Try explaining a tenancy-in-common to anyone outside of San Francisco and you’ll get a giant “WTF?” in response. Why on earth, they ask, would anyone jointly buy a building with other people (who may or may not be strangers), go on the same title and the same mortgage (in some cases), and cross their fingers that they’ll be selected sometime before the next millennium to convert the building to condominiums?
Because for some people, it’s their only shot at home ownership in San Francisco.
TICs have historically been less expensive than condos, letting many first-time buyers get their foot on the equity ladder. In exchange for the lower price, though, these buyers took on more risk than if they had bought a condo.
The TIC landscape has changed dramatically in the last few years, mainly because of financing. First, the good change: several local boutique banks began offering fractional financing, which eliminated the risk of financial ruin for the group if one party defaulted. But those same loans are now the potential bad news: all but one of the banks have left the fractional market, leaving Sterling Bank as the last provider of the specialty product.
Because the first fractional loans were closed about five years ago, many with interest rates fixed for — you guessed it — five years, many TIC owners are about to be faced with substantially higher monthly mortgage payments. Refinancing is likely to be difficult if not impossible because of the drop in property values and the lack of financing options.
Part two of the drama of owning a TIC in a 3-6 unit building is the condo conversion lottery. The city has a rather draconian limit of 200 units per year that are allowed to convert (two-unit, owner-occupied buildings can bypass the lottery and start the process after one year). The stats for this year: 2,309 units entered, and yep, 200 were picked.
Last year, in an effort to plug San Francisco’s gaping budget hole, former Mayor Gavin Newsom proposed allowing all entrants in the lottery to pay a substantially higher set of fees to the city in exchange for the right to get out of the lottery and start the conversion process. No way, said the supervisors. Newly sworn in Supervisor Scott Weiner, who represents District 8, has proposed the same thing this year but apparently the Supes still aren’t game.
So, the TIC time bomb continues ticking.