Rollin’ TICOctober 21, 2008
Tenancy In Common (TIC) properties have grown in popularity over the years. One reason is the rising cost of housing in San Francisco has put the generally lesser-expensive TIC on the map. Another reason for their growing popularity, especially since 2005, is the proliferation of fractional financing. Currently, TICs account for approximately 3-4% of San Francisco’s total housing stock (per the tax assessor’s office).
So what exactly is fractional financing? In a traditional TIC, there is one loan for the entire building, essentially making you business partners with your neighbors. If one of your neighbors can’t pay their share of the loan payment, the bank will come after them and the other tenants. For this reason, neighbors scrutinize the financials and are very picky about who they let join in on an existing TIC loan (and rightfully so!). Despite the risk involved, we rarely hear of loan default being a problem in a traditional TIC.
In recent years, lenders have developed TIC lending products where tenants can now get an individual, or fractional loan, for their percentage ownership in the building. Fractional financing has definitely added fuel to the growth and desirability of TIC ownership, mitigating a huge portion of the risk of being in a traditional TIC. There are currently a handful of banks across the nation that will do fractional loans on San Francisco TIC properties (we know of about five). Here is a look at the number of TIC sales taking place within the City of San Francisco since 1995 (per MLS). Each year was capped at October 19th, so we could include the present year.
The chart shows a sharp increase in the number of TIC sales over the last 14 years. It’s impossible not to notice the big dip here in 2008. One reason for this is tightening credit and the higher down payments being required by TIC lenders. Many of their rates negate the cost savings on the TIC form of ownership. Furthermore, many have down payment requirements that put TIC properties out of reach for many buyers. Despite all this, we’re still at levels nearly double that of just 5 years ago.
Let’s see what those median sales prices are doing.
After a nice rise with a couple of dips thrown in, TIC median sales prices are holding steady, right at about the same levels as 2004. Keep in mind, this is for the entire city of San Francisco. If we were to drill down into different neighborhoods and look at micro-market trends, we’d see different pictures for different areas (so TIC owners, don’t panic!). We’ll save that analysis for another post.
So what’s the most expensive TIC that has sold in the City? We’re so glad you asked! We perused MLS and found this home, which sold in December of 2007.
This Russian Hill residence sold for $2,550,000 at $1,294 per square foot. No, not the whole building, but one of the three units located within this building. That’s a big number, but we’re not surprised to see that number perched atop Russian Hill.
UPDATE on 11/13/2008
See THIS article from the Wall Street Journal reporting on that dip in the chart above. Seems TIC lending requirements have caused the decrease in popularity of the TIC over the past year.