non-rent controlled properties.
    “I was under the impression that once you get on the waiting list you already own the unit as part of the tic.”
    Wrong. You can condo convert non-owner occupied properties. Only some of the property needs to be owner occupied as TICs.
    Then, after a year, you can raise the rent.
    “I dont have a TIC. I am a landlord. ”
    Yes, and once you get rid of the renters in small buildings, eliminating rent control in non-tic buildings will be that much easier.
    For all these reasons, the project is dead. It’s dead. We’ve seen this sort of back door attack on rent control before and the renters DESTROY them. All the while, the landlords think “this time, it’s gonna be different – we’ve fooled them now!” It never is. The renters come out in droves and demolish these initiatives.
    Spend lots of money on it and tell everyone what a great idea it is. The tenants will crush it. They always do.

  26. Tipster – You’re not quite accurate “Bullshit. One year after a multi unit property is converted, it is forever exempt from rent control. Condo conversion converts rent controlled properties into non-rent controlled properties” If you have used the Ellis act to evict tenants and to create a TIC, the your unit is subject to rent control until you sell it in a bona fide sale to an unrelated party.

  27. “If you have used the Ellis act to evict tenants and to create a TIC, the your unit is subject to rent control until you sell it in a bona fide sale to an unrelated party.”
    Huh? Try this rule, it’s more accurate:
    If you have used the Ellis act to evict tenants and to create a TIC, it’s subject to rent control whether you sell it or not. Ellis just terminates the tenancy of the existing tenant and gives them a right of return over any other tenant for 5 years. It also sets the rent of any new tenant coming in in the next 5 years at what the maximum of the evicted tenant was paying. But it has no effect on rent control. Your unit is just as rent controlled before any sale as it is after any sale. Ellis does not terminate rent control, it just terminates the tenancy.
    But condo conversion takes it out of rent control per state law. What you may be saying is that if you ellis and then condo convert, the ellis restrictions on rerental and first right of return will continue with the old owner for 5 years or until you sell. I’ve never seen that, but it might be true. Might make sense. But rerental after an ellis eviction is asking for a big lawsuit anyway, so it’s essentially not done. Ellis is for selling: kick the tenant out and sell.
    But the way you wrote it, it makes it look like you can ellis, then sell as a TIC, and that takes it out of rent control, which is NOT true. Only one thing removes a unit from rent control and that’s CONDO CONVERSION. And that’s at the heart of this proposal.

  28. This all gets ridiculously complicated (self-serving note — hire a lawyer if you ever have to deal with this and a tenant is involved). Condo conversion of a unit subject to rent control does not automatically take it out of the rent control ordinance. That only occurs after the condo is then sold to a bona fide purchaser. And even then, while you can rent the condo out and raise the rent beyond rent-control limits, certain eviction protections still apply.

  29. Trip,
    My understanding is that condo conversion pulls it out of rent control. State law says so.
    As a condition for conversion, the city makes you provide lifetime leases to elderly or disabled tenants and 1 year leases to everyone else. The leases are at the rent controlled limits, but the units themselves are no longer rent controlled per state law.
    At the end of the one year lease, because rent control does not apply, the original owner is free to raise the rent to the market rent. They do not have to sell the unit to do this.
    The question is whether, in an ellis act, then a condo conversion, the city restrictions of the ellis act remain, or whether the state law override that says no condos get rent controlled would trump the city rule. I would assume for 5 years after the ellis, they would be subject to the ellis restrictions, but an argument could be made that state law would trump the city law ellis restrictions in SF.

  30. Yes Trip – but you don’t need eviction protections if you don’t have rent control. Just raise the rent to 10k and watch the tenants move-out voluntarily.

  31. while there are all of these laws etc., who in their right minds would enter into a financial agreement with a bunch of complete strangers in order to become a landlord in SF where there would be nuetral cash flow at best. I’m not saying they don’t exist, but they can’t be that common. I don’t know this for a fact but it seems to me that most TIC’s are occupied by their owners. Maybe they got old waiting for the conversion and are now in a nursing home, but really, how can this be a winning proposition for a TIC owner? What is the advantage?

  32. No, tipster, the state statute you’re referring to is complicated, but you have to sell the place after the condo conversion before it is outside of the rent control ordinance.
    Here it is Civil Code § 1954.52, if you want to parse it:
    1954.52. (a) Notwithstanding any other provision of law, an owner of residential real property may establish the initial and all subsequent rental rates for a dwelling or a unit about which any of the following is true:
    . . .
    (3) (A) It is alienable separate from the title to any other dwelling unit or is a subdivided interest in a subdivision, as specified in subdivision (b), (d), or (f) of section 11004.5 of the Business and Professions Code. [i.e. it is a SFR or condo]
    (B) This paragraph does not apply to either of the following:
    . . .
    (ii) A condominium dwelling or unit that has not been sold separately by the subdivider to a bona fide purchaser for value.
    Thus, the conversion to condo does not do anything with respect to coverage under rent control ordinances. But under state law, once the condo is then sold to a bona fide purchaser for value (i.e. not your child or some fake deal) it is then excluded from rent control.
    Renters — nail any condo converter with this if you rent the place out from the converting party and they think they can raise the rent to infinity on you!

  33. Then fix the rent control law that makes condos exempt from rent control. Making more condos is going to have a negligible effect on rent controlled housing stock regardless, and isn’t going to change the amount of rent chargeable for 99%+ of existing rental stock. Condo conversion, it and of itself, is not an attack on rent control, and to portray it as such is still ludicrous and purely political.
    Do you honestly believe the majority of people on the waiting list are just dying to convert so that they can charge whatever they want for rent? No, the vast majority are hoping to convert so they can own a much less exotic type of property that they were forced to buy because no other type of property was available at a price they could afford.

  34. My understanding is that when you convert a building with existing tenants to condos:
    1. You have to give the tenants an opportunity to buy their units (at a price that the seller has to agree to, so it’s really up to the seller whether or not they want to make that a financially attractive option.)
    2. Tenants who do NOT choose to buy their units receive lifetime leases upon conversion and continue to be subject to rent control no matter how long they reside in the unit.
    So converting a building doesn’t harm existing tenants (it may even benefit them, as they may get an opportunity to buy their unit at an attractive price) and they continue as tenants for as long as they want to be tenants, and without risk of huge rent increases.
    Once a tenant vacates, then the unit can be sold or leased to another tenant and is not subject to rent control (but is subject to eviction control.)
    Based on my understanding, the folks who are claiming that conversion cancels rent control are mistaken. (In a TIC building, it’s kind of a moot point, since owner-occupied TICs aren’t being rented anyway.)
    By the way, I’m agreeing with Trip, I’m just trying to lay it out more simply.

  35. @viewlover,
    Not all TIC’s have a shared mortgage. Many are fractionally owned, and so each unit has its own mortgage and is untied to the neighbor’s mortgage.

  36. The lottery is designed as a disincentive to TIC ownership.
    Actually incorrect. See without the lottery, TICs would not exist at all since they all in effect would be Condos. It is the very hassles of being a TIC owner that produce the price discount.

  37. Dave,
    No one is disputing that conversion cancels rent control. Trip’s point is that rent control is canceled AFTER a sale, and my point was that rent control is canceled after a year.
    After reading Trip’s point, I think the correct statement is that rent control is canceled after the later of 1)a year or 2) the first sale.
    But gosh, you’ve seen the rent vs. buy calculations, it won’t make any sense for owners to spend all that money converting and then not sell. They are all going to sell.
    As for lifetime leases, that only applies to elderly or very disabled people. Certainly if they gave everyone in a converted condo lifetime leases, more people would be in favor, but no landlord would ever convert.

  38. Rent control is cancelled after the first sale.
    PLEASE, spend the time to understand the issue before you go debute.

  39. If the intent of not allowing conversion is to protect tenant, there are many ways that City can achieve that purpose.
    Currently, by blocking the conversion, the biggest beneficiary is Marine bank and Sterling bank.
    As a landlord, I bake those extra intesting into the rent that I charge.

  40. tipster- you are simply not being realistic w/your reasoning. condo conversion is not evil.
    1- most (most, but not all) tic’s are owner occupied. there is nothing stopping every single LL from (theoretically) selling every single rental unit to a TIC buyer. theoretically there would be very little ‘rental’ stock left.
    2- the few LL’s who happend to owner occupy their bldgs (2-4 units only) can go to the lottery w/the remaining units rented. but even after condo conversion, those tenants that stay, even after 1 year, cannot have their rent raised! they can only be evicted if the unit is sold to a new party. alot of LL’s keep their bldg anyways, and use the condo aspect to refi & pull cash out. they don’t have to sell to benefit from condo conversion.
    your stance (and that of reactionary tenant union, et al) are simply screwing over moderate income, former renters who are the majority of tic owners; like an admin asst. at genentech, or a couple bringing in $80k combined.
    these are not wealthy people, they are hard working folks who really want to live long term in the city. and they choose to own/control their own place; rather than take advantage of a fallacious RC policy (which is totally out of control in SF) that uses private funds (LL’s) to subsidize renters.
    RC should AT LEAST be means tested. it is sickening to know that there are wealthy renters squatting in low rent units. it’s totally unethical.

  41. “your stance (and that of reactionary tenant union, et al) are simply screwing over moderate income, former renters who are the majority of tic owners; like an admin asst. at genentech, or a couple bringing in $80k combined.”
    And what exactly will the CURRENT moderate income renters buy when all of the moderate income housing is converted to higher priced condos?
    The current owners knew the rules when they bought. Not changing the rules isn’t screwing anyone over. Changing the rules screws all current renters over.
    No thanks, we’ll pass.

  42. …former renters who are the majority of tic owners; like an admin asst. at genentech, or a couple bringing in $80k combined.
    these are not wealthy people, they are hard working folks who really want to live long term in the city…

    Huh? And what’s keeping them from living long term in the city in a TIC?

  43. This discussion proves that only a fool would willingly become a landlord in SF. Better to buy anywhere else where normal rules apply.

  44. Better to buy anywhere else where normal rules apply.
    It depends.
    1 – On the purchase price. Once the fools will have noticed Santa is not coming back prices will make more sense. Speculation is still built into the prices and reality will still take a few years to sink in.
    2 – In your pick of the rental place and subsequent renter pool. For instance picking a place that attracts young professional couples and that they will not consider as a long-term rental. 1/1s are a 1-5 years proposition for many renter couples. Of course you cannot discriminate against singles (that might perfectly stay single all their lives with little reason to move) but I don’t think giving preference to 2-salary prospects is a marital status discrimination. Nobody forbids you from picking the most financially secure renter and 2 salaries can be considered a safer choice.

  45. I willingly become a landlord in Sf, because rents are way HIGHer than south bay.
    Say something that sells for $750K, you can probably rent for $1800 in south bay. In SF, it is $2500 easily. With my Russian Hill condo that I purchased for $700K (on short sale), I rented for $3200, $100 more than what I asked for on SS.
    I am not an economist, so I don’t know what is causing the high rent. But I would speculate that rent control is at least part of it. It scares away a lot of landlord, decrease supply. The few of us left get to charge a high price. that is it.
    There are many ways City can act to protect tenant. Currently, banks get the most benefits.

  46. How hard is it to avoid the perils of rent control? Just make sure that you are renting it to the type of person who is not going to stay there for more than 2-3 years… how hard is that?
    I mean, is it that hard to identify the type of person who may be at risk of staying there for 30 years vs. a recent college grad who is clearly going to either move up in the world or go back to get their MBA, or eventually move back home to the East Coast etc?

  47. NewBuyer,
    that is right, it is not hard if you try, and I tried.
    I look at age, i also try to keep the unit in a bare min condition.
    Still, the (remote) possibility that you might end up with a pretected tenant scares landlords away.

  48. 20% down
    I did put 40% down on the TIC, to aviod paying the higher rate at 7.5%
    and clarification, I do not discreiminate against age, I do try to aviod someone that looks like he/she is going to stay forever in the TIC.

  49. Esther, you are buying TIC’s to rent out? I thought TIC’s were meant to help renters become owners, not for landlords to get lower prices to alternative condos and then rent them out. Not saying that this is wrong, but certainly clouds the overall issue and dilutes the benefits that were intended, AND we have this discussion about rent control.
    New buyer, I know loans are fractionalized…NOW, in the last couple of years if that long. Historically that was unavailable, and this step to speed up the process would benefit those that have been on waiting lists for a long time. Some waits are projected to be 18 years and that is rediculous. Besides, the fractionalized loans are at a premium.
    Regardless, nothing is easy in this town when it comes to real estate.

  50. This is a great idea.
    What a simple and easy way to earn money, plus it would help people in the city looking for affordable housing.
    All for it =)

  51. This is a great idea.
    What a simple and easy way to earn money, plus it would help people in the city looking for affordable housing.
    All for it =)

  52. “Say something that sells for $750K, you can probably rent for $1800 in south bay. In SF, it is $2500 easily.”
    Minor adjustment : a $750K home would rent in the range of $1900-2200 in the south bay. Still lower than the $2500 that you project it rents for in SF, but the margin is narrow.
    I’m using current valuations (both sales price and rents) as in the $750K home was probably worth over $900K last year.

  53. About rents in the South Bay, a good friend of mine just last month leased a 5/4 brand new SFR in Los Gatos, last for sale for $2.4M for $4500/mo (but it failed to sell – it’s brand new construction so no apples history).
    Fortunately, the specuvestor/builder took the loans out on his primary residence, and the leased property is unencumbered, so the danger of foreclosure is lessened.

  54. Folks, we need to clear up some misconceptions on tic’s. Any bldg owner can sell a fractional interest in their bldg. What makes a tic umique is that the partial ownership is defined as a specific physical space. A few years ago socialist housing fanatics attempted to ‘outlaw’ tic sales. The state courts told them to pull their heads out of their asses as it goes against constitutional rights (you cam co pwn almost anythig- a bike, a house, an apt bldg.)
    In the last few years fractional loans became available, making tics much closer to condos , sine the larhest expense, the mortgage, is now individually owned. That was created due to market demand.
    Tics are a great idea for a coty like SF and similiar to coop apts in NYC (although i think tic ownership is less politocal than coops.). Tjere will be more and more tics in the future. Virtually all new constr will be condos, but older housing stock will become tics.
    And i say, bring it on!

  55. 44yo hipster,
    If you are actually 44yo then you are not part of the blackberry generation and don’t have an excuse for typing that badly. Reading that post was like driving over a potholed african road. So unless you’ve just had a stroke, try typing with a little more care.

  56. here’s my opinionated 2 cents:
    1. “It has a lot of repercussions for people with less income than other people,” she said. “The lottery seems more fair.” What a classic quote that exemplifies the socialist, entitled attitude of our city. Why even bother selling SF real estate at market prices? Lets just dole it out in a lottery. After all everyone is entitled to live in San Francisco over the east bay or anywhere else regardless of means, right?
    2. I agree with everyone that thinks it’s a great idea but unlikely to happen. The cost hasn’t been set yet and if the supervisors want to set price accurately they will have to make an educated guess as to the premium that condos sell for vs. TIC’s and then take a part of that premium as the fee. Andy Sirkin argues that that premium is relatively small but things have changed. With TIC financing more expensive/tougher to get and higher down payments required I think the differential may growing. If the City is smart enough to figure that out they will probably charge an amount higher than many people are willing to pay vs. waiting it out. If they try 12.5% like the east bay did I doubt many TIC owners are gonna take that chance in this economy vs. waiting.
    3. why would you ever think they’d include Ellis acted buildings? they goal of this program according to the article is only to acclerate conversions that would otherwise happen at a later time.
    4. you can bet that the building inspectors looking at condo conversions will be given the mandate to red tag anything and everything to generate another layer of revenue for the city.
    5. not convinced the rental stock would go down. how do we know that by cleaning out the waiting list for conversions that they won’t keep the odds the same for future TIC’s entering the lottery therfore creating no more incentive for new TICs to form? and how about these scenarios: tic owner pays fee. tic owner converts immediately. goody, tic owner is now a condo owner and can sell out easiser. condo owner lists property, can’t get “what it’s worth”, moves to milf valley with his growing family and rents the condo out instead.
    6. it wont change evictions. the smartest investors will continue to Ellis act any property they can if conversion to TICs will generate a decent profit. Most do not need to get to the condo level to make a profit

  57. No dude, me no likey crap-berry.
    Me have an ipod touch (like iphone -the phone).
    At any rate, me always be shitty typist. Me no secretary! (but ill work on the accuracy, as the last post was pretty bad.)

  58. The biggest disadvantage of TIC, these days, is the high TIC rates, which benefit nobody except the banks.
    I know of a couple of parttime landlord in south bay who buy only tic, but with 100% cash. So, they get the best of both worlds.
    buy low, rent high, and from my quick calculation, the return is better than putting the money in the bank.
    but they are buying lower end of the market, for 600k, 700k ish.

  59. Viewlover,
    Of course you can rent a TIC out. the problem is the financing is more difficult, and rates even higher than owner occupied TIC.
    I put 40% down on my TIC, and still got 7.5%, this is 3-4 yrs ago.
    A lot of people on ss seem to think like you did, though.

  60. ester- these people you know are putting $600-700k in cash for 1 tic to rent out? yes, they are getting a better return than a bank rate, but i also assume they are really anticipating some serious appreciation down the line. (not alot of support on that strategy from SS bears, but then again, money talks and BS walks.)
    why don’t they use that kind of down payment to buy a 3-4 unit bldg w/a mortgage? the cashflow will be better. any thoughts on why they pay a permium for tic’s?
    and p.s. diemos- blackberry is a total post gen-x/boomer device (i mean obama even has one!) i’m gen-x and ipod/iphone is the way i roll:)

  61. Are we talking about the same thing here? A TIC is tenancy in common where there are multiple parties owning a building together. If there is a 3 unit building then there are 3 owners. And the intent is usually to get the units to convert to condo so they can be seperate owners. Even with fractional loans, there is no legal distinction between units, they all own the building.
    Now I see that some people are buying TIC’s in cash and renting them out. Are they buying the entire building without other owners or all owners paying cash? Otherwise, why would someone pay cash for their interest and the rest is financed by the other owners? Why would some particular owner pay more down than the others if there is only a shared interest? It would be very odd to have one TIC paid out and the other units still owing 80%. There is still a risk of default by another owner and the TIC in general shares that liability including the cash buyer.
    It’s easy to see how the laws around the TICs and rent controls become more and more convoluted as landlords keep trying to work the system.
    Yes, there is nothing illegal or unethical about buying into an interest, but where there are many laws protecting tenants, its really looking for trouble. And when the renters protest and demand move out awards, etc, and more rent control laws, the same landlords who stepped into these murky waters are the first ones to feel victimized.
    In the end the people that wanted to get into a TIC for the reasons they were intended for, ownership in a limited supply area, get less inventory and higher prices to deal with.

  62. Viewlover- yes we are talling about the same thing- tic’s. I have heard from a vouple of broker friends that they had clients paying all (or most) cash for tics, but that was with fractional loans only. You’re correct that this would be a crazy thing to do w/a group loan.
    Remember, tics are in general a ‘retail’ RE purchase- meaning the bldg owner took the trouble to remove tenants and renovate the units to a condo standards, inc ammemities like in unit W/D, parking, etc. So most tic buyers live in their units, and my question to ester was why these pepple she referred to would buy them as investments, when they can get a higher ROI w/ different SF property.

  63. legally it’s a group purchase regardless of the fractional financing. I went through a TIC and legally my neighbor co-owned my unit too as I did his. There is no legal distinction between units, only shared value, 50/50, 40/60, etc.. That is why this does not make sense to me. You can pay all of your share but you still have legal liability for all of the units, regardless of the financing.

  64. thanks milkshake (u have sharp eyes 🙂
    viewlover- yes you do own a fraction of the whole, but as you know, the tic doc’s define that portion as your specific unit. so if your neighbor defaults, the bank cannot go after your share/unit. all they can do is repo a % ‘share’, which is defined by the tic agreement as unit x.
    in other words, from the mortgage perspective, you should be safe if you put more $ down than someone else. this, of course does not apply for group loans.
    i have also owned a few tics (converted now to condos…bye bye RC!) so have experience w/this too.
    do you not agree w/what i said above?

  65. 44yo hipster is correct in his assessment above.
    For all intent and purposes, a fractional TIC is the same as a condo, with the big exception of rent control.
    Owning a share of a building and the exclusive right to occupy your specific unit is essentially the same thing as owning your unit outright. You have a title to your parcel of the building, and nobody else can touch that living space but you.
    There are a few other tiny caveats, usually involving some catastrophic disaster scenarios, but if that kind of thing keeps you up at night, then real estate is probably not your thing anyhow.
    The reason people buy TIC with all cash is very logical and smart: because mortgages tend to be higher for TIC’s, it means that TIC’s are underpriced by 10-20% vs. an identical condo unit. For those who pay cash, this huge negative is ignored and they are essentially getting a free 10-20% price decrease.
    Whether it’s better to put down 20% on four units somewhere else is their own call and requires some crafty Excel work 🙂

  66. hipster, all I know is that the lawyer told me I had no real legal argument to run the neighbor out of my unit if he decided to come in as he is also an owner. Never been involved with fractional financing so don’t know what that does. I was also told that in order to get the conversion done I needed to live in the unit. Maybe that is why I got the conversion done in less than 18 months.

  67. “Owning a share of a building and the exclusive right to occupy your specific unit is essentially the same thing as owning your unit outright. You have a title to your parcel of the building, and nobody else can touch that living space but you.”
    This is not exactly right. With a TIC, the owners jointly hold title to the entire building — the units are not separately titled — and they contractually agree to whatever exclusive right of occupancy they wish. So you do not have an individual title to your parcel. Legal title and contractual agreements have very different meanings, particularly where third parties — such as lenders or tax assessors or judgment creditors or bankruptcy trustees — also have a legal interest in the property. Fractional loans address some of these issues (and they are a great innovation), but not all of them.

  68. trip is correct- legal title is held by all tic partners.
    and viewlovers lawyer is mistaken- you have a contractual agreement w/the other tic owners of exculsive occupancy use. other person cannot legally come into your unit. that’s what the tic agreement is for.

  69. In reality, the real difference is down to two things: higher TIC rates & rent control.
    If you pay cash, and pick your tenants carefully, you will get better ROI out of TIC.
    Why not buying 4 unit buildings? Diversification. Sf is a abnormal city that requires abnormal decision making in abnormal circumstance: if you ever need to evict, you are pulling down all 4 units.

  70. Maybe I’m stupid, but I can’t see a downside to this. All these units have already been converted from rental stock to TIC and all are already registered for the conversion lottery. We’re not talking about a complete change in the process or policies – we’re talking about a one-time deal that works for the City budget, DBI, and TIC owners. It’s not mandatory either – it’s a choice.

  71. An existing TIC means the the rental unit is already toast.
    I don’t understand what the tenant union has against home ownership. When the rent control was first passed here it was a response to one large landlord, who was consistently aggressive in their rent increases. This landlord, now only rents out furnished rentals, where the likelihood of tenants staying long term are fairly remote, and they have the chance to keep the return on their investments at market rates.

  72. OneEyedMan – I’m not supporting this argument but I believe the argument would be that if you allow it now, it sets the expectation that you will allow it again during the next budget crunch, so people would convert more units into TIC’s with the expectation that they will be able to condo convert for a fee next time the city needs money.
    That would be one reason why some people would have a problem with it.

  73. Kathleen,
    The enemy of homeownership is of course high prices, not rent control. Moreover, TIC ownership is already homeownership. It’s just that owning a TIC carries certain restrictions that owning a condo does not, so that converting TICs to condos would (somewhat) raise the price of the existing TIC stock, further reducing home ownership, although the actual effect may well be negligible.
    Finally, the tenants union, to the degree that they affect the market price at all (which is debatable), do so in a way that promotes homeownership, because the restrictions on rental housing creates a pool of potential TICs which are more affordable than the pool of condos. Now, I personally have doubts as to whether any of this makes a difference, but any difference is one that promotes ownership.

  74. The notion that the increase in perceived value a property gets from converting from TIC to condos makes them more expensive is silly. As has been pointed out previously, the financing on a TIC is substantially more expensive, and in today’s mortgage market, will mean that the TIC is substantially more expensive than the condo.
    So, unless the condo conversion process it providing a greater than 30%-50% bump in realized property value, the condo is still the more affordable solution. Remember, us dirty masses don’t write checks for where we live, we finance them.

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