Some Thoughts on Condo Conversion

Before we get started, it is important that you understand that the conversion of units to condominiums is governed by local and state laws.  For buildings with four units or fewer, San Francisco City and County laws govern  the process.  For larger buildings (five or more units), the California Department of Real Estate (DRE) regulations also apply.  These laws and regulations can change at any time.

Several unrelated (can also be related) people buying a multi-unit building in San Francisco and holding title as Tenants in Common has been popular for quite some time.  The owners of the property hold title to the property and share the mortgage and tax obligations as well.  There have been enough of these, that local attorneys have become experts in all-things TIC.  They have created hundreds, if not thousands of TIC agreements--agreements that govern the business relationship between the owners.  They have also assisted many building owners through the condo conversion process.  David Gellman and Boyd McSparren of Goldstein, Gellman, Melbostad, Gibson ahd Harris and Andy Sirkin of Sirkin Paul Asociates are experts in the field.  Check out their websites for more information.

Why are TICs so popular?  A few reasons.  In part because of the architecture and land use in San Francisco.  If you drive or walk around most San Francisco neighborhoods, you will see, in addition to single family homes, many two and three unit homes.  These typically have units on one level (referred to as flats--whether they are condos, TICs or rental units), stacked on top of each other.  A second reason is because they are more affordable than a single family home for many.  Some are priced significantly below condos in the city. 

What are some of the risks of TICs?  Well, as mentioned above, you are sharing title and the financial oblications of the building jointly (the mortgage, taxes and other liens).  Another risk is that you are unable to convert the TICs into condominiums, which limits your liquidity and your ability to re-sell the property when you wish for top dollar.  Some TIC groups will also feel the strains as interest rates go up and the inexpensive financing that has been available for the past few years is no longer available (see Gellman and Sirkin websites for more on this).  Or, a more common phenomena in recent years is that for 3+ unit buildings, who must win the lottery to have the right to convert, the chances of winning the lottery have gone down significantly increasing wait times. This is not a comprehensive list of the risks and benefits of owning a TIC. 

Of course, I am happy to discuss this with you and provide other great resources for you.

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