Local Banks Should Give TIC Owners a Better Deal

In earlier posts I've speculated that TICs in San Francisco will become less attractive to buyers in this less competitive real estate market. In a recent article, The Wall Street Journal reports: "In September, TICs made up just 7% of San Francisco properties sold, down from 15% a year earlier."

The article blames, in large part, the high interest rates (7.75%), short terms (3-5 years) and significant down payments (20%) required by local lenders that offer fractional TIC loans. A loan officer from Sterling Bank is quoted as saying that these loans are "more risky" because there is no secondary market. This is spite of the fact that there has never been a default by any TIC owner paying one of these residential San Francisco mortgages - or even, supposedly, a late payment.

OK, let me get a grip on this logic. We are having a national economic meltdown because people signed up for mortgages they could not pay, on properties that were insanely over valued. But in this case you have a solid class of highly qualified homebuyers bringing good business to local banks - and the lending institutions ding them. They charge premium interest rates and set it up so they can renegotiate rates and collect points and closing costs every five years.

I don't know much about banking, other than the simple fact that banks take in interest on the money they lend and pay interest to people who have given them money to hold. So in theory, if a bank is offering a 2% savings rate and charging 7.75% for a mortgage then the institution is collecting 5.75% in profit. Most people would be happy these days to be getting a steady 5.75% return on an investment.

The onerous terms offered by our local banks hurt TIC sales, re-sales, and pick the pockets of the hardworking TIC owners who must pay these high cost, bad deal mortgages every month. Instead of encouraging TIC ownership and building a book of lending business, the banks (along with our City supervisors) are making TICs increasingly untenable.

I hope when these mortgages come up for renewal at the end of their five year terms that the banks will waive closing costs, eliminate points and lower rates for individuals who have retained a high credit score, hold the same good job and have a perfect payment record. I don't mind the banks being cautious; I realize they must have lending standards - but I do have a problem with usury.

If, in five years the TIC owners who hold fractional TIC loans haven't proven our worth to our local banks, let's just forget it. Count it as, at best, a failed experiment and, at worst, a rip-off - and let everyone just buy condos.

Get Some Bail Out

This does not have anything to do with TICs, but I could not resist. Experiencing a liquidity crisis? Holding some toxic assets, like your undervalued flat? Fill out this two page form for TARP money. Who knows? The way things are going the bank of yourself might net a billion or ten. Really, people, what is going on down there in DC? Everytime I sneek a peek at a news headline about this economic bailout - aka as The New Trough" - it scares me.

Year Over Year Price Per Square Foot

The Chron has published this Down Around the Bay tool which allows you to enter a Bay area zip code and see the median price per square foot for 2007 versus 2008. (It pulls July through October sales for both years.)

Of course all properties should be evaluated individually, and there can be a significant block-by-block difference with regard to desirability within any one zip. For example, a residence on a tree-lined street with well-maintained historical architecture and a strong neighborhood association will out-price a flat on a seedier strip with a lot of street noise, commercial traffic and petty vice. The old rule of location, location, location still applies.

And this data doesn't address the perpetual question of how much price differential there should be between an equivalent condo and TIC. In my zip the price per square foot for 2008 reads $739. Using my own place as a yardstick, I'm almost certain I would not be able to sell my 1,000 square foot TIC for $739K in this market, even if it is a historic building on a verdant block, and my unit includes a private garage and big bay windows with top floor city lights views.

But this tool is an interesting data point and a good gage on how well your neighborhood, in general, has withstood the real estate downturn.

1776 Page

The listing says "grand, full floor, three bedroom flat" - priced at $685,000. It does indeed look spacious, with bright daylight and historical detail. (Alas, no parking - green or not, most of us still need to drive to work to pay that kind of mortgage.) Whoever placed the listing claimed that this is $265K below market - I'm not sure what daydream market they are referring to. (Oh, that one, the one that just went bust.)

All four units in this upper Page building are for sale - there is also a one bedroom listed at $325,000 - a price I am guess-timating I haven't seen in a decent San Francisco neighborhood since around 2004. So while they are back-pedaling somewhat on the price I wouldn't call them bargain basement giveaways. (That would be 300 or less.)

Perhaps another sign of these economic times - the sellers have not bothered with any of the (somewhat ridiculous) staging that was all the rage not so long ago, during that delerious boom.

Same Old Supes

San Franciscans showed moderate tendencies when voting on local props, but it appears they have once again returned a majority of anti-home ownership supes to City Hall. Which means business as usual when it comes to updating local law regarding the condo lottery and other pro-TIC issues. In other words, long odds to win and arduous and costly regulations for getting through the conversion process if your ticket does get selected.

Frustration

The owner who lives downstairs from us is in Guam. The pipe that is broken in her kitchen prohibits us from using our kitchen sink or dishwasher because that water now floods into her unit. Because this problem is in her unit and not in a common area it is her responsibility to have it repaired. Yet aside from her initial email several days ago, and a follow-up instructing us that we cannot use our sink or dishwasher, we have heard NOTHING from her. Is she calling a plumber? Has she designated anyone else to act in her absence? Who knows? Do I care that she is working in Guam? No. Call me petty - I just want her to be a responsible owner and get her pipe fixed. If you don't want to deal with things like plumbing, electrical, roofing and who waters the plants in your yard - be a tenant.

Update: my neighbor finally did call a plumber - Heise's Plumbing - four days after the flood. (They were prompt, professional and did not rip us off.) Which made me happy I had this blog to vent on instead of sending some unhelpful flame mail to the group about not being able to use my sink. A little restraint (and patience) goes a long way when you are a TIC partner.

Get Ready To Be An Owner

If you become a TIC property owner, get ready for emails like this. Make sure your group has a plan for who will have primary responsibility for dealing with these kinds of emergency maintenance situations.

I just got a call from my housesitter and she is standing in my kitchen in puddles of water. She says that the water appears to be backflowing from the sink drain. Did we have a clogged pipe somewhere on our side? It looks like something backed up somewhere along the pipe and flowed nasty water up through the sink drain in the kitchen, filled the sink and flowed over onto my floor, countertops, cabinets, etc. She says that there is all kinds of food waste in the water (anyone have rice anytime recently? There's a ton of it all over my kitchen now.) (I haven't cooked or used anything but water in my kitchen sink for over 4 months now, as I have been on the road.) I left 5 days ago, so it happened fairly recently.

While it seems that the flood had stopped, we are very concerned that this could continue if the sewer is plugged and water continues to flow into the pipe. Has anyone else had a problem? Is there someone we can call to get the kitchen drain line flushed out so that my apartment is not flooded (again)?

I would appreciate an email back or a call to the housesitter to help out with this. She's in my apartment now trying to clean up the mess.

TIC Friendly Supervisor Candidates

It is no secret that the majority of presently elected San Francisco supervisors have aggressively legislated against TICs, under the misguided notion that TICs are detrimental to tenants. This in spite of the fact that the vast majority of tenants would like to someday become owners. It's simple political math - in a city where 70% of the voters are renters if you are a politician you need to come up with some galvanizing issue that appears to appease the tenant voting block. This election several supes are terming out and there is an opportunity to put more moderate legislators in City Hall. Non-partisan San Franciso organization Plan C, a supporter of pro-TIC and other urban quality-of-life legislation, favors these candidates:

District 1: Sue Lee
District 3: Joseph Alioto
District 4: Carmen Chu
District 7: Sean Elsbernd
District 9: Eva Royale
District 11: Ahsha Safai

Learn more by downloading the Plan C voter guide.

Update: District Numbers in the list above corrected after the fact. Thank you for the comments.

Paying Down the Mortgage

I'm no financial genius. If I were I'd probably be living on an estate in Woodside instead of a TIC flat in San Francisco. However, one personal finance equation seems pretty clear, even to me. If the stock market is tanking, and you are paying +7% interest on a fractional loan mortgage, and you've got some money in the bank that can be put to use then it's a good time to pay down your home loan. I went over to Sterling Bank yesterday and wrote out a big check that will cut a big hunk off our principal. After ten years of "owning" a place in San Francisco I'm at the point where I am within sight of holding the title to my little flat outright. And that feels good. So sometimes, with luck and hard work and a little bit of smarts I am here to tell you that this homeownership American dream can work out - even in San Francisco. I'm also here to tell you that without TIC ownership who knows - I might still be a renter.