San Francisco Real Estate - Residential

TICs selling for nearly what condos cost!

Recently in TheFrontSteps blog there was a question posed by a reader:

In Andy Sirkin’s famous online article on condo conversion in SF, the graph seems to suggest that vacant 2 unit TICs are fetching the same price as condos (Condominium Conversion in San Francisco), implying there is not much upside in condo conversion price-wise. However, I have also heard from some Realtors that condo conversion of duplexes can increase the building value by 10%. What’s your thoughts on this?

Our reply:

Not being a Realtor, I am speaking from a purely investment point of view. Because the laws are changing all the time. SF Supervisors are trying to close the loopholes to keep people from converting 2 & 3 unit apartment buildings into condos to avoid rent control. But the market finds a way. And TICs have now become that way.

Essentially people are buying “shares” of building and, depending on the TIC agreements, specific space can be designated as “owned” by one party or another. It is a more open arrangement than a condominium and works well for people who want to buy something, not rent, especially those who are buying for the first time. Also, there is not the same expense in setting up an HOA and all the bureaucracy and reporting requirements that are associated with condominiums.

But back to the original question. Yes, TICs seem to be selling for almost the same price as condos, though there are some deals to be had in different areas. I think that is mostly due to the fact that people are overcoming their fear based on a better knowledge of the product.
The challenge to date has been financing. Fractional loans have a higher interest rate (in general) than traditional loans. But lenders are quickly working to fill this need so new loan products are being introduced all the time. Once again, free market enterprise comes to the rescue.

- Mick Orton
SFResidence.com

posted by SFResidence.com @ 10:08 PM