March 27, 2009
RandomRumors Via Trulia Voices: Fractional TIC Financing Drying Up?
We try not to reward bad behavior and the hijacking of a post, but it’s an off-topic comment worth repeating and a question worth clearing up (if you can):
From Real Estate pro Sally Rosenman on the Trulia forums : Sterling Bank is providing fractional loans and they are about it at the moment. Can anyone confirm or refute that fractional TIC loans are drying up? Is Bank of Marin or Circle Bank lending?
UPDATE: A few TIC numbers and trends to ponder as well.
First Published: March 27, 2009 3:30 PM
Comments from "Plugged In" Readers
I would like a post on TIC sales in general. What's going on? I don't see many for sale....
Posted by: anon at March 27, 2009 3:31 PM
I was told last week, by my RE agent, that those two banks are just coming back on. He asked me to call him again in 1-2 months for refi.
For sales, there are a unusually large % of TIC on the market in the segmants that I am watching,
Posted by: ester at March 27, 2009 3:45 PM
One call to someone at 7x7 group should be able to clear it up for you (among many other brokers, but they are who I know)
Posted by: rr at March 27, 2009 3:59 PM
Sterling and 7x7 is what we've heard.
We posted on this the other day and have another question in queue regarding something similar. Seems there is lots of confusion out there.
Posted by: alex at March 27, 2009 4:24 PM
anon - Here are the current TIC's in the MLS:
Active: 271, $560 psf, $550K median (list price)
Pending/Contingent: 73, $574 psf, $535K median
Sold since Jan 1: 44, $531 psf, $643.25K median (sold price)
So at an average sales pace of 15 / month, the active supply represents 18 months. Jan sales were 13 units, 14 in Feb and 17 so far in Mar.
Here are the last 3 years:
2008: 434 sales, $578 psf, $575.0K median
2007: 722 sales, $561 psf, $584.5K median
2006: 652 sales, $565 psf, $564.0K median
As info, almost 50% of the records lack square footage data. If no sf is shown, then the record is not included in the mean $ psf results.
[Editor’s Note: The analytic jives with the anecdotal we’ve been hearing as well from agents we trust with respect to the TIC market stalling out in terms of sales.]
Posted by: FSBO at March 27, 2009 4:47 PM
Seems there is lots of confusion out there.
These TIC "developers" don't seem that confused, they just seem to want out:
5.75% Fractional Loan Option!! Sirkin TIC Agreement in place. Property sold AS-IS, needs TLC. No evictions and no Ellis Act. A $30,000 reserve account is included for common area improvements. Inquire about alternative layout plans and garage permit.
No need to actually develop the building; I guess that prime Russian Hill location practically sells itself. I came up empty handed on PropertyShark, can anyone scrounge up info on the existing loan. At least they have decent TIC financing in place. Also see www.1900leavenworth.com
Posted by: EBGuy at March 27, 2009 4:56 PM
I mentioned this a few years ago in SS when these fractional loans were just coming on line - namely that these were risky as there were so few market participants - if they pull back, well then, that's it. And yes, you are right FSBO, the majority of TICs do not list their square footage - apparently so that they can not be easily compared to other TIC or condo units on the market. This should change with the softer market for TICs as I think buyers are going to want as much info as they can get and not listing the square footage these days seems like they are hiding something.
Posted by: Miles at March 27, 2009 5:54 PM
2828 Greenwich is a nice TIC. Still overpriced, IMO, from the information on their site. I like it, though.
Posted by: Fishchum at March 27, 2009 7:45 PM
Greenwich will never convert to condo, correct?
I like 1900 Leavenworth, but worried about the remodelling.
there is another TIC by Brown&co on Sacramento in Nob Hill. Really nice, remodelled, with garage. but Ellis acted. Otherwise, it is really good.
Posted by: ester at March 28, 2009 9:56 AM
Posted by: ester at March 28, 2009 9:59 AM
Actually sellers and their agents generally do not list the square footage per TIC unit because of legal liability. Agents need a source for their square footage statement. Generally from tax records, but sometimes from architect plans or an actual measurement from an appraisal. Tax records are not broken down by unit.
An agent might indicated the square footage of the entire building that the TIC unit(s) is a part of, as it is taken from tax records. So a buyer can infer an approximate size.
Also, a TIC owner is technically not buying a specific unit, but a percentage interest in the entire building with rights to use and occupy a specific area outlined in the TIC agreement. So it would not be best to claim a square footage measurement for the unit for sale.
As far as the fate of fractional loans. I think it largeley depends on the financial liquidity of the banks offering them. They are portfolio loans held by the banks and not sold in secondary market. Also, there are far superior numbers for deliquencies on fractional TIC loans compared to the rest of the market. IMO, if banks can make a decent rate of return adjusted for the risk of these kinds of loans, they will find a way to lend money. That is the business of banks.
If we start to see serious deliquency and distress sales situations with fractional loans, they may be very short lived.
And yes, there are lots and lots of TIC units on the market. And I think prices for them will HAVE to come down to move them. Especially in Ellis acted buildings.
Posted by: joerealtor at March 28, 2009 10:36 AM
I stoppped by the open house last weekend at 734 Guerrero, a large and very nicely remodeled TIC unit (asking $949,000), and was told by the broker that the seller had lined up fractional financing at 6.25% through Guarantee Mortgage Co. I don't know what bank they're using, but that strikes me as quite a low rate for a big loan. Back when I last really looked into this, in 2006 (peak of the boom years), you could not get fractional financing below about 7.25%. By the looks of this one datapoint, then, TIC fractional financing is hardly drying up . . . .
For what it's worth, here's the MLS link to the unit: http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N378015674,-N232690,-N,-A,-N17684851).
Posted by: cse at March 28, 2009 11:04 AM
"From Real Estate pro Sally Rosenman..."
Is that a joke? A Hill & Co. agent commenting on TIC financing? That's akin to asking Marcus & Millichap to comment on luxury home sales.
Most northside agents frown upon TICs and steer buyers to condos.
Posted by: Jimmy at March 28, 2009 3:02 PM
here here Jimmy. Don't ask a fossil of a northside agent for an accurate comment about TICs. Most of them have never taken the time to learn how to sell one, let alone dispense useful information.
Posted by: Adam at March 30, 2009 8:52 AM
joerealtor: "I think prices for them will HAVE to come down to move them. Especially in Ellis acted buildings."
I am looking at TICs in District 7 and several have gone through Ellis. What is the impact of Ellis on a building that is too big to condo-convert (I think 6 units is the max)?
If negotiating to buy a unit that has gone through Ellis, what sort of discount should I be applying relative to comps that have not gone through Ellis (again, assuming that condo conversion restriction is irrelevant)?
Any thoughts here would be appreciated!
Posted by: cabbie at March 30, 2009 10:18 AM
cabbie, if I am reading that correctly, the impact is zero and the applicable discount should be zero. But that's not to say that you shouldn't angle for an additional 5% over and above the 15-20% that should apply to TICs over condos IMO.
[Editor’s Note: Not so quick. While it’s currently immaterial in terms of condo conversion, there are real considerations with respect to potential income should one desire (or need) to re-rent an Ellis Acted TIC in the near term.]
Posted by: chuckie at March 30, 2009 10:42 AM
I feel I must defend Sally here. Yes, she lives on the northside, but her business is city-wide. I have done several transactions with her and she always been professional as well as highly knowledgeable. She also did not know that a comment on a competing board would be picked up SocketSite and then picked apart by it's readers.
Posted by: Mystery Realtor at March 30, 2009 11:47 AM
Current Fractional Lenders:
Bank of Marin,
You can not condo convert a buiding over 6 units in SF. The Ellis Act will affect your ability to rent the unit. Two years no rent, three, four and five the unit may be rented but must be at the rental amount the previous tenant was paying.
Posted by: David Esler at March 31, 2009 7:17 AM
I just called Bank of Marin and Circle Bank on May 11th and they are not doing fractionalized loans anymore.
I know Sterling is. I have calls out to NCB, American California and United Commericial and 7x7 group.
Posted by: Brian at May 12, 2009 12:41 PM
Brian, did you ever hear back from NCB, American California, and United Commercial and 7x7 group?
Posted by: Mike at May 20, 2009 3:00 PM
Try SBF Funding, Inc. They are making fractional loans based on your stock portfolio. Ltv's up to 80%, 2.5% - 4-5% SIMPLE INTEREST, FIXED RATE LOANS. Not income or credit driven, Non-Recourse loans.
Posted by: Steve Gordon at July 26, 2009 11:47 AM