January 28, 2013

A Clash Over Condo Conversions At City Hall

TIC Lottery Applicants 2001-2011 (www.SocketSite.com)

At 1 PM today, San Francisco’s Land Use Committee which is chaired by Supervisor Wiener is scheduled to vote on whether or not to allow proposed Condo Conversion Lottery Bypass legislation to move forward to San Francisco’s Board of Supervisors for adoption.

The proposed legislation which was introduced by Supervisors Wiener and Farrell last June would allow eligible TIC owners to condo convert for a one-time fee of $20,000 per unit.

As we first reported last year, while the proposed fee amount is $20,000 per unit, said fee would be reduced for each year a unit has participated in the condominium conversion lottery, a reduction of 20 percent per year starting in year two, up to an 80 percent reduction for units that have participated for 5 years or more.

With roughly 2,500 units already seeking conversion, and a current cap of 200 conversions per year, the expected wait time to condo convert without the bypass is well over a decade, approaching two decades for new entrants.

While the terms of the proposed legislation would provide lifetime leases for existing tenants of converting units, the San Francisco Tenants Union opposes the lottery as an assault on Rent Control as condominiums are exempt from the controls.

Both opponents and proponents of the legislation are trying to rally their supporters to the steps of City Hall this afternoon. As always, we’ll keep you posted and plugged-in.

The Devilish Details For Bypassing SF's Condo Conversion Lottery [SocketSite]
$20K To Condo Convert From TIC As Proposed [SocketSite]
Condominium Conversion 2012 Lottery Deadline And Odds (Against) [SocketSite]

First Published: January 28, 2013 9:30 AM

Comments from "Plugged In" Readers

Is it true that TIC's that have had Ellis Act evictions are never eligible for condo converstion? If so, why would the numbers of people trying to convert to condos keep increasing?

Posted by: unwarrantedinlaw at January 28, 2013 10:18 AM

Under current law, Ellis with protected tenants cannot convert. Other Ellis may enter lottery after 10 yrs (I think).

Posted by: formerly%whatever at January 28, 2013 10:29 AM

From Andy Sirkin's website - it's a little complicated:

Only evictions after January 1, 2000 can affect condominium conversion. The conversion-related consequences are more serious if person evicted was a “Protected Tenant” which, in this context, means someone who was either: (i) catastrophically ill, (ii) disabled, or (iii) lived in the property for 10 years and was 60 years old or older. A Protected Tenant eviction after January 1, 2000 means that the building does not qualify for the preferential pool in the condo lottery. If the eviction was after November 16, 2004, it will also mean that the building cannot bypass the condo lottery, and is eligible for only 25 of the 200 places in the annual lottery drawing. If the eviction was after April 4, 2005, it will prevent the building from converting under any circumstances.

Eviction of non-Protected Tenants can also affect a building’s ability to convert to condominiums. If tenants were evicted from two or more units after April 4, 2005, the period of owner-occupancy required to enter or bypass the condominium conversion lottery is extended to 10 years. The San Francisco Subdivision Code also seems to give the Planning Commission discretion to disapprove condominium conversion where there is evidence that tenants have been evicted to "prepare" a building for conversion, and a five-year rental history is required as part of the conversion application packet.

Link: http://www.andysirkin.com/htmlarticle.cfm?article=3

Posted by: Dolores Guerrero at January 28, 2013 10:37 AM

This will never pass. The supes will chicken out from this one.

Not only a one-time conversion bypass will flush out much of the current backlog, but it will speed up conversions for new TICs created in the next few years.

A lower wait time for TIC conversions would in turn increase the resale price for these TICs, causing some landlords to factor that new price into their "keep it or sell it" rationale. There will be evictions or buy-outs as a result. Which is why I think the sftu will win this one. Supervisors hate angry tenants.

In general I am not a big fan of rent control or renter protection.

The constant whack-a-mole against landlords has led to the worse possible outcome:

1) Newcomers have to pay an outsize share of their incomes into rent. 3K for a basic 1BR? Really?

2) Granny is still being kicked out as landlords just give up, sell their property to someone who will do an Ellis eviction.

The more you make a resource scarce, the more expensive it becomes, and the more extreme the means will be to extract this resource. Most of us would throw (someone else's) granny under the bus if the price was right.

Posted by: lol at January 28, 2013 11:41 AM

There are no losers in this legislation. The vast majority of these TICs are owner-occupied, and ALL of them have fewer than six units, meaning very few tenants will be affected. Those tenants that do live in converted TICs will receive lifetime rent-controlled leases! This is even better protection than they would otherwise get in lottery-winning TICs. Who would not want a lifetime rent-controlled lease? Most importantly, TIC owners will be able to refinance at reasonable interest rates, freeing up more of their income to spend and invest in their communities - restaurants, shops, schools, etc.

For FACTUAL information about this bypass, I recommend Supervisor Wiener's own explanation:

http://scottwiener.com/content/supervisor-wieners-statement-tic-reform-legislation-and-misinformation-about-legislation

Posted by: Jason at January 28, 2013 11:52 AM

Jason,

I think the main concern for tenants is not renter-occupied TICs but current apartment buildings with 3 to 6 units where all units are rented.

A 3-Unit building close to my place was sold last year. All 3 tenants were paying 1/3 of current market rent. The buyers tried to buy out all tenants but then did an Ellis eviction. One of the tenants even created his own website to poison the well for the buyers.

If condo conversions are made easier, then the incentive to transform apartment buildings into TICs will be stronger simply because the value proposition of owning a TIC will be higher.

Posted by: lol at January 28, 2013 12:14 PM

lol,

While that is a unique and unfortunate situation, it would not apply to condo conversions. First of all, Ellis Act evictions make that building ineligible for condo conversions (whether through the lottery or the one-time bypass legislation). Secondly, this condo conversion bypass legislation is ONE-TIME offer. This is not changing the long-term rules for condo conversion. This will be the only opportunity. Therefore, this will not increase incentives for owning a TIC in the future, except to perhaps reduce the wait for winning the lottery for conversion (but we're still talking about a timeline of 5-10 years). But Ellis Act buildings would still be ineligible. So there is NO incentive to evict tenants, with regards to condo conversion. There is actually a strong disincentive, since when you evict someone, there is no longer any possibility of converting. There would still be some buildings where tenants are evicted using the Ellis Act, however this has nothing to do with condo conversion and everything to do with the owners wanting to sell those units as TICs instead of renting them at 1/3 of the market rate rent. This says a lot about the housing stock in SF(you can thank the Board of Supervisors anti-development policies for that), as well as the rent control laws. This is perhaps a shortcoming in the rent-control policy and the Ellis Act policy, but that is not related in any way to this one-time condo conversion bypass legislation.

Posted by: Jason at January 28, 2013 1:14 PM

To sweeten the pot for tenants: I think the city should charge more-- maybe $50,000 per unit, reduced by years in the lottery. And some of the extra money should go to rent subsidies for disabled and elderly tenants (of other properties). Properties with Ellis Act evictions should be excluded.

Posted by: Dan at January 28, 2013 1:17 PM

Jason,

An Ellis eviction does NOT prevent a conversion in most cases. It only pushes away the date you can appply for it. I would not advise it for so many reasons but (again in most cases) it does not prevent conversion.

Also, the flushing out of the current waiting list would probably lower the waiting period for brand new applicants from the current 15 to 20 years to 5 to 10 years. This is significant. How long do people stay on average in their starter places? 4,5,6,7 years?

If you consider a purchase but you are told the upside of the conversion will only kick in after 20 years, that will make you think twice. Now change the timeline to 5 to 10 years and the TIC proposition will become much more interesting.

The main issue in the potential for a wave of TIC creation is how much a TIC is valued compared to a similar condo. A lower waiting time before conversion means a higher value.

ianal, etc...

Posted by: lol at January 28, 2013 2:22 PM

$20K is much too low. they should start at $100K and go down 20% per year. this way, we can keep rental units and some more can condo convert. I know several people who will pay the $100K right away because they can sell one of the units for $100K more than they paid. With only $20K, everyone will do it right away. Try $100K to test the market and then go down if needed

Posted by: spencer at January 28, 2013 2:25 PM

One of Scott Wiener's arguments is that TIC owners do not have access to mainstream financing and "TIC owners are usually younger, first-time, middle-class homeowners".

$20K is already shake-down money for people who just want to make a living in this City. Most of the time, whatever profit they're likely to make has already been spent in improvements, updates, upgrades, not accounting the numerous fees and inspections you have to go through to convert.

Posted by: lol at January 28, 2013 2:38 PM

That's right, it's shakedown money, extortion, and regrettable that one guy suggests 50k would be better, another guy suggests 100k would be better. Where does this stuff come from, participation in Model UN in high school? Extort from one person and give it to another, as if there's virtue in that.

Posted by: unwarrantedinlaw at January 28, 2013 4:17 PM

San Francisco's Land Use Committee decided to delay their vote on the proposed legislation for another month in hopes of finding an undefined "compromise" that would satisfy both proponents and opponents of the bypass.

Posted by: SocketSite at January 29, 2013 12:49 PM

Compromise? Rent control advocates will want tenants to have even more control over other people's property if these owners decide to convert. In order to take one step forward, Wiener would have to give up 2 steps backwards.

[begin rant]

I am not a hard core free market zealot. Work hard, be smart, live within your means and IF you are incapacitated you should be protected or helped as much as is reasonably possible. Emphasis on IF.

But what is going on with rental protection/control is simply ridiculous. First, rental rates should be means-tested regularly!

I know 2 decently well-off lawyers in the 94133 paying 30% of market rent simply because they happen to have signed a lease years ago. In the mean time, some people have to live in converted broom closets.

So much for social justice.

Also, in Paris, selling is part of the "just cause" eviction reasons. Why not in SF? Do we really have to be even more progressive than the French?

[/end rant]

Posted by: lol at January 29, 2013 3:27 PM

I think one or two TIC owners at the hearing mentioned that their TICs would jump 20% in value overnight when they converted, and then only to deny it.

No one much wanted to discuss renting out their newly non rent controlled unit for market rates either.

Seems like the Kamala Harris' Homeowners Bill of Rights would fend off foreclosure for some or many of these TICs.

Posted by: richvulture at January 30, 2013 8:00 AM

Seems like the main problem with the TIC market right now is the supply of greater fools has been exhausted.

Posted by: richvulture at January 30, 2013 8:03 AM

richvulture - Kamala Harris' homeowners Bill of Rights would not fend of foreclosure as TIC owners are not "homeowners". I don't think anyone denies that values would increase (although your number seems awfully high). But most TIC owners won't see that gain. It gets wiped out between the $20k we'll pay per the legislation; the actual cost for permits, repairs and legal work to convert (another $20k); and the extra interest that we've already paid on our loans at an extra couple of points per year for 5-10 years. This is sensible legislation that benefits owner-occupied units without Ellis Act evictions and the Affordable Housing Fund. At a time when the affordable housing funds have been cut, we can essentially take from our banks (the extra interest we pay every year) and give back. Take from the banks, give back to the city without evicting tenants or benefiting buildings with Ellis Act evictions... seems like a win-win to me.

Posted by: sfniners at February 1, 2013 8:17 AM

sfniners wrote:

I don't think anyone denies that values would increase…But most TIC owners won't see that gain. It gets wiped out between the $20k we'll pay per the legislation; the actual cost for permits, repairs and legal work to convert (another $20k); and the extra interest that we've already paid on our loans at an extra couple of points per year for 5-10 years.

This is a brilliant piece of rhetoric, my hat is off to you.

What a creative argument. The single word "extra" carries so much weight, it hangs there in the reader's mind, nudging them to believe, without 'sfniners' really saying so, that TIC owners who want to convert are somehow entitled to a mortgage at a lower rate than what they were paying.

If the TIC owners in favor of the proposed change deploy this at a Board of Supervisors meeting and sell it, you're in the wrong line of work, you should be working on Wall Street on the sell-side.

Seriously: you're not going to see a capital gain after the city essentially grants you a windfall profit after conversion because of "the extra interest that we've already paid on our loans at an extra couple of points per year for 5-10 years"? WTF?

Using that logic, no one selling a home in The City that had a jumbo loan made a profit, because they were "paying extra points" on their loans over what somebody with a conforming loan would have paid. And why stop at five to ten years? Is that the median time that a TIC owner's had a mortgage or something?

Using reductio ad absurdum , when I buy a place, and then later sell it, I should be able to deduct all the rent I've paid before I bought the home from any capital gain to show that any such gain "gets wiped out", because I had to pay that rent instead of applying those funds to the mortgage that I otherwise would have had.

Where do you stop?

Posted by: Brahma (incensed renter) at February 1, 2013 11:06 AM

There was a rather fun article in the SFBG focusing on David Weissman's eviction from his apartment (where he had been renting since 1986) and his subsequent rant to Supervisor Scott Wiener imploring him to combat the Ellis act... However, in the comments, someone posted a link to a Portland based newspaper where Mr. Weissman stated that he moved to Oregon in 2004... So... what? He just kept his rent controlled apartment in SF as a pied-à-terre? Hysterical.

Posted by: Denis at February 1, 2013 3:04 PM

Denis. I happen to know David Weissman. He's a great guy, and an incredibly talented film-maker and local treasure. But he did indeed move to Portland several years back, although he still spends a good part of the year in San Francisco; not quite a pied a terre, but more like a bi-locational lifestyle. But, still, it is not rent control's intent to subsidize that particular lifestyle, and when I read the "rant" my heart sank.

Posted by: curmudgeon at February 1, 2013 4:44 PM

lol @ the nerve of the artist. He's subletting his rent-controlled place while living out of town and rants in the public place on how unfair everything is and how he's gonna leave SF.

Good. Riddance.

Every parent knows that when you fulfill your kid's every wishes, he becomes a spoiled brat. Exhibit A.

Posted by: lol at February 1, 2013 5:27 PM

"it is not rent control's intent to subsidize that particular lifestyle"

It's actually specifically forbidden. Rent controlled apartments must be the person's primary residence.

Posted by: R at February 1, 2013 8:11 PM

How ironic about David, if true.

I think I agree with the Tenant's Union on this one though: every rent control apartment taken off the market is never coming back. People who bought TICs knew what they were getting into, changing the rules now would give them an unjustified windfall at the expense of tenants overall.

We shouldn't constantly be fiddling with the eviction restrictions either though, making them more and more onerous is unfair to landlords.

Mostly I agree with Supervisor Weiner and I like him a lot, but not this time.

Posted by: NoeValleyJim at February 2, 2013 11:09 AM

"every rent control apartment taken off the market is never coming back".

And so what? If this city wants to implement rental subsidies it should do so at the taxpayer's expense. The current system is painless to most SF residents which is why so few want to see it repealed. This is political cowardice.

Instead of thinking way ahead they simply kick the can down the road while the whole thing mutates into an unmanageable mess.

Trapped landlords stuck with subsidizing their tenants have only one way out. Ellis evictions. The result is a place that is gone from the rental market for a very long time. A former tenant gets his tis.

Posted by: lol at February 2, 2013 2:22 PM

Funny how this comments section started with me and lol debating and now I think he/she is the most sensible person here. Clearly Brahma doesn't understand the current situation, as it applies to tenants nor to TIC owners. This entire debate is circular. Why do tenants get evicted? Because of rent control. Landlords are losing money renting units to people at 30% of the market rate. So what happens? Tenants get Ellis Act evicted, which removes that unit from the rental stock for a long period of time. So what happens to the building/units? They get sold as TICs.

So what happens to the TIC owners: normally they get exactly what they were sold. However, in this one instance, they did not get what they thought they were getting. TIC owners who bought in 2003-2007 were sold a mortgage product that now does NOT exist. Every bank except two left this space, resulting in outrageous rates and in many cases, no mortgage offerings at all. So essentially, they were given a mortgage that they will never be able to refinance, and they are paying unsustainable mortgages. Meanwhile, their properties have lost 10-40% of their value, depending on location.

So there are two options: let them get foreclosed on, and have the banks take over the TIC units and re-sell them and have these families move out of SF, thereby reducing the property and income taxes SF collects. Best case, these TIC owners stay in SF and are now competing for rental units, which is bad for renters because it means more competition and higher prices. The other option is to let them pay a fee to convert, raising tens of millions of dollars for low income housing. This frees up more disposable income for them, which they can then spend in the local economy. Furthermore, 85% of these TICs are OWNER-OCCUPIED. Which means there are only a TOTAL of about 350 rental units we are talking about. All of those tenants will receive lifetime leases. Finally, this is a one-time event, not something that will be perpetually converting TICs to condos.

Posted by: Jason at February 5, 2013 11:26 AM

Jason - If a TIC owner is foreclosed upon and they move out of the city, a new owner will come along to purchase that vacant unit. The city isn't missing any tax revenue. Or maybe your point was that the resale could be at a lower price and hence lower tax revenue. We don't want the city to prop up home values just to get more tax revenue. That's the tail wagging the dog.

Posted by: The Milkshake of Despair at February 5, 2013 12:40 PM

Milkshake -- yes, the tax revenue argument is way down the list of reasons why this legislation makes sense. It's just another positive side-effect, that's all. However, this would certainly not be the city propping up home values. San Francisco is made up of 2/3 renters and only 1/3 owners. This is an extremely low percentage of residents that are owners. Nationally the number is the exact opposite, although I don't know what the percentages look like in other big cities. You want home ownership to be higher. It's good for everyone when more people own homes and have deeper roots in the community. It has a positive impact on the local economy, the local culture and general stability of the city. Obviously you want a good balance, but 1/3 home-ownership is extremely low.

Posted by: Jason at February 6, 2013 11:02 AM

Actually, from a property tax base prospective, the city is playing against its own interest with TICs. Taxation based on valuation benefits TIC owners with no real rationale.

After all, TICs can rent for the same amount as condos, TICs have the same shelter value as condos, TIC dwellers are consuming the same amount of services as condo owners, but since TICs are sold at a discount, property taxes would be lower by 20-30% for the very same dwelling.

Then again, this is the land of Prop 13. Rational minds not welcome.

Posted by: lol at February 6, 2013 4:53 PM

It's good for everyone when more people own homes and have deeper roots in the community.

San Francisco has another method of encouraging "deeper roots in the community" and stability: rent control. People who have lived a long time in a rent-controlled apartment have a lot of incentive to stay in place-- moreso even than owners, since owners can sell and profit, while rent-controlled tenants don't generally get any benefit from leaving.

Posted by: Alai at February 9, 2013 1:11 PM

How is this a "one time event"? This exact same backlog will happen again in 10 years and there will be another clamoring for it again.

Posted by: NoeValleyJim at February 9, 2013 7:17 PM

Alai,

1 - This is very far from the truth. When a tenant is paying a token rent like 20 or 30% of market rent, he knows he can be bought out for 10,000s to vacate one day. Some are even playing that game repeatedly. I have a tenant neighbor who's been bought out 3 times already in the past 20 years. He's a lawyer and he knows the game very well. A colleague of mine is in his 2nd cash out already. Same big smile when that happens and he has a very decent paycheck. So much for the goal to keep the poor in the City ;)

2 - And what if they didn't collect anything? They didn't put any of their work, savings or life into the place. Why would they cash out? After all, BUY and RENT are 2 different verbs. Somehow San Franciscans confuse the 2. Tenants get incredible entitlements with no merit. But hey, we need to help the people we "like" like artists, activists or whatever makes SF so special supposedly.

It's no surprise landlords who happen to have a place for rent will ask for an arm and a leg or will sell as TIC. Then all you got renting now is people you don't "like" aka gentrification.

The current system is broken. A means-based aid system would be the best approach instead of the crazy mess we have.

Posted by: lol at February 10, 2013 10:28 PM

I'll add to my above rant that the "means based aid system" would have to be funded by the City aka taxpayers/consumers.

We would need to ask the voters if they were OK with adding a tax (sales, income, property) to finance housing and that social policy would stop right there.

Say 1/2 of current tenants would receive $500/month in aid on average (probably much more), that's in the range of $300M to $400M/year.

I guess it's much easier to take it from the "greedy" landlord's pockets.

Posted by: lol at February 11, 2013 9:41 AM

Actually, yes, it is.

It's obvious to anyone who's not a landlord that any public aid system for tenants that provided a subsidy to pay rent, absent some type of price controls, would simply be absorbed by — yes,"greedy" — landlords as they raised prices to meet the increased ability of tenants to pay rent. This follows pretty straightforwardly from basic economics and has been known since at least as far back as David Ricardo.

As far as government-imposed price controls go, there's considerable merit-based arguments against them, even if you're not a market fundamentalist.

In an non-perfect world, the S.F. Board of Supervisors decided over thirty years ago, correctly, that rent control was the lesser of a few evils.

Any landlord that purchased a place for rent in the city in the last thirty years for the first time knew ahead of time what they were getting into and therefore should probably stop bellyaching about rent control. if they didn't know what they were getting into, well shame on them, but it's not the S.F. Board of Supervisors fault.

There's a lot of people making money hand over fist renting out property in this city, even with rent control, so the landlords that are bellyaching are tacitly admitting that they don't know how to run a business.

Posted by: Brahma (incensed renter) at February 11, 2013 11:31 AM

Brahma -- I don't disagree about landlords knowing what they were getting into. However, you could make the same argument about a tenant signing a lease in a rent-controlled building. They are locking in rent control, which is overwhelmingly to their benefit, at a risk of being Ellis Act evicted at some point. These evictions are an unintended consequence of rent control. If there was no rent control, there would be far fewer evictions, because landlords would have no incentive to evict. Instead of crying foul when a tenant who paid 20% of market-rate rent for 25 years is evicted, why aren't we grateful that they were able to live in their apartment for that long while paying a fraction of market rate?

Posted by: Jason at February 11, 2013 1:56 PM

Jason: just to be clear, I'm not defending rent control per se; but I am saying that it beats taxpayer-funded rent subsidies from an economic perspective and from a public policy perspective.

Yes, I would agree that tenants signing a lease in a rent-controlled building are at risk of being evicted via the Ellis Act. But this doesn't really have anything to do with rent control, does it?

I'm in a market-rate apartment and I could be evicted via Ellis Act if the owner decides to sell after my lease is up.

I'd have to see some stats on other cities in California that don't have rent control and how often the Ellis Act is invoked in those cities before I'd agree that Ellis Act evictions are somehow a consequence of rent control.

I can't speak to what "we" do when someone who's been paying below-market rent for 25 years is evicted. On socketsite at least, we angrily denounce the elderly tenants as self-entitled people of low intelligence:

I think I'm going to bring a lawsuit against…idiot 80 year old tenants who think they have the god-given right to stay in rent controlled apartments their entire lives despite legal eviction, both of whom raise my cost of living by increasing my taxes to pay for their imbecilic court costs.
Posted by: ex SF-er at January 16, 2010 6:31 AM
That's definitely not crying foul.

Posted by: Brahma (incensed renter) at February 11, 2013 3:46 PM

There you go again Brahma with your preferred "bellyaching" tirade.

I have 1/2 of my tenants in Paris who collected or have collected rent subsidies from the government. I collected aid at some point in my early years (as a student and during the first few months of my first job), until I didn't meet the requirements. It didn't really increase the rental amount simply because I was always competing with people who could afford the rent.

Brahma, what do you prefer? 1) A just and proven system that will benefit all people who actually need the help? Or 2) an entitlement based system that digs into the wrong pockets to redistribute into the cherry-picked winners? This system also and creates artificial scarcity as a by-product, whereas the first one doesn't.

I assume you yourself have a vested interest in rent control. Hence your unrelenting defense of this crazy mess.

Posted by: lol at February 11, 2013 3:50 PM

Strike that last assumption. I hadn't read your last post yet.

Which begs the question: rent control makes your market rent more expensive. Why do you defend a system that unjustly victimizes you?

Posted by: lol at February 11, 2013 3:54 PM

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