October 22, 2013
Making It Harder To (Legally) Merge Or Convert Units In SF
On the agenda for San Francisco's Planning Commission this week, an ordinance to tighten-up the language in San Francisco's Planning Code which governs the legal demolition, merger and conversion of existing residential units in San Francisco, intended to preserve the stock of affordable housing within the city.
Fearing an increase in Ellis Act evictions to clear multi-unit buildings in order to make way for their conversion to TIC units or merger into large single-family homes, Supervisor Avalos is proposing an entirely new amendment which would prohibit the demolition, merger or conversion of units, conforming or not, should the building have had any "no-fault" eviction within the past ten years.
While San Francisco’s Planning Department supports Supervisor Avalos' new amendment, they are recommending the prohibition only apply to evictions that occur as of the effective date of the proposed ordinance versus to those within the past ten years, and that the prohibition, when triggered, only last for five rather than ten years.
The actual enforcement of illegal conversions and mergers remains unaddressed.
First Published: October 22, 2013 9:00 AM
Comments from "Plugged In" Readers
THis is just a bold faced attempt to seize private property which the ELLIS ACT WAS SPECIFICALLY WRITTEN TO CURB! Privately owned property is not San Francisco’s stock of affordable housing. That would be the notoriously decrepit and unsafe public housing San Francisco currently has. Do something with your failed public housing before you attempt to steal private housing Mr. Avalos!
Posted by: Kevin at October 22, 2013 9:05 AM
Avalosned property is not San Francisco’s stock of affordable housing. That would be the notoriously decrepit and unsafe public housing San Francisco currently has. Do something with your failed public housing before you attempt to steal private housing Mr. Avalos!
Posted by: Kevin at October 22, 2013 9:05 AM
Whoa. Is this trying to circumvent the Ellis Act? I was just talking with my neighbor about doing an Ellis/TIC together ...
Posted by: Jimmy the House Flipper at October 22, 2013 9:52 AM
Avalos needs to go.
Posted by: OMN at October 22, 2013 9:53 AM
Meanwhile over on reality street...
John Avarice never ever does a thing to help the tens of thousands of sub-letters in SF being gouged by "master lease holders" who make more money off their way under priced apartments than the owners of the building.
That's because John Avarice doesn't care about tenants.
He cares about his long standing obsession with grandstanding and acting out his messiah complex.
In reality if a building owner induces tenants to vacate their unit for cash payment, that is often handled as a "voluntary" eviction purely for legal reasons.
What this knuckle-head law will do is simply push all of that activity off the rolls and into the shadows. My neighbor did just that. Paid people to leave, they left et voila. Empty building and no John Avarice to bother you.
And our planning department once again proves it is worthy of a Kafka novel for its unprofessionalism and cronyism.
Posted by: $AN FRANCI$CO at October 22, 2013 9:55 AM
Avalos, Wiener and a couple of fruit-and-nuts activists were in the Castro this WE to defend a tenant who had declined a generous buy-out... It was a beautiful sight: people hyper-ventilating and upping the craziest of agenda. They brought in very little crowds apart from the usual activists.
And now, this draft.
Avalos is planning to convert a part of the housing stock into a Tchernobyl zone. Where no one can live, lease, rent, own...
They went from "property is theft" to "property theft".
I was certain they had to resort to that. Quick-to-act politicians who cannot think long term like Avalos always come up with these poison pills, thinking that this will stop Ellis evictions once and for all.
These quickly-drawn solutions do nothing to solve the problem. If Ellis-ed buildings cannot be converted to TIC, then we will see the following happen:
1 - Buy-out expectations of the tenants will grow larger and even more delusional. Figures for some buy outs already reach 100K. With the "Tchernobyl" clause, they'll expect 200K or more.
2 - Because of the prohibitive cost of a quiet buy-out, these will disappear, making property much harder to free of existing tenants, and as a consequence, cheaper to purchase.
3 - Deep-pocketed investors will build a portfolio of now-cheap buildings that will be LEFT EMPTY until the end of the prohibition period. And since time will be of the essence, the Ellis eviction will be quick and painful.
In short, the wolves will make a living out of this, as they always do. And they'll be even more heartless than before.
Posted by: lol at October 22, 2013 10:05 AM
Sounds dangerously close to unconstitutional. I would expect another cwynar 'takings' challenge type lawsuit if this were to actually become law
Posted by: CocernedLandlord at October 22, 2013 10:12 AM
Merging cubby hole apartments in new condo buildings allows for family growth and long term commitment to, and strength of our neighborhoods. We hope merging new units will not be affected. If anything -- it should be encouraged.
Posted by: Invented at October 22, 2013 10:15 AM
"Avalos was born in Wilmington, California. His mother, an office manager, and his dad, a member of the International Longshore and Warehouse Union, raised seven children. His parents divorced when he was young, and his mother cared for them on her own. Avalos moved to Andover, Massachusetts as a teenager and graduated from Andover High School in 1982.
After graduation, he moved back to his home state of California. As the first person in his family to graduate from college, Avalos earned a bachelors degree in English from University of California, Santa Barbara, and a masters degree in Social Work from San Francisco State University."
So what did you expect from the future Mayor wannabe???
Posted by: Avalos at a loss at October 22, 2013 10:20 AM
The chain reaction of the SF RE mess is proceeding as expected.
STEP ONE - Problem 1 -> Solution 1
But poorly thought Solution 1 creates Problem 1.1 and Problem 1.2
Problem 1.1 -> Solution 1.1
Problem 1.2 -> Solution 1.2
But poorly thought Solution 1.1 and 1.2 create problem 1.1.1, 1.1.2, 1.2.1, 1.2.2
Problem 1.1.1 -> Solution 1.1.1
Problem 1.1.2 -> Solution 1.1.2
Problem 1.2.1 -> Solution 1.2.1
Problem 1.2.2 -> Solution 1.2.2
And so on until the SF Real Estate laws become an entangled sorry mess and market rent / property prices skyrocket.
Of course, Problem 1 = Rent control
Eliminating rent control would save everyone tons of time, money, grief and pain.
Posted by: lol at October 22, 2013 10:36 AM
Let's all hold our horses here. No legislation can restrict TICs, as that his a matter of how title is held in a property, not the land use of the property itself. Therefore evictions for TIC conversions will continue unabated.
The heart of the matter here is the restriction on demo or merging of units. Basically they want to force owners to keep their granny flats instead of creating more living space for themselves. Whatever. This impacts a negligible number of properties, and most of those will be cleared via buyout if it comes to that. This will, however, increase the amount of off-permit work done to merge granny flats or in-laws. Unintended consequences and all.
My understanding was condo conversion was already restricted for buildings with no-fault evictions so I'm not clear on how this impacts that specific issue.
Posted by: rabbits at October 22, 2013 10:39 AM
And New York has similar issues.
But some smart bankruptcy trustees are now using the rent stabilization laws against some of the tenants
In short, your rent-stabilized apartment would be considered an asset!
Posted by: lol at October 22, 2013 10:44 AM
I think the main point of the legislation is the "conversion". Meaning conversion into TIC units.
I agree the rest (demo, merges) is pretty negligible, but converting into TIC is the main incentive for Ellis evictions.
Posted by: lol at October 22, 2013 10:54 AM
^ that's pretty much right. You can't restrict tic ownership, it's a form that property is held, and has zero to do with this idiotic city and any kooky ordinances they can conjure up! Unit mergers and demos are already heavily restricted, this basically adds evictions as another reason not to allow them. They effect few people, not the majority. Not sure about the illegal inlaws and new restrictions; if you get reported on, you still need to remove the tenant and the inlaw.
So chill out gang, it ain't as [foolish] as what a sup tried a few years ago- to outlaw tics. I believe he got his ass handed to him in appeals court. Glad my local taxes are going to legislation that get over turned in appeals. How useful!
Posted by: 49yo hipster at October 22, 2013 10:55 AM
I hope you guys are right. I watched and listened the usual gasbags Saturday and they seemed pretty motivated to enact more property-restriction rules.
Posted by: lol at October 22, 2013 11:01 AM
> In short, your rent-stabilized apartment
> would be considered an asset!
When my friends bought a home in Burlingame they rented the Presidio Heights Apartment his wife first rented in 1996 to friends (who didn't tell the landlord) for $500 below "market" but $500 about the "rent control rent". My friend Jim often jokes that he bought something with the money from his "investment property" in San Francisco...
Posted by: FormerAptBroker at October 22, 2013 11:03 AM
So stupid. We want to (legally) build an in-law unit in our 2-unit building in the Richmond. Already an uphill battle with planning even though EVERYTHING is above-board. They are making it hard for us to build a legal, affordable unit (although, we would actually use this as a true in-law for visiting family members as our guest room is now a nursery).
Why does SF feel as if it owns OUR building? Argh.
Posted by: nancydrew99 at October 22, 2013 11:17 AM
I should add that the reason we are experiencing push-back is because they think we want to convert the upper units into a SFH or merge the bottom unit to the inlaw - because we wanted to add a staircase (for convenience). Why do they care? If I wanted a SFH I would move to Marin. (Which we will probably do soon, anyway.)
Posted by: nancydrew99 at October 22, 2013 11:19 AM
They allow two upper unit mergers, as long as you build something that can be considered a second unit below. It happened on Jackson near Broderick, and is all very public, so it must be with Planning approval.
The fact that the new second unit will probably never be rented, but just used as part of the new SFR is of no concern, as long as it can be seen as separate.
There are lots of returned SFR in SF, buildings that were chopped up into rentals when times were bad.
This new law seems to have some other agenda than really changing what will happen.
It seems clear that there will be a lot more TICs soon. Park Lane is already selling.
Posted by: conifer at October 22, 2013 11:35 AM
"Of course, Problem 1 = Rent control"
Or alternatively Problem 1 == limited supply. Make it easier to build new stock to keep up with the pace of demand and these problems will dissolve.
The processes that restrict supply via NIMBY activism should be reworked. Recognize that everyone who lives in the city has a conflict of interest opposing those who want to move to the city. Ironically this conflict of interest is anti-democratic though it unfolds within our democratic processes.
"Preserving neighborhood character" should be relegated to the status of "preserving views" when reviewing a development proposal. Expect there to be some negative impacts of bringing more people into a neighborhood and balance those impacts against the benefits brought *to* those new neighbors.
Posted by: The Milkshake of Despair at October 22, 2013 12:49 PM
Avalos is using the Underpants Gnome theory of planning:
Step 1: Ban unit mergers
Step 2: ???
Step 3: Affordable housing for all!
Posted by: lyqwyd at October 22, 2013 1:02 PM
^ One could argue that "limited supply" is an indirect consequence of rent control. Rent control prevents the natural flow of people according to their lives' circumstances because nobody wants to trade down AND pay more rent. Hence sticky tenants preventing the realization of a fair market.
Posted by: lol at October 22, 2013 1:04 PM
I wish you would go to the Planning Commission and tell your story!
Posted by: soccermom at October 22, 2013 1:23 PM
Hold on to your hats commensocketariat!
I just realized what should happen. There should be a dwelling unit 'exchange' for San Francisco on-line. There could be like an app and stuff.
You can either sell a unit equivalecy (like a developer who wants to eliminate a granny unit)
You can 'buy' a unit - someone like Nancy who wants to add a second kitchen, unit etc.
Converters/Mergers present the natural offer.
Developers could 'buy' their BMR quotas from private parties who could agree to a deed restriction paralleling the current restrictions on BMR units in newbuild.
There could be prices (and everything) It would create transparency for supply and demand in different neighborhoods.
I am totally running for mayor on this. You guys will all vote for me, right?*
*FWIW every time I see a Lyft car, I think the pink moustache represents a smirking ironic lesbian frisbee golf league or something.**
**I am not joking about the exchange idea. Or the ironic lesbian thing.
Posted by: soccermom at October 22, 2013 1:33 PM
There was a somewhat similar provision in Oakland, although I'm not sure if it still exists.
A developer that built rental apartment units was granted condo conversion credits for each unit built, and I believe the credits could be sold. There were probably still restrictions related to converting rent controlled units, but at least there was a possibility, much more sensible than the situation we have here in SF today.
Posted by: lyqwyd at October 22, 2013 1:54 PM
If I could get the in-law built and all I had to do in exchange would be to hang up a pink mustache on the front of my house, I would totally do it.
Seriously though, owning a building is sometimes more of a headache than it's worth.
Posted by: nancydrew99 at October 22, 2013 1:55 PM
^ just do what everyone else does; add the staircase after final city inspections. Bala bim, Bala boom.
Posted by: 49yo hipster at October 22, 2013 5:13 PM
The Ellis Act should be repealed because long time tenants are so vulnerable. Imagine some elder citizen in an apartment where they have lived for years. It is vile to evict people this way. Imagine if it were your mother or father or aunt or even more to the point if it were you at age 55+. Not everyone was able to buy a condo or TIC or SFH at the right time or now for that matter. A robust city needs renters -- at all levels of income and all age groups. I don't know if Avalos has the right tactic but blanket eviction which is what the Ellis Act allows is not right. Someone, like Mayor Lee needs to get it repealed at the state level. It is a state law I believe, so this City ordinance, if passed by the Commission may not mean anything except for some action in the courts. If Mayor Lee wants a "legacy" this would be good. A couterbalance to his arena on the waterfront.
Posted by: noe mom at October 22, 2013 9:31 PM
1-Long term tenants are not more vulnerable than other tenants. If so by what miracle? Yes they have been allowed to be disconnected from the realities that the rest of us are facing. But whatever they saved foor decades made them financially stronger. If not then they were not very smart and this is not anyone else's fault. Plus they are offered very fat buyouts. Some victims!
2-If it were my mother or my father... Another naive argument. Well glad you asked since I am actually supporting my mom and my niece.. If you cannot help your parents when they need it then what kind of son or daughter are you? I forgot: in SF it is the LANDLORD's duty to support YOUR PARENTS!!! even if he has to support a family of his own.
3-"A robust city needs renters". What does that even mean? What's a robust city? If SF ever gets hit by the Big One 1000s of tenants will be in the street expecting to be housed. In the mean time broke a$$ landlords who collected peanuts for rent for decades will not have the funds to rebuild. RENT CONTROL MAKES A CITY MORE VULNERABLE not less.
Tenants in SF live in a fantasy world of their own making. But every self-serving policy has real life consequences. It sometimes takes years to unravel. And for now tenants and the city has decided to externalize the rent subsidy. Shameful and cowardly.
Posted by: lol at October 22, 2013 10:10 PM
Oh boy, more new restrictions on SF property owners!
Please....please Mr. Alvlos & Co. Please enact this new law. Keep it up boys and girls, your new restrictions on SF property increases the value of my asset exponentially, (read my vacant two unit condo building).....$1200 per sq foot and climbing....weeeeeeee.
I love it when you act in the "best interest" of those poor poor tenants. I would expect nothing less from the poverty pimps who make their living off the poor....(read Ted Glickeson and Co).
Nuff said......I'll just stand back now and watch my retirement investment grow...thanks guys.
Posted by: Keepitup at October 23, 2013 5:44 AM
Noe mom - since when did signing a lease entitle someone to cheap rent for life? I guess it does here in San Francisco, but pretty much NOWHERE ELSE in the country does it mean that. Your landlord wants you out? You've got 30 days, GTFO, and no, you don't get your $4,500 a head (or whatever it's been inflation adjusted to) and your 60 days, assuming you don't hold over.
That's the thing about renting - you DO NOT OWN THE PROPERTY. If the landlord wants to raise the rent, they do it. If they want to use the unit for their family, they do it. If they want to evict you, so they can do improvements or deal with deferred maintenance? Yeah, they just do it. Everywhere but here.
Posted by: Brian at October 23, 2013 9:41 PM
I think it's pretty clear that "noe mom"'s post was a "how dare you" hit-and-run, with no intent on following-up. The sad thing is that this brand of shortsightedness dominates the press because it provides a great opportunity to write Dickens-style edifying articles. Readers LOVE reading about the unfortunate or clear good-vs-evil battles, even if they could not care less in real life.
But the real story is always more complex. People are multi-dimensional characters.
- One evicted couple seems to have 4 adult valid kids. Where are they and why didn't they help before? My guess: they couldn't care less as long as there's a slight chance the landlord will keep on subsidizing the parents.
- One other evicted guy was offered a pretty fat buy-out. Was he asking for a different buy-out amount? He's not saying that in the paper but he sure is vocal about other things.
- I also recall a guy managing a non-profit 2 blocks from that last example, who was housed by the same non-profit making outlandish buy-out demands to vacate the premises for the potential buyer to moving. The non-profit didn't know about it until the buyer backed out and spilled the beans. The biggest backer of the non-profit pulled out for a BS reason right after. I suspect they were not too happy.
Posted by: lol at October 24, 2013 9:46 AM
Kinda related: 929-931 Hayes has self-proclaimed protected tenants paying $650/mth 15-year lease. Its listing price is thus about $500k or so below market. Ouch.
Posted by: jack at October 24, 2013 11:35 AM
So I was just in another universe, that is, I attended this planning commission meeting. I kind of need to talk myself down about what happened but here is my precis:
The planning commission voted on a resolution supporting some legislation that hasn't actually been drafted yet. Yep.
The hypothetical legislation categorizes uniformly 'no-fault evictions.' No one in the room could name any types of no-fault evictions other than Ellis Act ones and Owner Move In. Yep.
The planning department had not bothered to invite anyone from the Rent Control board.
Michael Antonini was the only commissioner who appreciated the irony that they were voting to support a curtailment of the ability of the Planning Commission itself to function. That they were limiting their own ability to hear any compromise situations (where for example, a unit might be eliminated to make way for three future affordable housing).
Kathrin Moor complained that it was a shame there were so many vacant apartment buildings in her neighborhood. Then she went on to support the resolution that would prohibit the PC from hearing requests for TIC conversion, mergers or demolition for 10 years. Like, you have to hold an empty building for 10 years if you have ever had a no-fault eviction before you can merge units, convert the holding to TIC, or demolish it.
The commissioners wanted to know how many Ellis Act evictions actually led to TIC conversions. No one had any idea beyond anecdotes and that "there had been some stories in the paper."
Moore also commented that the Ellis Act evictions would be grossly undercounting the sad situation, because the figure did not include tenant buyouts, and those were pretty much the same as evictions. (Really, she said that. That accepting a check for tens of thousands of dollars is the same as having the sheriff show up on your front porch and forcibly move you out.)
The vote was 6-1, with only Antonini representing planet earth. The resolution is vaguely, "That the Planning Commission supports a prohibition on the Planning Commission hearing applications for mergers, demolition, or conversion at any time in the past 10 years as of today October 24th." That's right, retroactively from today back 10 years.
At this point the vote carried, which was good, because my mind was blown, entirely.
If you bought a building and have started Ellising the residents any time in the past 10 years to do a TIC conversion, you can pretty much go F yourself, as far as the Planning Commission is concerned. (By the way, I have thought of a way around this, but I won't explain it here.)
San Francisco I love you but you're bringing me down.
Posted by: soccermom at October 24, 2013 2:42 PM
"That the Planning Commission supports a prohibition on the Planning Commission hearing applications for mergers, demolition, or conversion [if the building in question has had a no-fault eviction occur] at any time in the past 10 years as of today October 24th."
Sorry. I'm a little frazzled.
Posted by: soccermom at October 24, 2013 2:46 PM
Seriously a tempest in a teapot here guys, The City has never looked kindly upon merging units and taking rental units off the market. It would be nice for me personally if they would agree to this, but they generally do not. I knew that this was true when I bought the place. Everytime there is a merger, a rent controlled unit is lost forever, so I understand where they are coming from.
This doesn't have anything to do with TIC conversions, except in the case where you are trying to merge multiple units into one. At least that is how I read it. What does does this have to do with TICs? I don't think The City can do anything about TICs one way or another except maybe delay or prohibit their conversion to condos.
Posted by: NoeValleyJim at October 24, 2013 3:13 PM
As I mentioned on a previous thread about the condo conversion bypass, posters who saw that debacle as making Ellis evictions more attractive were using flawed logic. Poisoning the condo bypass was clearly a victory for the pro-tenant crowd. Even with the carrot of the condo lottery gone if they can still win political victories then they can create other sticks to punish Ellis'ed buildings. And Ellis'ed buildings are very attractive political targets and a small enough minority of the ownership community to not engender much significant push back.
I think the influx of tech and out-of-area money is the factor that will increase Ellis evictions since these groups may not correctly appreciate the "Ellis discount" when buying property. But in my view the more pro-tennant victories in city hall the larger the "Ellis discount" that should be factored in.
Posted by: Watcher at October 24, 2013 3:25 PM
Thanks a lot for this input. And thanks for having retrained from adding well deserved expletives.
To put it into context: The Lee family was evicted. This was maybe why this debate is so emotional and irrational. Action -> over-reaction. Quite predictable really.
You're forgetting one major issue there:
Per soccermom, you have to hold an empty building for 10 years if you have ever had a no-fault eviction before you can merge units, convert the holding to TIC, or demolish it.
Now the TIC conversion is the major issue there. One of the main reasons someone would buy a rental building with low-paying tenant would be to remove the tenants and convert into TICs that you'd then resell (usually the TIC agreement is done at the time of the resale).
Merges or demos are only the sideshow here, something to claim they want to preserve "housing units". The real target is TIC creation.
My opinion: the end game is the increase in extortion amounts that tenants will expect. The SFTU is very clear about it. They know you can't defeat an Ellis eviction, but they'll make it so hard and painful that you'll want to do a buy-out first. And the tougher the post-Ellis period is, the bigger the buy-out that the landlord will have to pay to avoid it.
As I said in an earlier post, the more they hit on the landlord's heads (cue the sftu's web page logo), the bolder and more heartless landlords will become.
People now are not thinking twice about evicting 80-year olds.
Posted by: lol at October 24, 2013 5:44 PM
To be fair, I have never done a TIC conversion, and I don't really know how that part work from a permit basis.
My previous understanding was that you merely changed the way that title was held. But really, that's a fair description of how condo conversions work too. Why can the city regulate condos and not TIC's, then? I am not 100% clear on whether the 'conversions' here mean conversions to TIC, or conversion on use of space (like changing a kitchen to a bedroom, etc.)
Then again, it's hard to be sure when people are voting to support legislation that hasn't actually been drafted.
Posted by: soccermom at October 24, 2013 8:25 PM
What I understand from articles in the sfbg and sfgate is that TICs would be technically considered as rentals and conversions into TIC after an Ellis would require conditional use permit. Many restrictions are added to male Ellis an expensive (higher compensation) and punitive (for landlords that want to TIC) process.
We will know more when the dust settles.
As always a few publicized dramatic events lead to ill conceived legislation from the "shoot from the hip" crowd. They know most of it will be shot down in court or before that, but the renter constituant base had an occasion to vent off at the "evil landlord".
Posted by: lol at October 24, 2013 8:56 PM
What a joke. The Ellis Act in 2013 is the 3rd or 4th lowest in the past 13 years, and that is public knowledge. But all the rags and zealots seize on the "up 81 percent" meme. The fact is, it's a minuscule amount out of the 200k+ Rent controlled stock.
Posted by: Truth at October 24, 2013 9:16 PM
You are correct but the Ellis is invoked only when all else has failed. There are probably many times more buyouts than Ellis evictions, and this scares the begeezus out of the sftu. Also making Ellis more harmful to landlords would push them to offer larger buy outs. A big plus for the sftu.
Now something else to consider. There is no tsunami of Ellises but the math plays in favor of a more systematic use.
Say you own a building with 3 tenants who pay 1600 each for 2/1.
In 2009 the math was:
Market rent $7200/m
Rent deficit $2400/m
Building value as TICs: 1.5M
Buy out total = 4 years of rent deficit= 120K for 3 units
In 2013 the math becomes:
Market rent $10500
Rent deficit $5700
Building value as TIC: 2.1M
Buy out total = 280K for 3 units
Buying out has become much more expensive, in the range of 2 to 2.5 times what was expected just 4 years ago. Property values have increased too but a big chunk of the increase in value would go to a tenant buy out.
The math does not look good for tenants. There is a big incentive to minimize the buy out by doing an Ellis and selling as TIC. Even if an Ellis would lower the resale value by a small fraction, rents are just way too schizophrenic for this market to stay peaceful.
Posted by: lol at October 24, 2013 10:37 PM
Soccermom, if your mind was blown at the Planning Commission meeting check out the 10/16/2013 Building Inspection Commission's latest meeting. See what the Mayor, Supervisor, and the SFTU is trying to do to the owner of 1049 Market St.
Posted by: somabound at October 25, 2013 12:10 AM
One of the main purposes for merging units is to create larger units that would be suitable for a family with children out of two much smaller units (that would not). I'm glad my kids are going to Alice Fong Yu and Lowell, but it would be really nice to legally merge our two units into an SFR. However, families that buy their houses, improve them, and stay in them for 10+ years while their children attend SF public schools and grow up are the enemy, right Avalos?
Posted by: derek at October 25, 2013 8:27 AM
Speaking of TIC/Ellis conversions, I went to see 929-931 Hayes St. (mentioned earlier in the thread). What an absolute nightmare situation.
Can anyone explain why on earth an aging, dying landlord would sign a 15-year below-market lease for their upstairs tenants?
Surely they would want more money to pay for their medical care.
This really perplexes me. I've seen it in a few places (eg foreclosures, estate sales etc.).
Posted by: Jimmy (No Longer Bitter) at October 25, 2013 9:18 AM
I found it dubious as well that the landlord would sign a lease just less than 2 months before her passing.
The lease agreement itself also has non-standard pro-tenant terms, both financially and for-use(e.g., exclusive use of the garden, outdoor space), even if it comes with a witness to the execution.
It certainly makes one think twice and very hard about wanting to co-exist with these tenants.
My guess is that a contractor who partners up with a real estate lawyer takes on this project (and challenges the legitimacy of the lease agreement), or that the heirs just sell this property to the tenants with substantial discount.
Posted by: jack at October 25, 2013 11:42 AM
It wasn't a hit and run.
It was a legitimate question. Yes, people should support their parents:
1. if they can and
2. maybe elders deserve their autonomy and should not be shuttled about by well meaning children or the vagaries of a market that is out of kilter.
Bottom line: when rental property was purchased, often times years ago, the property owners KNEW they were buying rental property. It was an investment, kinda like a bond. I would argue that was the standard for rental properties for years. Evictions were for and should be for cause not for cash. Repeal of the Ellis Act would stabilize the rental market for now.
Also didn't we have a rash of Ellis Act evictions last time the market got super hot and super crazy? And the time before that too?
If investors want to buy rental property today they should do it with the intention of being landlords not as property flippers.
I just think we need rental housing for ALL income levels and for longtime tenants even if they are deemed to be ridiculously low rents. Robust means rental housing as well as owner occupied properties which means a diverse City, not just the rich and the homeless.
Posted by: noe mom at October 25, 2013 11:51 AM
@jack: I will do my part to hinder the tenants' robbery of their dying landlord by making a solid offer on the property ... it could be my first Ellis Act project!
Posted by: Jimmy the House Flipper at October 25, 2013 12:00 PM
I see I got only crickets about why some tenants would deserve help and not others. On what basis? right now the system is wildly unjust.
How do you justify a pretty common situation:
- 2 neighbors in the same building, one paying $700 and the next paying $4000?
How is does this fit into your great Theory Of What A Perfect World With Unicorns?
Crickets also on why would a landlord be asked to subsidize anyone?
Again, it is not the landlord's job to subsidize YOUR family, because HE has a family of his own.
I know I do. I am lucky enough to collect market rent on 3 units AND support 2 family members aside from my own family.
Should I sacrifice MY own family for YOUR family?
Answer I'd love to get.
Posted by: lol at October 25, 2013 12:05 PM
@Jimmy, the lease, I hear, has a specific clause that prohibits eviction for OMI, so Ellis may not be helping? Who knows. I'd be interested to hear what your lawyer says after reading the lease agreement.
Posted by: jack at October 25, 2013 1:32 PM
My lawyer and I are having drinks tonight. Some clauses in leases are unenforceable, and Ellis != OMI.
There is a way to skin this cat... and as I will very likely be outbid by 20 other rabid wannabe developers, the odds are high that I will never find out what that is.
My strategy will be to start the Ellis Act process on Day 1 after closing escrow ... I will refuse to respond or negotiate with them until the last day before their eviction, and only then, at the 11th hour, tender a buyout offer. If they accept then they will profit and leave the next day with more money. If they do not accept, they will still leave the next day and have less money.
This is called negotiation.
Posted by: Jimmy (No Longer Bitter) at October 25, 2013 1:39 PM
Why didn't the owner simply sell the upper unit to the tenant for a token amount? Because EVERY potential buyer will want the top tenant out.
Many landlords are too soft in SF. And being too soft leads to horrible situations where big hungry sharks will tear the tenant apart.
Posted by: lol at October 25, 2013 1:45 PM
I am just a little shark with big hunger... more like a dogfish or other lesser Selachimorphae.
End result will be the same ... they will be moving out in a year or less, unless this is a ploy for them to buy the whole building on the cheap. They will be disappointed.
Posted by: Jimmy the House Flipper at October 25, 2013 1:49 PM
Be aware that invoking the Ellis act creates a paper trail (at the rent board at least). My guess is that even a buy-out right before the Ellis act is actionable might still amount to an eviction on paper.
Posted by: lol at October 25, 2013 1:52 PM
I think you can file it and then withdraw it and keep it as a rental prop. Maybe there are some disincentives but the upstairs unit will need heavy renovations prior to re-renting or resale anyway.
Basically if you're not willing to go through with Ellis eviction and the tenants are not willing to accept a buyout then what hope does a landlord have in a negotiation?
You simply have no other leverage here. Anything else is just wishful thinking.
Posted by: Jimmy the House Flipper at October 25, 2013 2:01 PM
Actually I retract that. Once recorded, the re-rental restrictions apply.
In this case, the units are very large and could be subdivided into smaller units... so one workaround might be to Ellis, then divide the building into smaller units (at least upstairs), then re-rent at market rates.
In that instance, the upstairs units would not be the same as the unit previously vacated under Ellis.
I'm sure we could fight an excellent lawsuit over that.
Posted by: Jimmy the House Flipper at October 25, 2013 2:10 PM
Yup, A lawyer would be your best friend there.
The tenant interests have booby trapped the field. I have made my realtor's life a bit difficult this past year by looking at a few deals, then going as far as we could in the discovery process. All were potential minefields at the pricepoint I was looking at. The last one I backed out from was in May.
Then I said F*** leechy entitled tenants. No way I am gonna reward an already low-paying tenant with $100+K. Better let the real sharks use no compassion and extract their blood money. I flew to France and hunted for value property. Prices have gone down a lot on the southern coast if you avoid the shiny stuff. Bargains all around, easy low-balling and no competition.
Posted by: lol at October 25, 2013 2:28 PM
So this is really all about breaking a contract for personal gain, not ideology. Right?
If the lease is legitimate then the libertarian thing would be to respect the right of the owner to dispose of his property as he chose to.
If the lease was fraudulent or coerced then a crime was committed and the tenants should be prosecuted.
The free market has plenty of examples of long term contracts where prices are agreed upon in advance and don't follow current market (or spot price). Many commercial leases are long term.
If you buy a commercial building with a long term lease with rent under the current spot rate, an identical building right next door might be collecting more rent due to different lease terms. But anyone buying the building with the long term lease had the opportunity to factor that into the purchase price. If rents rose faster than expected that's just tough luck.
The same really applies to rent controlled buildings. Many people here would just like to purchase a rent controlled building on the cheep and then get a windfall by being able to charge spot market prices.
My libertarian issue with rent control is that the government requires this type of lease on certain units. A requirement which does not have beneficial effects on the market. In fact, to answer people who claim that rent control is required to provide people with stability I'd point right to commercial long term leases to show the the free market can in fact provide such stability.
A free market is not synonymous with being able to do whatever you want to maximize your profit.
Posted by: anon2 at October 25, 2013 2:28 PM
In my case, my sole motivation is profit. I don't spend a million dollars on a property just to make an example of someone for ideological purposes. Perhaps if I was much wealthier I could do that, but for now, I am only in it for profit.
Posted by: Jimmy the House Flipper at October 25, 2013 2:37 PM
Nothing wrong with profit.
But being able to break any agreement solely to increase your profit is not a basis for a functioning free market.
And dysfunctional markets just provide support for people calling for government intervention or control of markets.
Posted by: anon2 at October 25, 2013 3:04 PM
- Defends rent control
- Wants a functioning free market
Oh the irony...
Posted by: lol at October 25, 2013 3:08 PM
In your case, the type of RC I'd advocate for is "Reading Comprehension"
Give it another try.
Posted by: anon2 at October 25, 2013 3:18 PM
By definition the rental market is broken because of rent control. It seemed to work until a few years ago, then this pesky little thing called "demand" exposed some huge flaws in this awfuly complex Rube Goldberg contraption.
Not happy with the results? Add an extra hurdle. A new problem comes up? Add an extra rule. Still not working? Another law should do it.
Rube Goldberg it is.
Whatever happens today is nowhere close to "free market". Claiming it a deeply flawed representation, almost as flawed as claiming Fox News as "Fair and Balanced".
Posted by: lol at October 25, 2013 3:35 PM
IANAL, but I just read the ordinance in question and I think "conversion" pretty clearly means conversion to a non-residential use. So this would have no impact in turning rentals into TICs via a no-fault eviction. Even if it did, the owner could use The Ellis Act to do so. You guys are all steamed up over something that is really quite minor.
@derek I would like to merge my two units into a SFH too, but I knew the rules when I purchased. Didn't you? I am not really expecting The City to change the rules just to favor me and my family over everyone else.
Posted by: NoeValleyJim at October 25, 2013 3:53 PM
If TIC are considered as "rentals", then a prior Ellis eviction could prevent the creation of TICs, wouldn't it? Of course there's the question of whether this is kosher or not.
Posted by: lol at October 25, 2013 4:09 PM
I'm thinking that one could TIC first, then Ellis... why must the TIC come after the Ellis and not before?
Or TIC, sell 1 unit, then OMI or RMI into the other one that you maintain an ownership interest in ...
Posted by: Jimmy the House Flipper at October 25, 2013 4:13 PM
In theory, I guess you could.
1 - Buy
2 - Fix up the empty unit
3 - Market the empty unit
4 - Create the TIC at time of closing
5 - OMI the top unit
But check with a lawyer first.
Posted by: lol at October 25, 2013 4:20 PM
Its my current thinking since further onion-peeling reveals that you can't Ellis when a long term lease is still in force. So that's off the table here.
Two parallel avenues of attack seem to be:
1 - Attack validity of lease signed by landlord on her deathbed. Claim coercion, etc.
2 - Reno/Market/TIC convert empty lower unit then OMI/RMI upstairs after covering cost basis for purchase.
Will be discussed over drinks with lawyer tonight.
Posted by: Jimmy the House Flipper at October 25, 2013 4:24 PM
I am not asking anyone to make a sacrifice.
If you are getting market rates for your property fine and good for you. That is my point about being a landlord. You are a landlord, not a real estate developer.
Some landlords have rent controlled apartments and some have market rate. I would think that most SF rental apartments are month to month or just a yearly lease. Anything longer than that would be an anomaly.
My unicorns and I just don't think that rental property, particularly longterm rental property should be turned into and sliced and diced into apartments for sale.
Rental property at any price is important and given the economy there are many people who need rent control.
I am not trying to take anything from anybody any more than anyone else on this posting is....
I just think the Ellis Act should be done away with. And I think we need rent control on currently occupied apartments. My understanding of the rental market is that there what I think is called vacancy decontrol. When an apartment becomes empty the owner can charge the market rate, or whatever they can get.
I think those pictures of the family in the Nob Hill apartment are pretty ugly and sad. You can say it was presented to the public in a political way to evoke sympathy, but it should!
Posted by: noe mom at October 25, 2013 4:58 PM
Why would SF rental laws be any different from say Tucson, AZ or Bangor, ME?
They shouldn't be. But an oddity in history (SF being a hub for transient labor on the way to riches like the gold fields, and SF having many wealthy folks who needed to invest their extra cash) allowed SF to have a 60% tenant majority, compared with the 65% of home-ownership that the rest of America enjoys.
And anywhere outside of bubbles like SF would anyone consider renting a guarantee for stability.
Quick fun quiz: what is more stable?
- A - Owning
- B - Renting
I'll give you a few minutes...
These tenants in Nob Hill? They have 6 children, at least one with a house. There are options for the ones who really try.
I am housing a family member who cannot afford to live where she wants to live. I am helping her.
But should I help someone else's family member THAT CANNOT AFFORD TO LIVE WHERE SHE WANTS TO LIVE. Nope.
Posted by: lol at October 25, 2013 5:23 PM
I know I shouldn't engage... but I think noe mom is forgetting that rent control in SF started in 1979. Many of the landlords that owned buildings in 79 STILL own those buildings today in part because of prop 13. Many of these landlords are dying off or cashing out to retire. Others are fed up with the SFTU and just want to Ellis to go out of business. New landlords simply can't "just be landlords" because there is no way for it to work financially when buying a multi-family property here in SF. Being a landlord is inherently a business designed to make money. It's not about generously giving people a place to live for the good of the city as a whole. Rent control and Prop 13 trapped a lot of landlords into holding on to properties long after they should've been sold off. As such, the condition of much of the city's rent controlled housing stock is deplorable because there's no incentive to fix anything. Longterm landlords either can't afford basic maintenance because the income generated is so low, or they're cheap and know that rental housing is so scarce (because of the city's own policies to protect tenants) that they know people will pay anything to live in a dump. I'm sure there a a few kind-hearted landlords out there who love their RC tenants like family members, but they can't live forever or hold on to a property indefinitely. The more the city tightens the leash on landlords, the more units will be removed from the market. Commissioner Moore laments the vacancies in her neighborhood, but the reason is staring right back at her every time she looks in the mirror. My solution has always been to build more rental housing which, thankfully, is happening. The city should encourage landlords through various financial incentives, deductions etc. More supply = somewhat cheaper housing... and less paranoia from the PC and inflammatory articles like the one about the elderly couple, which could just has easily been titled, "Elderly parents forced to live in hotel when adult children leave them in the streets." Filial piety my a$$.
Posted by: Denis at October 25, 2013 6:20 PM
@NVJ - Thanks for the review and I would be happy if you were right as for the definition of 'conversion' language that would be prohibited under the resolution on hypothetical legislation.
I think if you asked the Planning Commissioners what they were voting on, I would wager more than 2 would have said they had resolved to impair TIC conversions (as opposed to 'use' conversions) with this "no-fault eviction" 10 year lookback period.
No one at the meeting was disputing whether Ellis Act evictions are still possible. It's whether, after an Ellis Act eviction, new planning regulations could prevent an owner from re-selling the units at TIC's. That the new regulation would prevent an owner (by prohibiting the Planning Commission to hear an application) from merging a unit or demolishing a building seems unambiguous.
I'm still not 100% sure, but would be glad to know that my original conclusion was wrong, and yours is correct...
Posted by: soccermom at October 26, 2013 12:57 PM
I see, they could require the owner to sell the building as one entity, instead of in pieces. I would be really surprised if it was legal to encumber the sale to a partnership like that, but not terribly surprised to see The City attempt to do so. Let me ask around and get back to you.
Posted by: NoeValleyJim at October 26, 2013 1:38 PM
There is no doubt that the sftu-inspired supervisors are looking for a silver bullet against whoever might endanger rent control or might make it obsolete.
But every new piece of legislation exacerbates the problem. The more protected rents are disconnected from market rents, the more potential for a massive disaster.
My best analogy: Yosemite has managed to thrive through history, but its worst enemy is the goodwill of humans to preserve it. Now with a distorted environment (massive overgrowth) a big fire has destroyed very old forest that will have a hard time growing back.
And it was done with the best of intensions...
Posted by: lol at October 26, 2013 9:39 PM
Back to 931 Hayes ... I read the lease (and the tenant's accompanying handwritten notes and email demands), and it is a monument to tenant entitlement in San Francisco. Think carefully about feeding the tenant monster you have created!
I think that 929-931 Hayes (and most especially the lease) deserve their own special thread on this forum! Quick, before the sale closes in 3 days.
Posted by: Jimmy the House Flipper at October 28, 2013 1:30 PM
Agreed. How do you like the reason behind that temporary decrease in rent?
Did your lawyer come up with a plan? Not that I'm asking you to share the specifics, but am just curious whether if you have a read on how cost-effective it is to take on the project.
Posted by: jack at October 28, 2013 1:56 PM
I think sharing all the tenant's entitlement demands would be a very relevant piece of information.
Just for the sake of balancing the debate...
Posted by: lol at October 28, 2013 2:30 PM
A plan? Not really. Check the link for hilarious tenant disclosures. Lawyer's advice was to follow one of three known methods to permanently evict a tenant: OMI, RMI and Ellis Act. Ellis is out due to existing lease. My idea of challenging the validity of the lease was dismissed outright. Challenging the provision forbidding OMI and "allowing" the owners to live downstairs (minus use of the garden), that could be challenged.
I have a few devious ideas about turning the back stairs into a metal fire escape ladder ...
Conveniently, I have 63-yo relatives who are disabled and do in fact need a place to live in town. If I do it, it'll be an OMI/RMI eviction.
But between the eviction fight and $83,000 (estimated) worth of termite damage I am getting a little bit of cold feet here to be honest. I do like the property. I also like not losing my shirt.
Posted by: Jimmy the House Flipper at October 28, 2013 3:44 PM
If you read the emails and lease carefully, it prohibits OMI into the upstairs unit (931 Hayes) HOWEVER, it also states that the owner lived in 931 Hayes from approx. 12/2012 until her death in March.
I'm sure in order to get that lease signed there was much guilt-tripping and arm-twisting of the old lady in her last days while bedridden. Death is not pretty, but neither is rent control. It's pretty unconscionable behavior on the part of the tenants to take advantage of their old landlady and they shouldn't be rewarded for it with a sweetheart lease deal, but that's what happened.
Posted by: Jimmy the House Flipper at October 28, 2013 3:53 PM
@NVJ, I've scanned the docs a couple of times (including forays into the planning code) and came to the same conclusion -- that is, conversion refers to converting to a non-residential use.
As far as TICs, people need to understand that there is no such thing as a "TIC conversion"; it's simply a way to hold title to the property. If you want to CYA, it's advisable to have a TIC agreement as well (but not required). IANAL. YMMV.
@JHF, I didn't have the guts to clink on the link. How long is the 'long term lease'?
Posted by: EBGuy at October 28, 2013 4:00 PM
Wow. Thanks for the info. I am not sure you want to keep these files out there.
Seems like a case of
1 - Rent control traps landlord
2 - Landlord too nice or too elderly to protect his/her interest
3 - Landlord cannot properly maintain property with collected rent
4 - Tenants complain property is not properly maintained and outright dangerous
5 - Landlord dies, leave the problem to someone else to fix
6 - Shark circle the sinking ship
Posted by: lol at October 28, 2013 4:02 PM
The link is harmless, its a file hosting site. The disclosures and tenant emails are a hoot. Not to mention the handwritten addendum to the lease (clearly added after the owner had died).
Posted by: Jimmy the House Flipper at October 28, 2013 4:03 PM
I wouldn't worry about leaving it out there, anyone who asks the listing agent can view the disclosure packet.
Posted by: Jimmy the House Flipper at October 28, 2013 4:05 PM
In any other city would this situation have been resolved by a rent adjustment which would have provided the needed funds to fix the heating, safety issues, windows...
Even better, this situation would never have occurred in the first place because rent would have followed market rates.
And: in any other city would the potential buyers stay away from this kind of deal. But the distortion of this market is such that there's tons of money to be made. And the tenant suddenly become the enemy.
Posted by: lol at October 28, 2013 4:26 PM
The lease is laughably egregious. Thanks for sharing it Jimmy. I can't imagine that it holds up against an Ellis eviction.
What's more, they claim that the rent reduction (!) to $625 a month from their previous $925 was because of the help they had provided to the landlord around the time when her husband had died and she herself had fallen ill. Implicitly, the poor woman was in a state in which she needed assistance when the tenants tried to take advantage of her with the new lease.
These connivers will get what's coming. My spreadsheet would be $35K in legal fees, + 6-12 extra months for the wheels of justice to grind through the BS.
Posted by: soccermom at October 28, 2013 8:56 PM
Yeah, maybe, soccermom.
Or maybe you'll be given the run-around like the 3 Castro owners who have to redo the recently debated Ellis due to a technicality last week.
But the good thing is that the holding costs are not too high on a 700K property, if that's the selling price.
And conniving? Dunno. They lived in the same building for quite a while.
Sometimes people surprise you. I helped an older neighbor lady with her squatters in a former life and didn't ask anything in return (I cleared out 4 total in that building, with no vested interest other than seeing bad people move out). A few years later she gave me first dibs on the place, a "name your own price" kind of deal.
Posted by: lol at October 28, 2013 10:08 PM
Let us say that an owner of a condo buys the adjacent one bedroom unit and knocks down a non-bearing part of a wall to merge the units. Then the second living room becomes a library and the second kitchen a 'wet bar.'
How does the city punish this? What are the consequences?
This is what happens legally literally every day in Paris and New York. We know at least a dozen people who have done it in those cities.
Posted by: conifer at October 29, 2013 10:56 AM
I have done a few mergers in Paris without so much as a peep from the city or neighbors. It's very common actually especially for maid quarters.
But in SF, it's highly regulated and a neighbor will probably 311 you.
The City behaves as it the 60+% of tenants and their dwellings were a threatened species.
Posted by: lol at October 29, 2013 11:58 AM
But to go back to your question, if you do non-permitted work, the city will usually ask you to undo it THEN make you ask for a permit. If it's non-permitted work done before your time, it's another story.
Posted by: lol at October 29, 2013 12:44 PM
Like so many things in this life, it is always better to simply lie and never volunteer even a shred of information to a bureaucrat.
When subject to scrutiny, be pleasant and polite, carefully follow the law to the letter, never more, and then screw them somehow when they're not looking.
La revenge est un plat meilleur servit froid.
Posted by: Jimmy the House Flipper at October 29, 2013 1:21 PM
Tim Redmond's blog talks about this proposed ordinance and claims that it will reclassify TICs as rentals and therefore put them under the Rent Control Board. This seems improbable to me, even faintly ridiculous, but apparently this is the proposal.
Posted by: NoeValleyJim at October 31, 2013 11:01 AM
That's what I understood. See my post @October 24, 2013 8:56 PM.
Yes, it's ridiculous. It shows that when confronted with reality that doesn't fit their desires (aka The Law) our dear leaders will resort to moving everyone to an alternate reality.
Considering TICs as rentals is akin to saying pepper spray is just a food product.
A desperate attempt at grasping at invisible straws.
Posted by: lol at October 31, 2013 11:21 AM
I just caught up on Tim Redmond's blog. It's very entertaining to see how decades of unchecked entitlement can make you blind to reality. Unfortunately he's not your garden variety of Hyde Park Corner preacher, since his views are actually listened to by many supervisors.
The patients are running the asylum. Or at least trying to.
All I am waiting now is to see this crazy piece of legislation to be voted, only to be rejected veeery quickly at the state level. You'll see the usual fruits-and-nuts picketing in Sacramento asking for "justice" (as opposed to the rule of law!).
Posted by: lol at October 31, 2013 11:36 AM
@NVJ Tim Redmond's blog talks about this proposed ordinance and claims that it will reclassify TICs as rentals
Only Item 2 in his Oct. 25 blog post talks about this specific ordinance (the Avalos Admendment). The other items are a wish list from various advocacy groups.
Item 1 talks about amending the Planning Code to create FRACTICS, a specific new use category. I actually agree with this one. TICs with fractionalized loans and separate property tax bills are a weird "almost a condo" construct. There is a case to be made that the buildings should be upgraded to the latest standards by developers if they want to sell a fractionalized "Forever TIC". Leave the affordable TICs to those with a group loan and single tax bill.
Item 3 is an interesting angle that recasts a cornerstone of any TIC agreement worth its salt -- that is, granting "exclusive use" of a unit to an individual is akin to a lease. I'm not in favor of it, but perhaps a case can be made.
Posted by: EBGuy at October 31, 2013 12:28 PM
I am not following this "Item 2" argument.
There's nothing in a TIC agreement that says "fractional" or "group", is there?
"fractional" or "group" is simply the type of mortgage they managed to find, and it can change. Some TICs can go from "group" to "fractional" without rewriting their TIC agreement from what I know. It's just a matter of having partners with the right equity and the right income levels to see it happen.
Actually, many of the remaining "Group" financing TICs are usually saddled with one bad apple, or a low equity, or not enough cash among themselves to be able to qualify.
I think desperate tenant advocate groups are throwing any kind of wild idea out there. It's impossible for them to accept that RENTALS ARE NOT SUPPOSED TO LAST FOREVER and that a renter DOES NOT OWN THE PLACE.
But try telling that to someone who is taking low rent as a reward for "putting up the years".
What does a landlord get in exchange for "putting up the years" of subsidizing a tenant? Scorn.
Posted by: lol at October 31, 2013 1:06 PM
lol said: Some TICs can go from "group" to "fractional" without rewriting their TIC agreement from what I know.
Perhaps, but you or I probably would not want to be part of that group. A decent TIC agreement (IMHO) will have a "nuclear option" -- that is, if everything goes to hell in a hand basket and differences cannot be resolved between parties, one of the TIC members can force a partition sale. A partition sale means the building gets sold, the proceeds are split between owners, and some folks go home unhappy. Just like MAD in the cold war days, you hope this never gets used, but it's there to keep everyone focused.
Once you go to fractional loans, you can no longer force a partition sale as that right usually goes to the bank (as it may be necessary to use it to collect on a non-performing mortgage).
IANAL. Most of my knowledge comes from going through the TIC/condo conversion process over a decade ago and actually reading the documents.
I agree with your bolded statements above and think that the condo conversion moratorium was a horrible idea. It may be splitting hairs, but I actually want to see affordable housing for the middle class, not a profit center developers. I'd rather see RE professionals organizing a group of TIC buyers on a group loan versus a developer gobbling up most of the pie... but then you need a path for condo conversion... sigh...
Note that my Item list in the previous post refers to the the four items in the
A Policy Agenda to Halt Housing Speculation and Preserve Housing for Working People and Seniors that can be found at http://timssanfrancisco.blogspot.com/
Posted by: EBGuy at October 31, 2013 3:18 PM
EBGuy, true, I have seen that nuclear option in TIC agreements too.
But more often than not I have seen TIC partners who were stuck with a group mortgage and almost unable to sell their units because the buyer would have to buy out the share of the seller and keep the too high interest rate.
One of a few examples: I considered investing in a TIC unit that appeared to have a decent ROI a few years back.
It turned out that:
- The TIC had been created in 2007 with group mortgage rates at ~7%
- The TIC building had $95 of mortgage for $100 of market value: very hard refi without every partner writing a big check
- One of the TIC owners had decided to create his own job, and therefore couldn't provide any pay stub, living on savings until his business took off. He was also preventing any easy refi.
These TIC partners are stuck with each other with a high interest rate. I prefer fractional financing, thank you very much.
Posted by: lol at October 31, 2013 3:32 PM
The answer to un-sellable real estate (or unqualified buyers) is and always has been Seller Financing, which comes in many wonderful and varied forms such as "Contract for Deed," "Installment Sales," "All-Inclusive Trust Deeds," "Lease Options" and probably a dozen other variants I've never used or heard of.
I collected a nice 13.6% annualized return on equity using a Contract for Deed during the recession. And I was able to sell the property for about 15% over current market value as no appraisal was required.
That's a win-win! (Meaning I win twice, right?)
Posted by: Jimmy the House Flipper at October 31, 2013 3:45 PM
Seller financing for a TIC? Interesting option.
Posted by: lol at October 31, 2013 4:29 PM
Hey man, thinking outside the box got me where I am today: In a windowless office next to a freeway offramp on the Peninsula.
I see no reason why, practically speaking, this could not be done.
Posted by: Jimmy the House Flipper at October 31, 2013 4:35 PM
Here is yet another piece of disinformation from the rent control pimps:
A few nuggets:
1 - Almost all paragraphs present the tenant advocate's side. The usual "Tenderloin Housing Clinic" and such.
2 - The article claims buy-outs are only twice the amount of the relocation fee. Try 10 times, or 20 times in some cases.
Of course no landlord would accept to comment, since they'd be necklaced by the rabid tenant advocates.
It's not like a group of landlords is going to show up at someone's doorstep asking for fair treatment. They know better.
Posted by: lol at November 1, 2013 11:58 AM
I still find it delightfully ironic that the 10-year moratorium on condo-conversions has stimulated a huge increase in Ellis Act evictions -- precisely the opposite effect the tenant advocates were wanted!
Why doesn't the city just grant itself first right of refusal on all apartment building sales? Then tenants can get into the business of supporting rent control with their own tax dollars.
Posted by: Jimmy the House Flipper at November 1, 2013 12:32 PM
It's the whack-a-landlord game.
Whack one on the head and see another one pop-up on another hole. Whine, rinse, repeat.
And the more they whack the landlords, the more ruthless the landlords become, creating the perfect soulless for-pure-profit evicting machine by making the sensitive people stay clear of the sport.
Ironical indeed. They got rid of the little harmless fish and made the environment perfect the Big Whites.
Posted by: lol at November 1, 2013 12:41 PM
Cambridge, Massachusetts, used to have very strict and elaborate rent control laws. There are so many renters in Cambridge that it is impossible to pass any local amendments there that would negatively impact renters or level the playing field for landlords. So what eventually happened was that landlords grouped together and promoted a statewide ballot initiative that made rent control illegal in the state of Massachusetts.
I think the story of rent control in Cambridge, MA is a lesson that San Francisco landlords should study and emulate if they ever want to free themselves from the yoke of city regulations.
Posted by: Jimmy the House Flipper at November 1, 2013 1:04 PM
What happened to rents after rent control was abolished in Cambridge Jimmy? Did they go up or down?
Posted by: NoeValleyJim at November 2, 2013 5:32 PM
up more than 50% in 3 years
There were dire predictions of hardship when rent control was abolished. Some of them came to pass. Cambridge (home of Harvard University), which had roughly 16,000 rental units under the strictest regulations in the state, recently reported that nearly 40% of tenants in regulated flats moved out after rent control ended. From a modest survey of 1,000 households, city officials concluded that decontrolled rents overall jumped by more than 50% between 1994 and 1997 (from an average of $504 a month to $775), outpacing market rates. Over the same period, complaints of eviction also rose by 33%.
abolishing rent control added about $1.8 billion to the value of Cambridge's housing stock between 1994 and 2004, nearly a quarter of Cambridge's total residential price appreciation in this period. Nearly $1 billion of this increase came from the positive spillover impact of decontrol on the valuation of residential properties that were not previously covered by rent control.
Posted by: Jake at November 2, 2013 5:51 PM