San Francisco Measure Could Help Some Homeowners--and Hurt Renters

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).

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."

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.