The proposed and rather contentious condominium conversion lottery bypass for a fee legislation took an interesting twist and turn on Monday with Supervisors Chiu and Yee amending the legislation with the backing of the San Francisco Tenants Union which had previously opposed the bypass.
As amended, the proposed legislation which was originally introduced by Supervisors Farrell and Wiener would establish a six-year bypass program during which the roughly 2,500 TICs that participated in either the 2012 or 2013 lottery, and buildings which have not participated in the lottery but already have owner occupancy requirements in place, will be able to condo convert for a fee.
The existing conversion lottery for units that don’t qualify for the bypass would be suspended for at least 10 years and future conversions for buildings with five or six units would be eliminated by way of the lottery.
Our edited version of Plan C San Francisco’s overview of the amendment’s key points:

The amended legislation creates a 6-year lottery bypass program. During the program, the annual condo conversion lottery will be suspended and will continue to be suspended for at least 10 years. Lifetime leases would be provided for existing tenants of units bypassing the lottery.

All buildings that participated in the 2012 or 2013 lottery and remain eligible will be able to bypass the lottery. Buildings that have participated and lost in 5 or more lotteries will bypass in the first year of the program, paying a bypass fee of $4,000 per unit. All other buildings that participated in the 2012 or 2013 lotteries and continue to remain eligible will be able to bypass in the second year of the program, paying a bypass fee that is reduced by 20% for each year the building participated in a previous lottery (first-time participants in the lottery pay $20k per unit, two-time participants $16k, three-time participants $12k, etc.).

In years 3-6 of the program, buildings that did not participate in the 2012 or 2013 lotteries but meet existing owner occupancy requirements (1 owner in a 3-4 unit building, 3 owners in a 5-6 unit building) will be able to condo convert upon six years of owner occupancy.

As mentioned above, the suspension of the lottery will be for at least 10 years. The maximum will be calculated at the end of the 6-year bypass program, dividing 200 into the number of units that availed themselves to the bypass. If 2400 units convert, then the suspension will be 12 years.

There is also a provision that would lessen the maximum suspension of the lottery if additional affordable housing is built in excess of what is currently projected.

As proposed, once the lottery resumes in ten or so years, it will no longer allow 5 or 6 unit buildings to condo convert. In addition, owner occupancy requirements for future lottery based conversions would be increased to require two owner occupants for a 3-unit building and three owner occupants for a 4-unit building.
A Clash Over Condo Conversions At City Hall [SocketSite]
The Devilish Details For Bypassing SF’s Condo Conversion Lottery [SocketSite]
Condo bypass amendments – 4/15 Update []

44 thoughts on “A Contentious Condo Conversion Lottery Bypass Twist And Turn”
  1. Interesting. Seems to help out current TIC’s at the expense of future TIC’s. Giving something to people today at the expense of unknown future individuals is pretty much the sweet spot spot of the bat politcians swing.

  2. Interesting. If the TU is on board then this is definitely politically viable, and for the first time ever.
    RE: future TICs. I think the key there is that at least prospective TIC purchasers would be made aware of the astounding time gap ahead of them. Right now the trick of the TIC market is that a lot of people simply aren’t aware of the degree to which the lottery is flooded and don’t really understand that new participants, today, would on average have to wait 18 years for a conversion. This legislation would at least help future TIC buyers to understand that limitation. It will be _really_ interesting to see what that does to the market for them.

  3. Sounds like a great lawsuit to me. Taking away what already exist (sorry you can’t convert your 5 unit TIC) not a great idea. I doubt the proposed changes would hold up.

  4. @RFH, what do you mean by taking away? Any existing eligible 5/6 unit TICs would be able to convert, and a hell of a lot sooner than expected.
    I can’t imagine a hypothetical, future TIC purchaser of a 5/6 unit would be able to sue on the grounds that the law used to be different, back before they ever purchased their property.

  5. Indeed.
    The SFTU knows that current prices are a good motivation for the most vulnerable landlords to throw in the towel, either by selling their buildings to sharks/investors, or by being the sharks themselves. Ultimately, many of these buildings will become TICs.
    But there’s nothing much they can do aside from making TIC prices less attractive when they come on the market. In short: slow the money flow would cause landlords to think twice before transforming into TICs.
    They could have gone on with the current stalemate. But some TICs are selling for very decent money these days (TIC prices today are getting close to condo prices from 2 years ago) and they had to do something, anything to prevent the bleeding.
    Like Rillion, this is a short-sighted piece of legislation.

  6. With any new compromise come unintended consequences.
    One would be the sudden disappearance of business for banks catering to the niche of fractional TIC financing.
    TIC mortgages very seldom default and have a high interest rate, with resets after 5 or 7 years. They must be a decent and reliable source of profit to a bank like Sterling.
    Now that their customers will be able to shop around for lower mortgage rates, they’ll lose a lot of business.
    This could cause the drying up of TIC financing. Just a theory.

  7. I wonder if this could potentially have the unintended consequence of encouraging more Ellis evictions. It seems that currently people are discouraged to do them based in part on the loss of future conversion potential. If you take away this potential, it takes away some of the disincentive to turn buildings from rental to TIC. If you know your building can never become condos anyway, it takes away a big reason more buildings are not converted to TIC through the Ellis act.

  8. Agreed G. As soon as 5-6 unit buildings are forever forbidden from becoming condos, a lot of them will be Ellised. But then then SFTU has never been known for thinking ahead to the consequences of the policies they back.

  9. I’m no lawyer, but taken as a whole, I don’t see how San Francisco’s restrictions on housing property are constitutional(especially things like the idea that three people can’t buy a three-unit building and move into it for their own housing purposes – I believe only one of the owners can move in, lack of means-testing, the requirement that one class of investor subsidize housing, etc…). I’m guessing all it would take is for a well-funded person or group to have the persistence to take it the distance legally for it all to come crashing down.

  10. There are potential constitutional challenges, but landlords are businesspeople, and whatever benefit received from winning a challenge would likely be outweighed by the legal costs..
    Every time my attorney mentions the constitution I run far and fast.

  11. Steve, the three owners could move in and live there. They would just need to use the Ellis Act to convert the building from a rental property to a non-rental property. If your argument boils down to the government should be able to put any restrictions on the use of private property that is a different beast then the example you provided. The current law provides a legal remedy for the individuals in your scenerio to live in the property they purchased.

  12. Agree this is interesting. I think it’s it’s great to get the back-log in conversions dealt with but this seems unlikely to help the SFTU in the long, or even short, run in the way they desire.
    As long as there is more demand for owning, yet strong restrictions from development / conversion, the TIC market will remain strong.
    If it succeeds in reducing the price of TICs it will increase demand since they will become more desirable compared to condos.
    I think most new TIC buyers today already know they won’t be able to convert to condo, so I doubt it’s going to be much disincentive to future buyers as things won’t really have changed much.
    If SFTU really wants to help renters they should be working to make apartment building development easier / cheaper.

  13. “If SFTU really wants to help renters they should be working to make apartment building development easier / cheaper.”
    And yet they do the exact opposite with regularity. Go figure…

  14. I guess apart from halving the number of condo conversions over the next 12 years, the price of sftu approval, and releasing a whole bunch of people from fractional TIC loan hell it might even make it clear in future that TICs are condo-alternatives, not a discounted route to condo ownership, which could make it easier to price & buy/sell them and actually increase the market. But what a mess, thanks rent ordinance.

  15. Re: unintended consequences, this does seem like it would eliminate the ability that tenants have to extract costly buyouts from owners. Now that condo conversion would be gone as a prospect for newly purchased property, they would receive their $5k and an eviction notice. This would be for Ellis’d locations and those that are simply OMI’d. If you are a long-term tenant paying below market rate in a 3 to 6 unit building, you will no longer be able to ‘monetize’ your rights.

  16. “If SFTU really wants to help renters they should be working to make apartment building development easier / cheaper.”
    Good luck with that. Other than some finishes, new construction costs for apartments are nearly the same as condominiums. It wouldn’t help anyway, as all apartment buildings constructed after 1979 are exempt from rent control.

  17. 1) Finish makes a big difference
    2) Many costs are due to legislation, such as affordable housing payments, and other development fees, SFTU could (theoretically) try to reduce these costs for apartment buildings.
    3) There are generally additional detail elements that are expected in condos, but not apartments. These elements add costs to condo developments
    4) Rent control is irrelevant, I didn’t say they should do it if they want to strengthen rent control, I said if they want to help renters.
    Now I know that SFTU isn’t going to actually try and do any of these things, so no need to point out it’s not going to happen.

  18. I don’t see how the lifetime lease clause is legal–If my TIC was once my primary residence and then I moved out and started renting it, I could NEVER move back into myself once I condo-converted thru the bypass? That seems crazy to me.

  19. @C
    They can still be evicted under the usual rules of rent control vs if its a normal condo conversion, they only receive a one year lease.

  20. lifetime leases are legal, and it wouldn’t be a legal issue here, as it would just be part of the coversion.
    In my opinion the lifetime lease portion is of very little importance, it already exists for tenants 62 and older, and anybody under rent-control practically has a lifetime lease.
    Since it’s already effectively impossible to condo convert, it just protects the few tenants living in TIC units from losing their rent controlled status under the easier conversion rules.

  21. They are not easier condo conversion rules. They are drastically more restrictive. All this does is clean out the pipeline for those who’ve been waiting for years, while making it much more difficult for anyone who wants to buy affordable housing in the future.

  22. @wc1, I thought that the lifetime lease requirement didn’t allow for ANY evictions at all, even if owner wanted to move back in, or property was sold to an owner/user who wanted to move in?

  23. @Steve
    For everybody who currently wants to do a conversion it is far easier. Instead of waiting 10-20 years, you simply pay a fee. There’s certainly additional restrictions going forward, but far easier for all currently planning a conversion.
    I think wc1 is describing the current scenario, not the case if this change passes.

  24. A small flat fee for quick conversion seems sort of a gift to the select few who own tics. How about a fee that could be more in line with the discount they got for buying a tic? Maybe 10% of appraised value of each unit. Why are we changing the rules so a few can profit over those who chose not to buy a tic because we knew the rules?

  25. I’m troubled by the amendment that says any legal challenge filed suspends all conversions including those in progress until the matters are settled. I suspect it was included to protect the lifetime leases, but seems like it could be used to stall all conversions indefinitely.

  26. Steve said: “I’m no lawyer, but taken as a whole, I don’t see how San Francisco’s restrictions on housing property are constitutional (especially things like the idea that three people can’t buy a three-unit building and move into it for their own housing purposes…”
    Yes you’re not one Steve
    ever hear of Democracy Steve
    People voted in 79 that they are Apts
    Build your own TlC Steve
    As people built these as Apts

  27. So if you take the bypass and have 1 unit tenant occupied, what is stopping the owner from using the Ellis Act to evict the tenant after their unit is converted to a condo? The Ellis Act is a state law and this bypass legislation is only a city ordinance. State law always rules.

  28. My 6 unit building was going to finally be able to re-enter the lottery this 2014. We were in the lottery in 2011, to no avail, but then fell out when one of our owner-occupiers was foreclosed on in 2011 because of personal/financial hard times, and we had to start over with a new third owner-occupier in meeting the residency requirement. So, we’ve now qualified for the Lottery twice (as of what would have been the 2014 lottery) — only to be told that we can’t participate in the Bypass or the Lottery ever. We’ve had the perfectly balanced 3 owner occupied and 3 tenant occupied building since 2007. How is it that the City can now throw us under the bus and take away a right we had when we purchased the building in 2005? These Amendments have gone too far!

  29. So questions:
    (1) What is the timing (public comment hearings and voting) of this legislation: In Land Use Committee? Before the Board of Supervisors?
    (2) For what years exactly will the 6 year lottery bypass program be in effect, ie is the 6 year clock considered to start in 2012, 2013 or in whichever year it is enacted (if later than 2013)?
    (3) What will the bypass fees be for TICs that didn’t participate in the 2012 or 2013 lotteries but are able to meet existing owner occupancy requirements in years 3-6 of the bypass program?

  30. Liz: “So, we’ve now qualified for the Lottery twice (as of what would have been the 2014 lottery) — only to be told that we can’t participate in the Bypass or the Lottery ever.”
    Actually Liz, it appears from the following paragraph of the summary provided by Plan C, that your building would be able to pay the fee and be able to convert in 2017:
    “In years 3-6 of the program, buildings that did not participate in the 2012 or 2013 lotteries but meet existing owner occupancy requirements (1 owner in a 3-4 unit building, 3 owners in a 5-6 unit building) will be able to condo convert upon six years of owner occupancy.”
    From the info you provided, your building at a minimum, met the owner occupied requirement again as of 2011, so you would need to keep it 1/2 owner occupied for six years (2017) and then you would meet the requirement of having been owner occupied for six years.

  31. Thanks Rillion. I appreciate your feedback. I’m getting the facts and rules straight, but I’m now troubled by the 3 year occupancy requirement becoming 6; if 1 of our 3 owner-occupiers in our 6 unit building dare leave our building (which is a distinct possibility with, among other things, legislation like this looming) — say in late 2013, after the legislation and its amendments are enacted, and none of our tenants are able to buy in to shore up our occupancy standing, then we’ll have to start all over on the bypass’s 6 year requirement — which we likely won’t be able to satisfy before the 6 year expiration of the bypass program; and, then there will be no lottery for 16 years, and even after 16 years, no lottery for 6 unit buildings. I cannot imagine that the City can lawfully change the rules that we have been operating under since we bought our building in 2005.
    I learned today from Plan C that the Amendments will likely be taken up, and subject to public comment, on 4/29, before the Land Use Committee, and if adopted, could come before the Board of Supervisors as soon as 5/7.
    At this point, I am for adoption of the Wiener/Farrel Condo Lottery Bypass Legislation as originally introduced, but rejection of the Amendments as of 4/15/13. If the Supervisors want to adopt the Bypass, so be it, but they should otherwise leave the Lottery in place as it is.

  32. Hmm, really does seem like a gamble either way for you Liz. If nothing changes and you enter the lottery in 2014, it is likely to be a very long time until you actually ‘win’ and during that time you could lose your eligibility again like you did between the 2011/2012 lotteries. So even under these amendments you could end up better off with at least a date certain by which you will be able to convert, but also with a likely hefty fee. Either way, good luck and hopefully something passes that can help you out.

  33. I would recommend that if you are concerned about one of the other owner occupants leaving that you try very hard to convince one of the tenants to buy their unit. It sounds like it would be worth it to give them some favorable terms, and even finance part of the down-payment if needed. I would point out to them that if the conversion goes through they would stand to make some nice upside on the deal.

  34. “I cannot imagine that the City can lawfully change the rules that we have been operating under since we bought our building in 2005.”
    the city can do what they want, its up to you to call them on any laws you think infringe on your constitutional rights. but you better bring the big checkbook.

  35. What does a suspension of lottery for 10 years mean? Does it mean that people who have participated (us for 6 years now) will be required to bypass, or will a free lottery still exist for us?

  36. This sucks for people close to converting. I’ve been in the lottery for 8 years, and am guaranteed to win in 2015. This means the city gets an extra $4000 from me. I would rather be patient and just wait the 20 months. I’m not selling, home price matters little to me. If me and my building don’t pay this $4000 then my building can’t convert for another 10-12 years when the lottery comes back.

  37. I’ve heard the Amendments state something to the effect that if the legislation is challenged in court, then the bypass is stayed until the legal issues are resolved. If in fact that is the case, then questions: do tenants still have lifetime leases?; and, is the lottery still suspended? Of course the legislation is going to be challenged, and challenged promptly — that is a given! So……….what is anyone really getting by the bypass?

  38. SPOSF just announced that the Land Use Committee will meet to discuss and possibly approve the Condo Lottery Bypass Ordinance beginning at 1:30 pm in Room 263 of City Hall THIS MONDAY, 4/22. Supervisors Chiu, Wiener and Kim, as well as Farrell, will be present.

  39. This thing is going to be a total clusterfuck if passed. Tenant lawyers drafted it precisely to stall condo conversions, as of course it will be challenged legally by someone. And I’m willing to bet that no, the lottery won’t continue as a default. This kind of crap legislation is always a lawyers love fest. Beware!

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