Tag: Condominiums

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TICs, San Francisco’s Involuntary Reflex: Part 2 — The Data

There are weeks when I look through the new listings on the MLS (Multiple Listing Service) and it seems like there are more TICs for sale than condominiums.  Turns out, this just isn’t true.  Here’s a chart showing relative sales volumes since 2003 (click to enlarge).

Units Sold By Month
Look at that!  Excluding those wonderfully regular dips every Xmas, condo sales are generally at around 200 units per month.  TICs rarely break 40.

Here’s how TIC and condo median prices stack up against each other on a monthly basis.

Condo vs TICs Median Prices By Month
Dueling spaghetti you say?  That was my reaction, too.  The huge variability in prices from month to month on the TIC line is a direct result of the paucity of sales.  And this chart certainly doesn’t help get at the key question, which is this:

Given that TICs are riskier and less flexible than condos, what’s the premium that you pay for buying a condo vs.  a TIC?

In fact many TIC buyers do so with the hope of being able to realize this “premium” by converting their TICs into condos down the road.  Fat chance unless you’re buying a TIC in a two unit building which — for now at least — remain exempt from San Francisco’s byzantine annual lottery system.

Luckily, I have a bona fide statistician mathematical genius phd for a wife, and she always lends a hand on methodology when I need it.  She suggested that where one set of data (condos) is so much larger than another, using averages provides a more reliable “apples to apples” comparison than medians.   Also, with so few monthly TIC sales, I decided to look at annual rather than monthly trends.

Here’s attempt number two.

Condos vs. Tics Annual Average Sales Prices

Much more useful!  (By the way, the fact that TICs were more expensive than condos in 2003 and 2004 can be explained by a few massively (in excess of $8 million) expensive TIC sales in those years.  This is a great example of how using medians or averages can really affect the results.)

So, can we drill down further and come up with a condo premium per square foot? Stay tuned….

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TICs, San Francisco’s Involuntary Reflex: Part 1

Inconvenient and Ugly

A tic is an involuntary and habitual muscle spasm, frequently in the face.  If you live in San Francisco, a TIC is also what many people end up with when they buy a flat in one of San Francisco’s classic 2-4 unit buildings.  Like the medical condition, TICs are inconvenient at best and can be downright ugly at worst.

TIC stands for “Tenancy-In-Common,” a form of legal title by which multiple owners take title to a single property.  In San Francisco, this form of taking title has come to be used as an end-run around the City’s restrictions against converting multi-tenant buildings into condominiums.

When you buy a condominium, you’re basically buying your particular unit and that’s all. But when you buy a TIC interest, you’re buying an interest in the building as a whole, along with your other TIC owners.

Lawyering Has Its Limits

Why does it matter?  Because buying a roof over your head is expensive.  Most of us need to borrow money to do it.  And the major disadvantages of TICs over condominium ownership relate to financing issues.

  • When you buy a condo, you get a loan on your unit and that’s all.  If you don’t pay your loan and the bank forecloses, they have the right to sell your condo to get repaid, but they don’t have the right to sell the building the condo is in.
  • But when you buy a TIC, in the vast majority of cases you and your co-owners become co-signers on a loan for the entire building.  You qualify for the loan together and you are “on the hook” together for repaying it.  If one of the co-owners stops paying his share of the loan and the others don’t feel inclined to make up the difference, the bank has the right to sell the entire property at a foreclosure sale.  That itself would be enough to give many prospective buyers a twitch or two.
  • There are a few banks that will finance separate TIC interests.  This pretty much puts the TIC on a par with a condo.  But interest rates are higher than on a regular condominium loan; and the building itself needs to “qualify” for the program.  Also, although these kinds of loans have been around for a while and seem to have survived the credit crunch, there’s no guarantee that they’ll continue to be around.
  • Selling a TIC interest can also be more difficult than selling a condo. If the lender doesn’t permit the buyer to take the seller’s place as a co-signer on the loan, the owners may be forced to take out a new loan to accommodate the new buyer.  If the lending environment isn’t good, that can kill the sale.  Or the bank can use the sale to try to extract better terms for itself.

It’s true that clever lawyers – and I say that without any irony – have developed legal structures to mitigate these risks.  Andy Sirkin and Andrew Zacks are two prominent attorneys who specialize in this stuff.  (See their websites for excellent in-depth material on TICs.) But TICs remain inherently riskier and more complicated than condominiums, and no amount of legal engineering can fix that.

Tomorrow we look at the market data for TICS and condos.