TIC Talk: A Major Change For San Francisco's Tenacy-In-Common Units

The Bay Area's version of cooperative apartment buildings are a conundrum for apartment shoppers. A new ordinance may have made things slightly easier – for now.

A Tale Of Two Units

Photo by: Zillow This 2 bedroom, 2 bathroom TIC, with 1000 square feet, is listed at $499K. 

When shopping for an apartment in San Francisco, you may come across units that seem oddly less expensive than others in the market. A closer look tells you that these are "tenancy-in-common" units, or TICs. And a new city ordinance may affect whether you're willing to consider buying one.

TICs differ from condos in one basic way: In condos, you buy your unit, even though it's within a larger structure; you pay homeowner fees for the upkeep of the building, but other than living cheek-by-jowl, your fortunes don't turn on your neighbors' decisions. In a TIC, you buy a percentage of the building as a whole; essentially, you're a stakeholder in one large investment, which is your building.

Your unit might be in tip-top shape, but a problem elsewhere in the building can affect the value of your apartment. And you run the building like a corporation, with regular meetings to figure out how to clean common areas, when to redo the roof, and so on. The biggest problem with TICs, though, is getting a loan: Banks are baffled by them. It's more difficult to get a loan or to refinance a loan, which has left many TIC buyers in a bit of a tight spot lately.

Many disclosures will mention that a unit has "no Ellis Act or OMI." This refers to two kinds of tenant evictions: OMI stands for Owner Move-In (which is what it sounds like), and an Ellis Act eviction is a complicated procedure in which the landlord evicts all the tenants in a building and takes their units off the market. Why anyone would do this is beyond me – the act is really only invoked when a landlord wants to convert from a TIC to a condo. If either of these actions has been taken in a building, there are severe restrictions about whether or how any units can be re-rented, and it makes it even more difficult to get a mortgage. So a TIC with neither of these black spots on its record is more desirable.

A Comparable Condo

Photo by: Zillow This unit has the same number of bedrooms and bathrooms, and just 23 more square feet, but is listed at $685K. The difference? It's already a condo. 

Are you still with me? I know. San Francisco plus real estate equals a steep learning curve. Now here's the new news.

The real-estate cognoscenti have been abuzz for the past few months over a proposed change to the rules governing conversions from TICs to condos. The way it has been historically, TICs who want to convert apply for a lottery each year; 200 lucky winners are allowed to convert to condos. One website laid odds on winning this lottery from 1 to 9 percent. The backlog has been significant: there are now about 2,200 buildings that have entered and lost the lottery and are still hoping to someday become condos. (Doesn't it all sound so Pinocchio, wishing to be a real boy?)

The situation for some of these owners is dire: Because they secured loans at the top of the market and can't refinance, they're facing ballooning rates and the very real threat of losing their investment. On the other hand, tenant's rights advocates (a powerful force in San Francisco) worry that if TICs become too easy to convert, people will buy them and evict tenants in droves so they can move in, an expensive process that's nonetheless quite common among people with no conscience. (Believe me, trying to buy real estate in SF can really bring out your dark side.)

So: Two local politicians sponsored legislation that would allow all the TICs currently in the system – any building that has applied for a conversion and been rejected – to have the opportunity to pay a $20,000 fee (put into an affordable-housing fund) to bypass the lottery and go straight to condo conversion.

The debate was so fierce, the politicians who originally sponsored the bill ended up opposing it because of how it was rewritten. But in the end, the measure passed, so a TIC is no longer such a dubious option. Clearing the backlog is still expected to take about seven years, but for now, being a homeowner in San Francisco has become ever so slightly simpler.

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