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San Francisco Measure Could Help Some Homeowners–and Hurt Renters

| February 22, 2013
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Tim Denike is one of the many tenancy-in-common owners in San Francisco who hope to convert their units to condominiums. (Sam Harnett/KQED)


Tim Denike is one of the many tenancy-in-common owners in San Francisco who hope to convert their units to condominiums. (Sam Harnett/KQED)

By Sam Harnett

Update: The Board of Supervisors Land Use and Economic Development Committee, which had been expected to vote on a one-time fix for tenancy-in-common homeowners who want to convert their units to condos, will put off consideration of the measure until next month. Aides to Supervisor Mark Farrell, the lead sponsor of the measure, say he wants more time to talk to tenants’ rights groups about the proposal, which they oppose.

Original post:

On Monday, a San Francisco Board of Supervisors committee is expected to talk again about an ordinance that would relax the rules under which people who own tenancy-in-common homes, or TICs, get to convert them to condominiums. Tenants’ rights activists are fighting the proposal, saying it will fuel real estate speculation and sweep affordable rent-controlled housing off the market.

Tim Denike is one of those the ordinance is designed to help. He has a beautiful tenancy-in-common home in the Castro. From his windows you can see Twin Peaks, the Bay Bridge, and the high-rise towers of the Financial District. Denike says he used all his savings to buy the flat in 2007.

“At the time it was a really expensive place,” Denike says. “It was way above my ability to really afford it. I was surprised in hindsight that I got the mortgage.”

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In a TIC, people buy into the building together and typically share the mortgage, but each owns a particular unit. Not all banks will finance a TIC, and those who do insist on adjustable rate mortgages (ARMs).

‘I was a little naïve in hindsight,’ a TIC buyer says.

There were a lot of people like Denike who bought TICs during the housing boom. About 2,500 San Francisco units were sold as part of TICs between 2002 and 2007. Some early buyers flipped their TICs to condos and made hundreds of thousands of dollars.

Denike says his agent told him he’d be able to quickly convert his unit to a condo. “I was a little naïve in hindsight,” he says. “They said move in, in three years you will condo-convert, and everything will be great.”

Everything is not great. San Francisco only allows 200 TICs to convert to condos a year, chosen through a lottery. Now there’s a backlog of about 2,000 units whose owners would like to convert.

Meanwhile, Denike has lost 40 percent of his equity. And because TICs have adjustable-rate mortgages, his payments have ballooned. The only good way out for him is to condo-convert and get a fixed-rate mortgage. “How much longer do I have to live in my unit before I can refinance into a stable mortgage?” he asks.

The proposed legislation would be a one-time fix to bail out these backlogged TIC owners.

But tenants’ rights advocates say the measure will bring on another wave of real estate speculation. And that would mean pressure on tenants like Jack Rikas and his wife Juliette.

They’ve rented a three-bedroom Victorian in the Upper Haight for 27 years. Thanks to rent control, the couple pays far, far below market rate.

“We stayed in one place, and per San Francisco law rents can only be raised accordingly,” Jack Rikas says. “For some reason now, that’s kind of a crime.”

Jack and Juliette Rikas have lived in their rent-controlled apartment for 27 years, but say their landlord now wants to convert it to a tenants-in-common unit. (Sam Harnett/KQED)

Jack and Juliette Rikas have lived in their rent-controlled apartment for 27 years, but say their landlord now wants to convert it to a tenants-in-common unit. (Sam Harnett/KQED)

Rikas says their landlord wants them to move out so he can sell the building as a TIC. If he evicts them, tenant protections prevent the building from ever becoming condo-converted, a big drawback for a potential TIC.

So instead of eviction, Rikas says the owner is neglecting maintenance, threatening evictions, and performing repairs in slow, disruptive ways. “Tick, tick, tick. It’s just this little constant drip,” he says. “It’s supposed to bother you and eventually you leave.”

Rikas says he recently got a letter from his landlord giving him a choice between a buy-out and an eviction. Tenants’ rights advocates say the letters are becoming common practice. It reads, “Dear Tenants, the owner of your building intends to perform extensive renovations to create brand new apartments for sale. This requires you to permanently move out.”

It’s natural that landlords are going to be more motivated to sell when the market heats up.

Real-estate agent and TIC specialist Eileen Bermingham says right now high condo prices are making people look at tenancy in common again. “Everybody is interested in them,” Bermingham says. “People are looking at disclosure packages. That I haven’t seen in a while.”

She says if the city’s ordinance goes through and resets the clock on the TIC-condo conversion lottery, it could make TICs even more desirable. “If I were able to point out that you would be able to condo-convert in even 10 years with some semblance of certainty? That would absolutely be a selling point,” she says.

San Francisco supervisors are being pressured by both sides. Mark Farrell, the bill’s lead author, is clear about his position. “I’d like to see (condo conversion) grow, to be quite frank with you,” he says.

And Farrell wants to do more than simply clear the lottery backlog. He also wants to raise the 200 per year conversion cap.

Supervisor Jane Kim says she’s concerned about the city’s existing stock of rent-controlled units being “cannibalized” if Farrell’s ordinance is passed. She’s suggested freezing the number of lottery conversions for a decade or so–about how long it will take the current backlog of TICs to convert through the system that’s now in place.

“By allowing a bypass now, we don’t want to encourage banks and Realtors to go out and say, ‘San Francisco is letting this bypass happen now,’” Kim says. “‘It’s going to happen again in five years, so buy up today.’”

The Board of Supervisors’ Land Use and Economic Development Committee will take up the proposal again on Monday–though a vote on the issue may be delayed until next month.

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Category: Real Estate, San Francisco

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  • GBA

    Subsidize the person, not the property. I have a feeling the Rikas could afford a market rate apartment in the Bay Area. Living in SF is a priveledge, not a right

    • gerry

      Ok, no more Prop 13 for every home then. Means-test it. And assets-test it, too. The income taxes in this state have gone way up since it passed.

  • Calipenguin

    San Francisco rent laws always end up helping people with moderate to high incomes pay much less rent than what they can afford. Often the tenants have higher incomes than the landlords. Of course, the ultra liberal supervisors just wink and nod and pretend all the renters are noble low income laborers from some Steinbeck novel.

    • Sigmarlin

      And your sources are? People should be required to footnote in the comment section. You can’t just make stuff about rich rent controlled tenants. More like the wealthy are those buying up buildings to kickout the tenants for TICs.

  • Lars

    I had to go through a foreclosure because of my bad choices (ok it wasn’t bad at the time but the housing market tanked). But I wouldn’t want to hurt the rental market or ruin things for others because of my decisions. This is bad idea.

  • Michael

    The renters cut a deal, honored it, and now some of you think they should be booted because you all just know they can afford to pay more. The TIC owner cut a deal, doesn’t want to honor it, and he should be given a windfall with a condo conversion. Well, I think he can afford to pay what he agreed to pay. The renters should be allowed to continue honoring their contract under any circumstance. But given all the recent government bailouts and price controls for property owners, respecting tenants’ contractual rights is all the more important.

    • Sigmarlin

      We need statewide renters rights. The whole tax system is rigged towards owners with depreciation, Prop 13, first time buyers credits, interest deduction, rental cost deductions, owner passthroughs and on and on. And still they whine for more. Oh wait, I think I got a $34 tax credit on my state taxes. Nevermind. BTW, “owners”. Wake up! You don’t own anything; the bank owns you. You’re a peon renter just like me but you expect to be treated like a king.

  • MikeK

    Mark Farrell is my Supe (though I didn’t vote for him), and I will be sure he is driven out of office if he agrees to this absurd deal. It hurts tenants and future first-time homebuyers because condos are far more expensive than TICs. The guy in this story will get an instant six-figure appreciation, and an affordable piece of property will no longer be affordable.

    Making money on real estate is not a right. The bailouts of over-leveraged homeowners must stop. If this guy overpaid, let him rent out a room to make up the difference.

  • Michael

    So the tenants are paying “far, far below market rate”….What about all of the homeowners who bought years ago? Prop 13 protects them from paying a fair tax, and the government forcing down interest rates has dramatically lowered their mortgages. People who should be compelled by market forces are staying put, lowering the supply of housing, and driving up market rates on what is available.

    The TIC owner wants to be given a condo worth far, far above what he paid for. The difference between him and the tenants is that they are trying to sustain a contract, not renege on it. The TIC owner wants government to get him out of a deal he willingly signed, and reward him for a decision he now admits was naive.

  • MikeK

    Look at all those posts right below the story about mortgage relief and homeowner protections. All of it is being accomplished via the tax dollars of responsible renters who did not buy during the bubble. How long must we keep throwing resources at people just because they took out a mortgage?
    Mark Farrell wants to reward bubble-economy gambles and irresponsible debtors. I’m sure this bill has the backing of Malia Cohen, the supervisor who strategically defaulted on a $600,000 condo less than four years after she bought it. She could have taken in a tenant to pay the bills, but no… She despises tenants. They deserve no protections in her book. They should just work hard to support homeowners, the ultimate entitlement class.

  • molly

    The KQED reporter doesn’t get it. Denike is an Apple engineer. He does not need a windfall. He knew the rules when he moved in. No more bailouts for property owners!

    • Sigmarlin

      And there were probably rent controlled tenants in that unit he bought. But of course he doesn’t want to think about the displacement he caused by buying during Boom2.0 ; its all about his personal suffering with his APR.

  • molly

    This is a speculators’ dream and a responsible person’s nightmare. Shame on Farrell!

  • Gail

    Recall Mark Farrell!

  • Gail

    Mark Farrell is an investment banker who makes a killing when real estate prices rise. Of course, he wants to put a fire under the market.