Just when you thought you had the condo conversion lottery system figured out, SF lawmakers throw it all into disarray 

As you may have seen, the radically altered tenants-in-common conversion legislation passed the SF Board of Supervisors this week. There are MAJOR changes to the condo conversion law which has implications for anyone owning a non 2-unit owner-occupid bypass building. It may mean tenants could get Lifetime Leases and it could mean owners of 5- and 6-unit buildings will no longer be able to convert their properties into condo units and would be therefore more inclined to evict tenants using the Ellis Act with proscribed relocation fees rather than pursue  the more typical tenant buyout of $40,000+

Itching for Seven Years No More

It’s not all bad for owners, as they now have certainty as to when their units may convert into condos because the 200 building annual cap on the number of buildings that could convert is no longer in effect until the lottery returns anywhere from 10–12 years from now. In Lottery’s place will be a set seven-year schedule for buildings that were already in, eligible for or ones that had TIC agreements in place and where 1/2 of the total units were in escrow this year — the final date of which will be determined — will convert according to that schedule with no cap on the number that can convert. The tenants in those units will be offered LIFETIME leases for their units (that will probably extend to a significant other or long-term roommate there if both are elderly) that will be subject to rent control and, even if the law changes, will be creatures of contract law and therefore unbreakable. A tenant, of course, is still obligated to pay rent and cannot otherwise violate terms of their lease, but only the tenant can decide to terminate the lease but for their own breach of the lease.   Confusing eh? More details are to be determined but other noteworthy items include: a new $20,000 fee per unit will be tacked on the overall conversion costs; speaking of tacking, owners who sell to other owner-occupiers who move in to the unit within 3 months of the previous owner leaving will be allowed to tack their ownership years together to meet owner occupancy time minimums; did I mention that there can only be one three-month gap per building? How anyone is going to enforce this provision and sort out lifetime lease terms with tenants on and off leases will keep lawyers busy for some time to come. Andy Sirkin, the father of TIC use in San Francisco said that the legislation is confusing, complicated but good for his business as it will be for other lawyers versed in this area of the law in San Francisco.

Won’t Someone Stop this Please?

Last note: speaking of lawyers, the drafters of the legislation garnered enough votes to make the bill supposedly veto-proof. And if someone files a lawsuit (any number of parties could) then there’s a ‘poison pill’ that would SUSPEND nearly all conversions during the entire duration of litigation. Ouch. Yours truly spoke with Andy Sirkin about this after he briefed us at Vanguard and I will be meeting with his former legal partner Lyssa Paul early next week to work on synthesizing guidance to this latest San Francisco treat!

Read more about the TIC Reforms from Andy Sirkin here.

Read more about Lyssa Paul here.

To attempt to decipher the law, be baffled here.

A run-down stretch of one- and two-story retail buildings on the 900 block of Market Street is set to be redeveloped as an arts and education center, with retail and more than 200 housing units.

San Francisco-based Group I, which is currently revamping the historic Warfield office building on the same block, has purchased the property from Loan Star Fund, which foreclosed on the property after a former owner defaulted. The price was not disclosed.

An early rendering of what the 950 Market St. arts complex might look like:

via Developer tapped for key Mid-Market arts and housing complex – San Francisco Business Times.

Here’s the scoop on 200 Dolores
As provided to me by the listing agent for the property Anne Herrera of Sotheby’s – Thanks Anne!

This project has been in the works for quite some time. Each will come 1 car garage parking. They will be “gorgeous with exceptional finishes.”
Anne anticipates list prices at approximately $1000 per square foot, subject to a final discussion with the developer — Often times prices in new developments will depending on supply and demand.

Anne expects completion of the project at the beginning to middle of June.

Anne suggests people check out the project’s website for up to date information.

Floor plans available next week.

One – 1 bedroom, 1 bath, approximately 650 square feet.

Two – 2 bedroom, 2 bath, approximately 1015 and 1120 square feet (lower and middle units in the Victorian).

Nine – 2 bedroom, 2.5 baths, approximately 1095-1530 square feet, some with private roof decks.

One – 3 bedroom, 3.5 baths, approximately 2200 square feet, (upper unit in the Victorian).

All square footage and list prices are approximate and subject to change.

Roughly 190 projects were authorized for development by San Francisco’s Planning Commission over the past eight years with a three year window within which to start construction or risk losing their entitlements to build. Of the 190 approved projects, only 85 have been built or are currently under construction.

Of the 105 approved projects that haven’t started construction, 15 projects have obtained permits but haven’t started contstruction while 55 projects have applied for permits but haven’t yet obtained them and 35 projects haven’t applied for permits at all.

via New Developments Archives at SocketSite™.

On Condos, the Lottery and Tenants In Common: The TIC System as We Know It… or, Knew It

SUPERVISORS TO DEBATE PROPOSED CHANGES THAT COULD FREEZE LOTTERY FOR 10 YEARS, GRANT LIFE-TIME LEASES AND ALLOW OTHERS TO CONVERT ON SET SCHEDULE

“Conditions subject to change” is almost a throw-away, boilerplate phrase you’re likely to see almost everywhere these days thanks to those pesky lawyers (sorry!). From airplane tickets to online shopping, you may suddenly find the ground beneath you changed in a blink of an eye. For those owning certain tenants-in-common home in San Francisco this may be the case come May 7, 2013. That’s when the Board of Supervisors for San Francisco is to vote on proposed changes to the City’s confounding TIC/Condo legislation. The current system is predicated upon the fact that condominium units are mostly exempt from stringent rent control laws while TIC units are not.

TIC 101: The ABCs of Rent Control and Why Condos are Valued More

Recall each and every condo unit will have its own legal title that is universally recognized by buyers and lenders alike; one unit = one title, multiple titles per building. Owners of a TIC unit however are buying a percentage of the entire building with a governing contract agreement defining which owner gets which space; one building = one title, no matter how many units. This applies to the more than 85% of residential buildings in the City originally occupied before 1979.

How It Works Practically

Let me discuss how it works. When you buy a TIC there’s only one legal title for the entire building. This is unlike a single-family home or condo where each unit has its own title. Instead, the reason why you live in Unit 1,2 or 3 is because of a contract agreement you buy when you purchase. You are purchasing a percentage of that single title. In SF people want to convert for two main reasons: (A) it brings the unit out of the rent controlled pool, and, (B) each unit would therefore gain its own individual title. Once that’s achieved, any bank will lend on it, the owner can do anything he or she wants like take an equity line of credit out, or will it to someone — whatever their heart’s desire. The important thing is that your potential buyer pool has now expanded. After all, only 2 banks currently lend on TIC purchases (Sterling and NCB) and their rates are higher (.075 – 1 percent) and down payments are higher (20% minimum, sometimes more), and financing is never fixed beyond 7 years. Because of the City’s pro-tenant bent and the desire to keep housing affordable, the city greatly restricts the numbers of buildings that can convert to 200 buildings a year. Currently, only 2-unit buildings that are occupied by different owners are allowed to skip over the condo lottery. Otherwise it’s the condo lottery. (Think you can skip over it just because you have 2 units but rent one out? Nope, even if you were a 2-unit building and rented out one unit, you’d still have to enter the lottery). One commentator estimates: if you bought in a 6-unit building that is otherwise condo-conversion eligible, it would be 2030 before you could convert.

To even get into the lottery owners have to meet requirements relating to how long an owner must live at a property before entering (three years) and what ratio there is between owner-occupied units vs. ones tenants rent and disqualifying past building evictions — even ones that may have taken place years ago between completely different people. The lottery takes place in January or February of a given year. Here’s a rough scenario for you:

• Let’s assume Bob, Mary and John buy in a 3-unit building in 2005, 2010, and 2012 respectively. They all owner-occupy (for 3-units you need just one owner, for 4 it’s 2, for 5 and 6 it’s 3). Here, because Bob first occupied in 2005, the building can enter the lottery in 2008.  They enter the condo lottery and they lose each year — 5 times they lose. But each time they loose, it means that their chances increase the next year because they get more tickets in the lottery and may be elevated into a luckier pool of lottery entrants. BUT, if Bob sells his unit then everyone else left takes a hit downwards in time. Therefore, the number of tickets and 3-year residency requirement is then judged by the next senior owner — Mary. Because Mary only bought in 2010, she hasn’t met the 3-year requirement yet for 2013, but she will in 2014. And when Mary does qualify the number of lottery tickets is reduced/reset back to year 1. Bye-bye special pool and 5 years of dashed hoopes. So instead of getting the number of tickets a 6th year entrant would, the building gets the 1st year allocation. 

Enter Scott’s Idea…

Let’s admit it: that system is complicated and leaves too much to chance, right? Well, to combat this weird-sense with some common sense, in late 2012 Supervisor Scott Wiener originally proposed a resolution that would allow a limited number of TIC owners to pay a fee to bypass the lottery. But this being San Francisco, the original idea has been drastically rewritten. Drastically so. The revised legislation passed the Land Use Committee and will be up for a Supervisor vote on May 7, 2013.

The salient points of what the changes are as of April 28, 2013:

• 5- and 6-unit buildings will be unable to convert after a 10 year freeze of the condo lottery;
• certain tenants in TICs may be given a life-time lease (yes, life time – not the channel, but the number of years); and,
• there will be a conversion schedule for buildings otherwise eligible for conversion as of April 15, 2013.

Whats does this mean? Well if you bought in a 6-unit or 5-unit building that would otherwise be eligible to convert into condos in the first place I’d be peeved. Really peeved. While those who bought in such buildings weren’t about to win soon, they still had the hope they could change one day. (Yes, I’ve heard stories of buildings winning way, way early, but for the most part don’t count on it). For 3- and 4-unit buildings it would be dicier if the legislation passes especially if the building is being occupied by all new owners starting after April 15, 2013. If the legislation passes (which it may well do) this could drastically impact prices downwards for new TICs coming online and for those buildings who did not meet owner-occupancy minimums.  On the other hand, if the building was eligible to convert on April 15, 2013 (certain owner occupancy minimum times and ratios must be met along with a ‘clean’ eviction history) prices could go up because a date certain for conversion could be established.

Learn More from the TIC Guru

There’s lot’s more to process, so read more about it from THE guy who widely started using the TIC legal device 20 years ago Andy Sirkin:

http://www.andysirkin.com/HTMLArticle.cfm?Article=219

What’s the deal with TICs now? 

The condominium conversion lottery reform and bypass legislation, originally introduced by San Francisco Supervisors Wiener and Farrell last spring, has been completely rewritten by Supervisors Chiu and Lee in an attempt to placate tenants rights advocates. The latest version, introduced at the April 15, 2013 meeting, contains tradeoffs which are opposed by the original sponsors and many real estate groups, including suspension of the existing conversion lottery for at least 10 years, and permanent disqualification of many buildings that qualify for condo conversion under existing law. This article summarizes the major elements of the currently proposed condominium conversion lottery bypass measure.

via Proposed New Condominium Lottery Bypass Law — TIC, Equity Sharing and Shared Ownership Knowledge Base.