Monday, February 21, 2011

Okell's Fireplace

Condo conversion is quite the cottage industry. It's a business pipeline for home repair merchants in the City.

For example, the pre-inspector says our old wall heaters have got to go. So we are all looking at options - from simply installing a new wall heater to going for a big upgrade - like a gas fireplace.

We went over to Okell's Fireplace this morning. The salesman said they do a lot of work for TIC owners who need to replace wall heaters. They have every type of in-wall and freestanding fireplaces imaginable. Very cool!

I would love a little fireplace. I'd like the flat to the wall zen style, with rocks on fire. But I can't vent up through our beamed ceiling, so we'd need to build something quite elaborate to accommodate my little zen fireplace.

Given all the other things that need to get done for condo conversion, can we afford the time and cost of building something this complex right now?

City Permits and Inspections

It was always assumed in our building that owners would have work done in their units with proper City permits and inspections. This was plainly stated at meetings, and it may even be in our TIC agreement. (It should be part of all TIC agreements.)

Surprisingly, we have just discovered that one of our owners had a significant kitchen remodel done with NO permits or inspections. This owner spent many thousands of dollars a couple years back having everything done perfectly to his taste. But now walls in that perfect kitchen must be opened for City inspectors to re-check and permit the plumbing and electrical work that was done.

This owner is throwing a fit. But whose fault is it? It's the owner's responsibility to tell the contractor all work must be permitted and inspected.

People, if you have any chance of converting to condo, do not skip getting permits and inspections. It's going to cost you a lot more later rather than doing it right the first time.

Does Your TIC Agreement Require Condo Conversion?

Does your TIC agreement require condo conversion if your building wins the lottery? That is something you should know before you buy into a TIC.

If your agreement mandates conversion, and you live in a building with a fair chance of winning the lottery (ie no protected tenant evictions, etc.) your group needs to have a pool of funds ready to go for the costs of condo conversion. Condo conversion is a significant expense, for the group and possibly for individuals as well. And this is on top of your regular dues, taxes, mortgage and insurance, which must continue to be paid through the conversion process.

All the bills for condo conversion come due in fast and furious progression. Make sure your group has discussed how to handle, and has a financial plan, so you don't waste time figuring this out after you win the lottery.

For common condo conversion charges, you can either build a condo conversion fund into your dues or you will need to levy special assessments. For code violation repairs to individual units, each owner is responsible for any work from the walls in. Make sure owners are aware of this. There should be ongoing reminders at your meetings about the need for individuals to have a savings account set aside for condo conversion.

If your TIC does not mandate condo conversion, then you must have a process outlined in the agreement for determining whether you will or won't convert. Everyone in the group needs to be aware of this process, and you may want to revisit this issue from time to time and amend the agreement as necessary. I think leaving the question of whether to convert or not to convert could be a very divisive issue, if left up to a vote that occurs after winning the lottery.


On the advice of our lawyer, we hired Leo McFadden to pre-inspect our building. Condo conversion requires having the City building inspectors come in to check if your building is up to code. Any code violations the inspectors find must be repaired - whether or not you condo convert. A pre-inspection gives you an assessment of what City inspectors are likely to cite you for, so you can estimate repair costs before having the City officially come in.

Let's get to the juicy part first. If you Google Leo McFadden you will see he used to work in building code enforcement for the City, but resigned after the San Francisco Chronicle accused him of being at the "center of an ethics controversy." Apparently he formed a real estate holding company that held ownership interest in several San Francisco residential properties. From what I can tell, Leo's company would buy, renovate and flip properties that had been cited for code violations. My sense is the owners were in over their heads, trying to maintain old buildings. They went the cheap route - having shoddy work done without permits. When they got cited, they would bail and sell the property. Of course it is possible to take a darker view, and imagine a little band of thuggish inspectors roaming around looking for run down properties so they use the threat of endless citations to strong arm owners into selling.

But when the accusations were made, back in 2005, the City's Ethics Commission said city employees - including building inspectors - were free to buy and sell real estate provided they are not privy to or acting on information that is not available to the general public. Also, a city controller's review found no evidence of San Francisco building inspectors buying up property under review by their agency. To me, Leo seems like a decent guy who took advantage of an entrepreneurial opportunity, one that his job did not expressly prohibit. And he ended up a victim of yellow journalism.

Anyway, he resigned from the City, and went into business for himself. He certainly knows his stuff. He did a careful walk-through of our 100-year-old building, and pointed out things we will almost certainly be required to change - like our old gas wall heaters. We will be receiving a detailed written report shortly. This lets us get a jump on projecting costs and lining up a general contractor.

Solicitations from Everyone

As soon as you win the condo lottery, your mailbox will be filled with solicitations from lawyers, surveyors, pre-inspectors, and what have you. Yesterday I received a beautifully presented folder of information from a surveyor. This package must have been costly to produce and mail. But we have already hired our surveyor!

My advice to those who are trying to solicit condo conversion business is:

- Build relationships with the law firms that handle condo conversion. Most TIC groups will use the vendors recommended by their lawyers.

- Try to build some kind of relationship with the TIC owner community on an ongoing basis. You can do this by attending Plan C events, offering free educational information online or at events, etc.

- Don't wait to mail your solicitations. Prepare your materials, attend the lottery drawing to get the winner names and mail solicitations out the next day.

Friday, February 11, 2011

Timing is Everything

If we get our conversion done prior to January 2012, we will avoid PREPAYING over $40,000 in property taxes. Needless to say we are now dashing around at full speed.

1. We have hired a law firm.
1. Title company will be emailing our prelim. title info within 3 days.
2. Trying to figuire out if DRE is required.
3. Building will be surveyed this Sunday.
4. Pre-inspection on Friday, February 18th - to prepare us for the actual City inspection.
5. 3R Report has been requested from the City.

Quite a bit of Kafka-esque paperwork and bureaucracy. Quite the cottage industry for all these service providers.

Saturday, February 05, 2011

Thank You To My Group

If we were a reality TV show, our TIC group might be called Three Queens, Two Dykes and a Redneck. We are all such different personalities and yet...

Over the course of eleven years, we've gone from being relatively young, single, starry-eyed, first time San Francisco property owners to a middle-aged, settled-down, jaded-by-the-costs-of-owning-a-100-year-old-building group. We've seen lovers, many lovers, coming and going up and down our terrazzo steps. (And sometimes heard more than we wanted to through the floors and walls.) We've had fights - raging fights. I once didn't talk to someone for almost a year, because she freaked out on me after I took all of the paint cans that she had hidden in a garbage can to the recycling center. (I did not think the City fire inspector, from whom she was trying to hide the paint cans, would look kindly upon this kind of deceit.) We've had someone leave a candle burning in their unit that caused the fire department to break down doors looking for the conflagration. We've battled homeless people break-ins, the million decibel parties of the 20-something renters next door, and another neighbor who tried to make us pay for his cracked 100 year old sewer pipe. And let's not mention the gas leak, which caused us to discover that the old gas pipes in one unit has been capped with a wine cork - causing PGE to cut off gas service until we could find a little Burmese plumber small enough to fit in the ceiling crawl space and take care of that deadly problem. (Of course this happened in winter. Thank Buddha Jesus Goddess for electric heaters.) And let's not forget the year plaster began falling from the 100 year old facade at the top of our building. That was when we discovered that the facade was made from some old time mixture of rock, clay and horsehair which seemed to weigh about 50 pounds a square inch. And the roof above the facade was leaking, and the location of this roof was almost impossible for any contractor to reach, without building some kind of outer space like contraptions. Miraculously the roof was repaired, and no one died - neither the contractors balancing on the contraption nor the innocent people walking the streets below.

But somehow, even with all of this, over the many years of living as TIC partners, we can still show up at a birthday party and have a good time together. We've all still got good, stable jobs. Everyone is smart, and although the choices we've been presented with have not always been the best, we've never made a decision that we truly regretted.

So this is a thank you to my TIC partners, as we enter this condo conversion madness.

What Will It Cost?

The first flurry of emails among our group focused on the projected costs of condo conversion. How much will it cost and how will we pay for it? We knew this was something we would need to do someday - our TIC agreement mandates that if we win the lottery we must condo convert. However, our group has a policy of using dues for routine expenses and special assessments for projects like higher cost maintenance and repair. (That's because if/when you sell you cannot withdraw the money you contributed to the house fund.) So in our building everyone is supposed to keep a personal reserve in the event of a large special assessment. Well, it's been so long in coming, I'm not sure everyone in our group is fully prepared financially for the burden of condo conversion. After so many years of losing, it feels like an impossible possibility has suddenly become a reality.

So the first thing we are doing is levying a special assessment, to get some money in the hopper for the kick-off condo conversion costs, like hiring a lawyer. Hopefully everyone will be able to pony up without too much trouble.

For our 6-unit building we are estimating the basic costs of condo conversion to be close to $30,000. That does not include any repair work we might need to do as a result of the required city building code inspection.

Estimated Condo Conversion Charges as of 2008
(6 unit Bldg):

City Application $8,897
3R Report $160
Survey and Mailing (varies w/building size) $9,000
Budget Preparer $4,000
State Application $1,700
City Inspection (varies w/building size) $2700
Attorney fees $5000

Data taken from Andy Sirkin's website:

Dear Property Owner

The City has posted the winners list for the condo lottery:

Here is the text from the letter sent by the City:
Dear Property Owner,
Congratulations! On February 2, 2011, your ticket was selected as a winner in the 2011 Condominium Conversion Lottery. Your fully completed application must be submitted on or before Friday, July 28, 2011. If it is not received on or before this date, your name will be dropped from the eligible list and the next person on the standby list will take your place.

You may obtain a Condominium Conversion package on line at or at 875 Stevenson Street, Room 410, for $4. We strongly recommend that you retain an attorney that is familiar with the condominium conversion process in San Francisco to assist in your conversion.

We suggest that you contact the Department of Building inspection at 558-6454, or in person at 1600 Mission Street, as soon as possible to arrange for a Physical Inspection of your property, as assigned by Subdivision Section 1381(a)(2).

Your condominium map and unit diagrams must be prepared by a licensed Land Surveyor or a Civil Engineer licensed prior to 1982. You should obtain these services as soon as possible.

If you you have additional questions please contact my staff at (415) 554-5827.

Wednesday, February 02, 2011

We Won the Condo Lottery

We bought our TIC in 2000 - after living here for 11 years, our building was finally picked in the condo lottery on February 2,2011! We had seven tickets, and were in the double A pool for long time entrants.

One of the other owners of our building went to today's drawing, which took place at City Hall. Plan C was there, staging its annual TIC owner rally. One of the newly elected supervisors, Mark Farrell, from District 2, personally congratulated winning owners.

After winning, one owner stood up and said, "Sayonara, Bolsheviks!" before walking out.

The official Condo Conversion Winners and Standby List will be published by the City on February 9, 2011.

Also...sorry for the long blogging hiatus, but things were just going along, TIC life as usual for the past year or so before today. I'm going to resume blogging regularly now, to shed light on the condo conversion process from the owner's perspective.

And then I'll conclude the blog, because in about 18 months we won't be a TIC anymore.