Tag Archives: TIC

We Never Said Playing The (Condo) Lottery Would Produce A Win

2010 Condo Lottery: Previous participation may not yield additional tickets

Dear Plan C Member,

Ticket sales for the 2010 Condo Conversion Lottery have been announced by the city and will begin on Monday, November 23rd (additional information can be found here).

As you may be aware, it has been the practice of the City to issue additional tickets to buildings that can substantiate unsuccessful past participation. Specifically, the rules and instructions issued by the City’s Department of Public Works (“DPW”) for the 2009 lottery (ORDER NUMBER 177,881) stated, “Multiple tickets for any building will be sold based on the current 2009 lottery and proof provided for each year of past unsuccessful participation; that is one (1) ticket for the 2009 lottery, one (1) ticket for unsuccessful participation for any and all of the lotteries during the 1990-1994 period, and one (1) ticket for each year of unsuccessful participation in the 1995-2008 period.”

Recently we learned that the City may be denying additional lottery tickets to buildings that qualify with the minimum qualifications (summarized generally as: one owner-occupied unit for each of the last three years in 2-4 unit buildings, and three owner-occupied units for each of the last three years in 5-6 unit buildings). Historically, lottery priority and the issuance of additional tickets have required that one of the qualifying owner-occupants has been an owner (but not necessarily an occupant) during each of the previous lottery losses. The change for the last couple of years and for 2010 is that DPW appears to have a new interpretation of written law. To establish priority credit (additional tickets), DPW is requiring that each of the qualifying owner-occupants be the same original owner occupants that were unsuccessful in past lotteries.

Simply put, your building might qualify for the 2010 lottery and receive one ticket, but unlike in years past, may not be entitled to additional tickets based upon unsuccessful previous lottery participation.

We are reaching out the membership of Plan C to see if there are other TIC groups where this situation is likely to have an impact. If you’re facing the same issue, or would face this issue if one of your fellow TIC co-owners were to sell their interest, let us know and we will put you in contact with other similarly situated people. Send us an e-mail at, info@plancsf.org.

Collective action by affected TIC groups (including possible litigation) is more likely to succeed than individual efforts.”

-DPW Condo Lottery Information Page

Ask Us: Do We Have To Use Bank Of Marin?

Where readers ask and we (the community) try to answer:

Hi!

My husband and I are considering purchasing a TIC unit in the Marina. The owners currently have fractional loans through the Bank of Marin. If we did purchase, would we be locked in to their loan rate/term or could we negotiate? Could we work with lenders other than Bank of Marin? We have excellent credit and could put down 50%+ so we’re
hoping we could get a good rate.

Many thanks for any comments!

Our follow up email:

My first question, if you can put 50% down, why not just look for a condo? How many units in the building? Which real estate agent are you working with? The final, are you okay with me posting your question to the site to get multiple answers?

Thanks for reading theFrontSteps and thanks so much for you email.

I’m not a fan of TICs, but I’m willing to hear you out. ;-)

The reply:

Thanks! Yes, fine to post it if the focus of the answers will be on
financing and not whether or not to buy a TIC – we already know the
pros/cons.

We are currently in a condo and are considering condos as well but this unit’s price is much lower than comparable condos (we’ve been looking casually in the Marina for over a year now) the location is perfect (on bedrock, quiet part of the Marina). We’ve researched TICs and are willing to take the risk if we can get a good financing package. So our question isn’t whether or not to buy a TIC, it’s whether or not we have to work with the current lender (Bank of Marin) and also what typical financing for TICs looks like (the current owners have a fixed rate for 10 years and then a balloon payment).

Thanks!

You’re welcome. Anyone care to elaborate?

Ask Us: Remaining TIC Fractional Lenders

Where the readers ask and we (the community) try to answer:

Hi, just come across your site, very informative.

I’m trying to find TIC Fractional Lenders for a 3 unit + 1 unwarranted [unit] building in SF. We purchased it last October, have completed our renovations, 2 units will be owner occupied. We’re planning to go to Andy Sirkin to draw up a TIC agreement, and refinance hopefully with cash out. We now have a group loan @ 6.75%, no pre-pay penalty.

I heard Bank of Marin is out of the TIC market. How about Sterling and Circle, any other lenders available? Appreciate any info and recommendation. Thanks!

Best,
M

Thanks for your email and question. At this time we only know of Sterling Bank, and Ron Whitney at Zephyr real estate says that a “7×7 Group” also does Fractional TIC loans. Maybe the readers can provide further insight. Regardless, good luck and thanks for reading theFrontSteps.

TIC? Got Cash? To The Front Of The Line Please…

Good news on a Monday morning:

-Waiting to go condo is San Francisco’s version of waiting for Godot [seeing that phrase a lot lately...good on ya Malcolm.]

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.

-A proposal to expedite condo conversion would require approval by either the supervisors or the voters – no easy task in a city where housing issues are famously contentious. Tenant advocates say the practice hurts renters who get evicted when buildings convert to tenancies in common, the step before going condo. Previous proposals for increased condo conversions have failed miserably.

-”It’s a win-win if the fee is not too high,” [says one TIC owner]. “The city also will make more money when property taxes go up, when they reassess the units (as condos rather than TICs).”

On the other hand, TIC owner Daniele Mills, an administrative assistant at Genentech, said she thinks the proposal doesn’t seem democratic.

“It has a lot of repercussions for people with less income than other people,” she said. “The lottery seems more fair.”

Nothing in life is fair. It’s kinda like going to a club and tipping the doorman to get in, skip the line, and party on, instead of losing your buzz waiting in line.

Proposal: Pay fee, skip condo-conversion line [SFGate]

One Partner In A TIC Defaults, The Other Paid Cash: What Happens

Pulled from the intertubes:

“Does anyone have experience with a client who bought into a 2 unit TIC and paid all cash and the partner had a loan? In particular, what type of legal protection did they get in case of loan default by the mortgaged TIC partner.

Answers

=========================

It should be covered under the TIC agreement, allowing one partner to force a sale in the case of default.

=========================

I have no experience with this exactly but have been through quite a bit on the TIC front.

My thoughts are as follows:

If the loan is fractional and the all cash buyer’s name is not on it .. then, of course, there is no liability. The buyer becomes a co-tenant with the bank.

If the all cash buyer is on the loan then his/her credit will get slammed .. and a foreclosure would be on the whole property (including their interest). That is why the TIC agreement enables the all cash buyer to use reserve fund to pay the mortgage, then foreclose on the co-tenant and sell the interest. The bank may or may not allow them to assume the loan during this bridge period .. the bank may (perhaps) not find out for a while.

Again, this is my opinion .. no experience in the matter and I have, no doubt missed a few things.

=========================

There would have to be a default fund, which is usually 6 months worth of payments. The TIC agreement by Sirkin has that built in as well as remedy for default by a partner.

=========================

I sold a 2unit bldg recently where there was a big discrepancy in the loan amounts for each partner, maybe the situation is analogous to yours, and I think the TIC agreement itself (Sirkin) spelled out that any default on the loan payments by one partner which might jeopardize the bldg or put at risk of foreclosure, etc., triggers a sequence of options including buy-out, forced sale, etc, which protects the other partner. I think those protections would apply even if the all-cash partner was not on the loan at all.”

Ask Us: Can Condo Conversion Save You From Rent Control?

Where readers ask and we (the community) try to answer:

This is a doozy of a question, so put your game faces on:

Hi there,

Being fairly new at the SF real estate/landlording game, I am still discovering the fascinating mine field of Rent Control laws through the numerous websites on the subject.
At least FrontSteps.com somehow manages to make it entertaining. Maybe you can help me with a few beginner questions here.

Here is my situation :
I plan to buy a 2 unit home (both vacant) with a friend as a TIC in SF and subject to Rent Control. After occupying one unit each for a year, we hope to by-pass the lottery and go for condo conversion to own one each. Does this sound like a reasonable plan?

Question 1: During the 2-3 following years needed to complete the conversion, do both of us still need to occupy the units or can we rent one or both?

Question 2: Once converted, is it true that if we rent (to brand new tenants) we will still suffer from Rent Control (because we are the subdivisers) ?

Question 3: If so, why does everybody want to condo-convert? Is it only to make a 10-15% profit by selling the condo just after? Isn’t it to enjoy renting the place free of RC at all?
(I understand that another benefit is to get separate ownerships instead of the TIC).

Question 4: Assuming the answer to 2) is yes, is there any loophole? For instance if I live in my condo and I buy the second condo from my friend, then maybe I can rent this one exempt of RC?

question 5: If I live in the unit and rent 1 room, is it still under Rent Control?

Thanks for your help.

Let’s see what replies we can get from the readers in the comments below, and we’ll fill in the blanks just as soon as we can. It sure would be nice if David Gellman or Andy Sirkin would provide some insight (and maybe win a client as a result).

Thanks for reading and thanks for this lovely little quote, “At least FrontSteps.com somehow manages to make it entertaining.” We aim to please, and entertain, so we have to ask, “Have you nominated your sexiest Realtor today?”

Rates Rising For TIC Loans

For those that aren’t quite aware, there is this great little invention called email that allows you to send questions, comments, topics directly to us. The email is thefrontsteps@gmail.com. Go ahead, give it a try. ;-)

From “Noe Guy“:

This is so way off topic, that I sincerely apologize in advance, but we had a thread last week regarding TICs and whether or not they were more risky. Fluj said that banks like Sterling were doing quite well with fractional loans, so I wanted to point out an article in [11/12/2008] WSJ:

Sterling Bank & Trust FSB recently raised its rate for TIC loans to 7.75% — a loan for a similarly priced condo would require only 6% to 6.25% interest — and now requires a down payment of at least 20% of the purchase price. Other banks are now requiring 30% down. In the past, lenders required buyers to put 10% down.

Residential TIC loans “are definitely more risky,” says Richard Yurich, a loan officer at Sterling Bank. “Once we make the loan it’s ours; nobody wants to buy them.” His bank raised rates and requires more money down to protect itself from a bad investment, he says.

There is another catch: There are no fixed-rate loans for TICs, meaning that buyers are forced to accept new terms after three to five years. This wasn’t a holdup when property values were increasing and mortgage rates were trending down, says Glenn Rodriguez, a mortgage broker. “That’s where we’ve lost a lot of the buyers over the last couple of months,” he says. “People are worried.

Just sayin’.

You are forgiven for “just sayin’”, because we can’t even find that thread you were talking about (truth be told, we didn’t look that hard), but thanks for sharing and thanks for reading!

If you care to send the link to the article, we’d be happy to pass it along.
[Update: Damn, that was fast...Residential-TIC Tack Hits Snags-WSJ.]

Vultures, Commence Your Circling

 

Well, all, few and far between are homes we can look at and positively say: That’d be a good investment. Yet here is one, that frankly, given the size and location, has to be just that. The downside– yes, sorry, these days there simply has to be one- is that this could be a lonnnnng term investment indeed. It could also bring out the evil in a person that he or she didn’t even know existed; but the latter, I suspect, is often the result of becoming a landlord in this city.

Welcome to 1847 Stockton, 2/1 TIC on Telegraph Hill, listed at just $250K. At issue is the tenant currently occupying the property. This tenant is “protected,” and “is not moving.” Now, if we know our tenant/landlord laws in SF as well as we should, we know protected tenants are either:

  • Ill, too ill to move, or that moving may make them worse
  • Disabled: Again, the burden and expense of moving has been deemed unacceptable to these persons
  • Elderly: Same logic as above, given the large number of very fixed incomes allotted to those no longer working
  • Long term resident: 10 years or more in the residency= you cannot get rid of this person legally.

Andy Sirkin, oft credited as the pre-eminent font of knowledge on all things eviction and TIC related (which incidentally, this property is both) puts it this way:

Protected Tenants: Certain tenants are “protected” and cannot be evicted for owner-occupancy except in very limited circumstances. Protected tenants are those 60 or over or disabled who have occupied for 10 years, and those catastrophically ill who have occupied for 5 years. Also remember that no tenant with an unexpired lease can be evicted, and that tenants who occupy a unit during conversion to a condominium are entitled to remain for one year after conversion, or for life if they are over 62 or disabled.

We have no way of telling from this listing alone what group this tenant belongs too, but it could easily be any of the above, including the long term residency, since the current rent being collected on a 2 unit in North Beach several years beyond what this tenant pays: $795 a month. (Um, no wonder the tenant is “not moving!”)

So how then is this a good investment? Well, I already said: It’s a 2 bedroom TIC in a highly desirable area, also in a building that looks well cared for. We don’t know how the unit itself looks (no pics: bad sign), but we can find out by attending the open house on 11/22 or 12/6 from 9am to 10am. In fact, if anyone goes, email some details to The Frontsteps as I’d love to do a follow-up. And hey: if we find the tenant to be ill or elderly, maybe we can project that lifespan he or she has left and plan our investment accordingly. Or, perhaps if you know a good hit man? Ha, ha. Calm down, people! Of course, I’m kidding; but you can see how the tenancy laws might bring out the worst in landlords, or landlords to be.

In any case, this property does offer some potential if you can wait it out. The rent collected now won’t cover the mortgage, so it’s a good bet for someone who can pay cash for the whole shebang. And, kismet: The listing says “all cash sale.” That means then in 333 months (27 years) or so, you’d have your principal investment back and could commence profiting. Or, you get lucky, and the tenant would …disappear first.

Reduction, Ad Nauseum

I’m not a Realtor, so I’ll tell something I’m more qualified to comment on: buyers’ perspectives. For instance, I can tell you how buyers looks at a property that’s been reduced more than twice. We feel sorry for them. They’re like awkward teenage boys at their first dance, pretending to be terribly busy with their shoe laces to avoid eye contact. We all know these boys can’t really be too picky; they have to take what they can get.

This analogy might not totally work for reduced priced properties. I’m just saying that as a buyer, we tend to feel a lot more powerful when we notice a home’s asking has come down not once, but twice– a feeling that multiplies with each subsequent reduction. That’s why, as a seller, I’d really hope my agent were savvy enough to price my home right. Of course, we can’t, unless we are Dione Warwick, know what the future holds, and some of the current meltdown has caught us by surprise. Still, the writing’s been on the wall awhile. Most literate people, I’d think, would have read it.

Case in point the next three properties, whose reduction history goes from bad to worse.

1. Studio TIC at 1059 Leavenworth St #5 San Francisco, CA 94109. Current price: $325,000. In over 120 days on the market, the list price has come down thrice:

Jul 02, 2008 $399,000
Jul 03, 2008 $329,000
Sep 09, 2008 $325,000 

2. 532 Clipper St #B San Francisco, CA 94114, currently at $539,000 is a 2 bed/1 bath TIC flat. In over 170 days on the market, it’s suffered 5 reductions, each one not very big, but the conglomeration of so many price cuts is pretty damning:

May 14, 2008 $679,000
Jun 11, 2008 $659,000
Aug 13, 2008 $639,000
Aug 28, 2008 $599,000
Sep 25, 2008 $570,000
Oct 28, 2008 $539,000

3. 3630 22nd St., San Francisco, CA.  A 2bed/1bath detached cottage TIC, this one I’ve saved for “worst” because though it has not been cut as often as the above property, the overall slash down is quite dramatic. In over 100 days on the market:

Jul 18, 2008 $749,000
Sep 05, 2008 $649,000
Oct 06, 2008 $589,000
Oct 29, 2008 $499,000

In this last case, the current price seems a lot more fair. I went to the open house yesterday and the listing agent informed me the place needed about $250K in repair and pest control. I have to wonder who would have ever, ever, ever paid the original list price.

I also wonder what other SF real estate agents or buyers or sellers think of these reductions overall, so I’m serving this blog up on the Front Steps for commentary. Take it easy on those awkward teen age boys though. Everyone, and everything, is fragile right now.