Editor's notes

Sorry we're not sorry, TIC owners -- the law applies to you, too

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tredmond@sfbg.com

EDITORS NOTES People who rent apartments aren't second-class citizens. In fact, under San Francisco laws, they have (and ought to have) many of the same rights as the landed gentry.

If you rent a place in this city, and you pay the rent on time, and abide by the terms of the lease, you should be able to stay in your home (and yes, it IS your home) as long as you want. The rent can only go up by a modest amount every year.

Landlords know that when they enter into rental agreements. Accepting a tenant means acknowledging that the person may want to say in his or her apartment for years, maybe for life; the rent the landlord sets for that unit has to be adequate to cover a share of the mortgage, expected maintenance costs, and a reasonable return on the owner's investment.

When you buy a piece of rental property in the city, you are told that tenants live there; you're told what rent they pay, you're informed that you can't raise it much, and unless your utterly ignorant of local law, you realize that the tenants have, in effect, lifetime leases since you can only evict them for "just cause" — which does not include your desire to make more money.

If the numbers don't pencil out under those conditions, they you shouldn't buy the place.

That's how a sane rental housing system ought to operate. Unfortunately, the state Legislature has undermined local rent-control laws with the Ellis Act, which allows landlords to evict all their tenants, cease renting altogether, and turn the place into condominiums. Or, since there are limits on condo conversions in this city, into tenancies in common, which are not limited at all.

Sup. Scott Wiener wants to make it easier to turn TICs into condos; he says the poor TIC owners are having a tough time and can get better mortgage rates if they rules are changed. I don't feel bad for them; they knew the rules when they bought their TICs. They have no right to convert to condos; that's a privilege granted to a limited number each year, by waiting list and lottery. Buy a TIC? You should assume it will remain your ownership model for a long, long time.

The city can't stop the TIC conversions, but it can set ground rules — for example, local law mandates a payment to tenants who are evicted, which can reach $5,000. Sounds big — but it won't even pay two months' rent on a new place in this market.

SO let's be fair here: If you want to evict a tenant, who has and ought to have the right to a stable place to live, you should pay enough to make that person whole. Calculate market rent on a similar place; subtract the current rent the tenant is paying, and cover the difference — for, let's say, five years.

If that makes TICs too expensive, and thus lowers property values by making evictions difficult and keeping rents low, fine: Property values are too high in this town anyway. And if it means more stability for lower-income people at the expense of property owners ... well, I can live with that.

Comments

When a person or corporation buys property they know it is legal to evict using the Ellis act. Thats the law; renters also by now should be well aware that is the law.

With the current rent control laws is it any surprise Landlords want out of the rental business, may be look a bit deeper at the underlying problem; rather than whine about the not surprising rate of evictions.

Posted by Chris Pratt on Feb. 06, 2013 @ 8:11 am

(to use your words) a "lifetime lease". But neither landlords nor tenants believe that. As well as the Ellis provision, there are evictions for moving in an owner, a relative of an owner, a substantial rehabilitation, and a merger or demolition, as well as for a condo conversion.

Then there are "for fault" evictions for nuisance, damage, criminal behavior, not paying the rnet, being late with the rent and breaking the terms of the lease e.g. unapproved pets, subtenants etc.

The result is that there are thousands of evictions each year (the Rent board keep precise stats) and you can add to that payoffs and voluntary moveouts (no tenant aged 60 in their right mind would want to live in the same place they shared as a 20-something).

Any tenant who accepts a new rental in SF knows about Ellis and the high probability that they will have to move a few times. Or of course might want to buy a TIC themselves.

But a tenant who really wants to spend a lifetime in a rental generally can. The secret? Pay a market rent.

Posted by Guest on Feb. 06, 2013 @ 8:32 am

If Tim gets his way, hopefully recent improvements to TIC financing will be made available to those in distress. Many vulnerable TICs - financed under shared as opposed to fractional loans - are the lowest rung of SF homeowners (teachers, social workers, etc). It will be a shame to see them lose their homes, only to be replaced by those with higher incomes.

Posted by Guest on Feb. 06, 2013 @ 8:37 am

often the very same public-sector workers that he normally thinks are precious little angels in God's garden.

A TIC building on my block includes as it's owners a schoolteacher and a nurse. Obviously they are grteedy, grasping speculators and parasites, huh?

Posted by Guest on Feb. 06, 2013 @ 8:52 am

There's one on my block that was bought by the former tenants. They embody SF's vaunted diversity and eccentricities. I suppose it will make a nice home for techies, if the current TIC group can't navigate the financing market.

Posted by Guest on Feb. 06, 2013 @ 9:19 am

Many of the points in this article only apply if the unit is rent controlled. If you buy a rental property that isn't rent controlled, you can conduct an "economic eviction" -- say, raise the rent to $30,000 per month. Then the tenant vacates.

Posted by The Commish on Feb. 06, 2013 @ 8:54 am

or SFH and is not subject to rent control by virtue of Costa-Hawkins rather than by virtue of being post-1979 construction.

Older condo's are exempt from control of rents but are subject to just cause eviction control. That's an odd thing because, as you note, a LL could then simply jack the rent up to something silly.

However, in that case, a TT may claim illegal eviction on the basis of the rent raise being a "constructive eviction". to do that the TT would have to show that the riase was so egregious and unreasonable that eviction was clearly the primary purpose.

In practice, though, RC-exempt rentals work well. The LL gets a market rent and so doesn't want the TT gone anyway. While the TT gets security of tenure precisely because they are paying a fair rent.

Posted by Guest on Feb. 06, 2013 @ 9:05 am

got their asses handed to them in the last election, the Guardian had an article about how they need to tone down the nastiness in the political discourse, how they had to have outreach to broaden their coalition. Now a few months later they are hard at work creating tensions among homeowners and renters, and between TIC owners and other homeowners. Mocking TIC owners as "poor TIC owners" and having no sympathy for TIC owners who might be struggling: way to broaden your coalition. Eff the middle class in SF! A true winning strategy!

Posted by guestD on Feb. 06, 2013 @ 9:11 am

realize that SFBG staff are all white, educated, middle-class liberals. They probably don't even know any poor people, let alone care about them collectively or help any of them on an individual basis.

Rather, it's all about demographics. More home ownership and less renters means a more moderate electorate in SF, which spells curtains for those like Tim to earn a living pandering to extreme left-wing causes.

It's self-interest, pure and simple.

Posted by Guest on Feb. 06, 2013 @ 9:18 am

Most people do not have the stomach for the fraudulent TIC market and are content to rent in the most expensive real estate market in America. Those that do speculate in TICs probably include a high proportion of psychopaths who deserve everything coming to them when the giant real estate fraud finally collapses.

Only the sickest of minds thinks this is all ok.

Posted by Guest on Feb. 06, 2013 @ 2:15 pm

schoolteacher. Please describe how they are psychopaths so I can inform their employer - the city of San Francisco that they shoudl ignore the good work they do for relatively low pay, and fire them for having the audacity to try and buy a home in SF.

They should know their place and carry on renting, right?

Posted by Guest on Feb. 06, 2013 @ 2:24 pm

Only the wealthy should aspire to own their home. The rest of us should be content paying rent to our betters.

Posted by Guest on Feb. 06, 2013 @ 3:28 pm

Thank you. Sometimes aping one's betters leads to big problems.

Posted by Lucretia Snapples on Feb. 06, 2013 @ 4:44 pm

SF has too many wannabees who want to live in SF but lack the fiscal power, education and skillsets.

Posted by anonymous on Feb. 06, 2013 @ 4:47 pm

Which must mean he knows his side is close to losing this battle.

Posted by Lucretia Snapples on Feb. 06, 2013 @ 4:42 pm

even more evident. The Ellis Act and the ability to form a TIC are both subject only to State Law.

So even if Tim could persuade the Supes to pass something (much more likely 5 or 10 years ago than now) it still cannot touch the Ellis/TIC path to freedom.

And that is why he is so angry. Just like how Bruggmann went red in the face every time a public power voter initiative failed at the polls, Tim goes apoplectic every time a progressive voters has to move to Oakland.

The battle for SF is being won by Adam Smith and for need for economic growth, prosperity and an expanded tax base.

Posted by Guest on Feb. 07, 2013 @ 11:18 am

I’m a tenant’s rights lawyer and real estate broker. Whenever possible I help tenants facing eviction buy their TIC units. I also own and reside in a TIC unit. My building has twelve units and would not be affected by the proposed law.

I just read the actual text of the legislation sponsored by supervisors Farrell & Wiener and I’m against it.

TIC financing isn’t that difficult anymore. Fractional loans are the norm and not that much more expensive than condominium loans. It does cost a little more to finance a TIC, but the units cost less to begin with. So I don’t really see a hardship on the part of TIC owners who generally have smaller mortgages because they paid less for their units to start with.

The supposed $20,000 per unit condo conversion impact fee to benefit low-income housing is largely illusory. The proposed law contains a reduction for each year the building has participated in the lottery, so a building that participated in the lottery for five years, which is the majority, would get an 80% reduction and pay only $4,000.

Although the law would provide lifetime leases for the few tenants occupying converted units, this benefit is seriously disproportionate. For the tenants getting lifetime leases, good for them but that is a huge windfall for a very few lucky individuals. For tenants generally the legislation is actually quite bad. Once any of the affected units becomes vacant, all future tenants would be exempt from the rent increase protections of the Rent Ordinance. And allowing certain owners to bypass the condo lottery will only encourage more Ellis-TIC conversions.

Posted by Richard Hurlburt on Feb. 07, 2013 @ 3:36 pm

I’m a tenant’s rights lawyer and real estate broker. Whenever possible I help tenants facing eviction buy their TIC units. I also own and reside in a TIC unit. My building has twelve units and would not be affected by the proposed law.

I just read the actual text of the legislation sponsored by supervisors Farrell & Wiener and I’m against it.

TIC financing isn’t that difficult anymore. Fractional loans are the norm and not that much more expensive than condominium loans. It does cost a little more to finance a TIC, but the units cost less to begin with. So I don’t really see a hardship on the part of TIC owners who generally have smaller mortgages because they paid less for their units to start with.

The supposed $20,000 per unit condo conversion impact fee to benefit low-income housing is largely illusory. The proposed law contains a reduction for each year the building has participated in the lottery, so a building that participated in the lottery for five years, which is the majority, would get an 80% reduction and pay only $4,000.

Although the law would provide lifetime leases for the few tenants occupying converted units, this benefit is seriously disproportionate. For the tenants getting lifetime leases, good for them but that is a huge windfall for a very few lucky individuals. For tenants generally the legislation is actually quite bad. Once any of the affected units becomes vacant, all future tenants would be exempt from the rent increase protections of the Rent Ordinance. And allowing certain owners to bypass the condo lottery will only encourage more Ellis-TIC conversions.

Posted by Richard Hurlburt on Feb. 07, 2013 @ 3:37 pm

but it doesn't really describe any downside of the proposed law either. So at best what one should deduce from yuor reamrks is that there isn't much reason to allow these conversions but also that there isn't much reason not to either.

As such, my conclusions that we should still do it. It's a lot of money for the city, benefits for existing TIC owners and not one tenant is evicted as a result.

Maybe a compromize can be worked out but there is little reason to oppose this bill even if you believe it won't make too much difference either. It harms nobody and helps some while provide revenues.

Posted by Guest on Feb. 07, 2013 @ 3:50 pm

A tenant advocate who lives in a 12 unit TIC. Wow! That's the cutting edge of TIC conversions. Here I thought they were limited to 6 units and below.

Do you get a cut of tenant buyout payments?

Posted by Guest on Feb. 07, 2013 @ 3:53 pm

In NYC, co-op buildings are the norm. They are like TIC's in many ways, except that the building is a company and people buy "shares" in the company. It works.

There are some extra problems with condo-converting buildings with more than 6 units and that may be why Richard is keen on the TIC model - he probably cannot condo convert even absent an Ellis.

TIC's are usually lower-income working-class people who were tenants. Why all the hate on them?

Posted by Guest on Feb. 07, 2013 @ 4:08 pm

You can continue spinning the poor, helpless TIC owners yarn all you want, but you know the truth of what's really going on. Every TIC owner destroys one of the city's most precious affordable housing resources when the unit is converted to condo. This is criminal for future generations who will be renting out these units and living at the mercy of the unrestricted rent hike demands of the landlords who own the units. This onslaught of TIC conversions is simple class warfare by land speculators and the banking industry (who make big money financing real estate) against lowly tenants whose families are too poor to buy them a unit when they decide to move to the city.

No one buys a $300-750,000 asset as a TIC without knowing full well that the game is to get it condo converted as soon as possible since it's worth significantly more and is much easier to sell. The higher financing costs and uneasy living arrangement among different TIC owners are two of the relatively small costs every TIC owner is fully aware of in their goal to reach the magic land of condo conversion.

If the rationale for this massive condo conversion was really only about cheaper financing, then the TIC converters would agree that their units would be forever subject to rent control when not occupied by themselves or a future owner. So far I haven't heard that suggested by the poor, helpless TIC speculators.

This massive TIC conversion is a pure and simple land grab. I buy a unit for $450,000 as a TIC and then sell it for over $650,000 when it gets its magic condo stamp. For two 2-unit buildings, it's free and easy money once I get rid of the tenants since I can get an automatic condo stamp in a year's time. The TIC vs. condo price difference is not just because the unit is easier to sell and finance as a condo; it's also because the unit is forever exempt from rent control price increases, which is worth gold in San Francisco.

I think most tenants realize that they are mere pawns for the property owners who have much different ideas about how a tenant's home will be used and developed in the future. The myriad of legal and tax advantages given to the landlord class over the tenant class are found at the federal, state and local levels. The rules were created for a purpose - to financially benefit the landowners. Good luck trying to get politicians to do anything to help lowly tenants against the much more powerful and wealthy landowners.

Posted by Guest on Feb. 07, 2013 @ 5:29 pm

Hey, I cannot afford to live in Aspen. difference is - I don't whine about it like a baby.

Posted by Guest on Feb. 07, 2013 @ 5:43 pm

If you're going to use a silly elitist argument, at least pick some place that's little bit similar to a large, multi-faceted city like San Francisco. Choosing a remote vacation hide-away where the world's elites often only visit for a few weeks at a time to compare to a densly populated,vibrant city like SF is beyond idiotic.

How about using Hong Kong, another city where the local landowner elites and their banker and government friends are economically raping local tenants and would-be homeowners.

http://www.sfgate.com/news/world/article/In-wealthy-Hong-Kong-poorest-li...

Tenants and would be-homeowners in San Francisco have much more in common with tenants and would-be homeowners worldwide - who face the same issues of high rents and high purchase prices - than they have in common with the local landlords and local government politicans who are always trying to make tenants pay higher rents and higher home prices.

Posted by Guest on Feb. 07, 2013 @ 6:19 pm

are, there are some places you cannot afford. Even if you can afford Aspen, you maybe cannot afford to live on the more expensive part of Aspen.

Likewise, I can afford SF but I cannot afford Pacific Heights. I accept that. I don't whine that the government should step in and make Pacific heights cheaper just so people like me who cannot afford it can live there anyway.

Close to SF there are suburbs and neighborhoods like Daly City and Oakland which, via BART and freeways, are closer do downtown SF than many who live in SF. Why does it matter which they live in?

Rent control is little more than the people trying to give themselves things they cannot afford. Why?

Posted by Guest on Feb. 08, 2013 @ 10:46 am

Amen to that. Buy what you can afford. Since moving here from the east coast, I am astounded to see how many entitled people can live in one place and manipulate government to such an extent. I rented for 7 years in sf, saved cash and bought a sfh by city college. It's affordable, convenient and is a reasonable mortgage for MY income. Sure, I would like to own a place near my old apartment, and I would also like a yaht with a party crew dousing me with crystal champagne. Wake up people and act your WAGE!

Posted by Guest on Feb. 09, 2013 @ 8:37 am

who think they are so feeble that they think they cannot live elsewhere.

And then when they realize they cannot afford Sf, and refuse to move a few minutes away to Oakland or Daly City, theyw ant someone else to subsidize them so they can live somewhere they cannot afford.

I want a Mercedes but cannot afford one. Let's pass a law that compels Mercedes owners to let me use their Mercedes at way below what it is worth. And then ban the owner of that Mercedes from ever getting it back.

Insanity.

Posted by Guest on Feb. 09, 2013 @ 8:57 am

automobile so your analogy is feeble and self-absorbed. No one is proposing a law requiring homeowners to allow tenants to move into the homeowner's own home. In other words, an owner-move out eviction.

The closest example of that situation in the real world, where most of us live, but clearly you don't, is a mortgage holder evicting a homeowner through foreclosure.

Posted by Eddie on Feb. 09, 2013 @ 9:32 am

many SF'ers who just feel that they have a divine right and entitlement to live in a place they cannot afford.

Posted by Guest on Feb. 09, 2013 @ 9:50 am

Think of a car rental company, for instance. The analogy is that that company is forced tor ent their cars to you for elss than they are worth, and then you never have to give it back.

The model is flawed and that is why you are seeing so many Ellis evictions. RC has been made no strict that LL's will do whatever they can to get rid of it.

RC in it's original form was quite reasonable - it did not cover smaller buildings when the owner live din one of the units. It allowed rent increases of 4% per annum. And allowed each owner of a building to occupy a unit.

All that has gone now, and the result is the Ellis'es. Tenants got too greedy.

Posted by anon on Feb. 09, 2013 @ 10:30 am

to someone at a rate that if the renter rented the car in perpetuity, the total payment would be less than the value of the car.

Likewise, no landlord will rent an apartment at a loss except in a deteriorating market. The San Francisco rental market is far from that.

The Ellis Act results from the desire for speculative profits, not reduced ROI.

Try again.

Posted by Eddie on Feb. 09, 2013 @ 11:11 am

that's not really the critical issue here. When a LL first rents out the unit and gets a market rent, then his ROI is generally satisfactory and competitive.

But 20 years with the same tenant and that ROI becomes way below other competing investment opportunities. So it is entirely understandable and desirable that the inferior investment is closed out and the better investment taken.

If there were other options for achieving that, the LL would take them. And if the TT's turn over at a normal rate, then the ROI will remain competitive.

But if the LL is unlucky enough to get a "lifer", then it is inevitablt eventually that an Ellis will happen. and that is why most Ellis evictions are for older TT's - it takes a decade or two before the rent becomes uneconomic, and the Ellis, inevitable.

Posted by anon on Feb. 09, 2013 @ 11:32 am

ROI on a rent-controlled apartment increases over time as the rents increase and costs remained fixed or decrease as the owner pays off the mortgage. Those rents remain "economic" and profitable, even if they are lower than the current rents available to vacant units.

You are describing the hunt for the largest possible profits from real estate speculation.

Owners may seek better uses of their capital by evicting tenants because of laws written by legislators beholden to their class, but that has nothing to do with diminishing ROI.

Posted by Eddie on Feb. 09, 2013 @ 12:00 pm

bad given that you choose to live in one of the most capitalist nations on the planet.

It doesn't matter if ROI on a rental (slowly) increases based on it's cost basis.

What matters is it's ROI based on what the building is currently worth. If the cashflow is inferior compared with what could be earned elsewhere on that valuation, then Ellis'ing to extract that lost value becomes an imperative.

Posted by anon on Feb. 09, 2013 @ 12:14 pm

The rental housing industry and real estate speculation at the expense of productive uses of capital are some of the most compelling reasons I oppose capitalism. Of course, it's a good business for those who don't mind living off the rent paid from the wages earned by other people. In other words, non-productive rent seeking.

I live in the country in which I was born.

Posted by Eddie on Feb. 09, 2013 @ 12:28 pm

the provision of places of business, transit, culture, shopping etc.

And you clearly do NOT understand capitalism if you do not understand it is about getting the maximum ROI for the risk taken. Right now, renting homes in SF is both risky and has a low relative ROI.

So, we Ellis. The logic is irrefutable.

Posted by anon on Feb. 09, 2013 @ 1:18 pm

It is the collecting of rents, which is unproductive.

Building housing is productive.

Trollish attitude leads to the tumbrils.

Posted by Eddie on Feb. 09, 2013 @ 1:52 pm

In fact, it is all it is. There is an alternative and that is a change of use, such as Ellis/TIC.

Posted by anon on Feb. 09, 2013 @ 3:04 pm

The strong have been evicting the weak since the beginning of human history. It used to be done with clubs and other weapons. Now it's done by lawyers and real estate exploiters. Human displacement has nothing to do with capitalism, which has only been around for a few hunderd years.

Displacement is simply caused by some humans taking advantage of other humans, a much more primal force. If you don't like this fact, take it up with your legislators who are likely to have plenty of real estate investments in their portfolios. So good luck with that.

Posted by Guest on Feb. 09, 2013 @ 1:26 pm

invest, work hard and build value displace hangers-on and others who want to live in SF but know that they have no means to do so unless their housing costs are subsidized by others whose only crime is making more effort and sacrifice.

Posted by anon on Feb. 09, 2013 @ 3:06 pm

living off rent paid for by other people's work then you are on to something.

Otherwise, you are just a parasitic landlord who exploits day laborers.

Posted by Eddie on Feb. 09, 2013 @ 4:10 pm

the grief received, and the excess returns foregone in providing homes for people like you who cannot really afford to live in SF without somebody else playing uncle.

Posted by anon on Feb. 09, 2013 @ 4:43 pm

Eddie, look around at all of technology companies, legal firms, biotech companies, and thousands of other high-paying jobs created in the Bay Area. These workers have much more money than the bottom 80% of everyone else. These high-income earners need places to live and there is very little housing supply available in the Bay Area. Rental apartments in San Francisco that are converted to TICs and condos are places they can own.

A speculator who converts an apartment building to a TIC or condo is really not that much different from a person who leaves one job for a better job. Times change. Economic opportunities change. Right now anyone who owns a rental apartment building can make a huge payoff converting the building to TICs. Their friends and real estate agents are talking to them constantly, telling them how many hundreds of thousands of dollars they can make just by following a few easy steps. You can bemoan this fact all you want, whine about it, or try to shame the converters, but it won't change a thing.

Money and power are what politicians listen to most, and tenants usually have neither. The converters have all of the money cards and there isn't much tenants can do about this fact absent organizing tenants statewide and putting political pressure on the state and federal legislators.

Posted by Guest on Feb. 09, 2013 @ 12:40 pm

for profit is entirely different from someone who switches jobs to a better one, unless the job seeker disables, kills, or somehow gets fired the person who presently has the job he wants.

No whining here. I know my rights and risks as a tenant in a rent-controlled apartment.

It's the real estate industry and the TIC owners it is hiding behind that are whining by trying to overturn the existing laws that try to balance the housing needs of renters and the aspirations of property owners, even though the existing balance and law strongly favors the property class over the renter class as you acknowledge in your comment.

I don't expect anything different from property owners than them trying to maximize profits. I know that "shaming" them is useless so why bother?

Posted by Eddie on Feb. 09, 2013 @ 1:04 pm

you presumably fully understand, accept and indeed probably expect Ellis evictions.

And an eviction is not a bad thing if, like the other poster was suggesting, it replaces somebody in SF who wasn't contributing economically with someone who is. Migration of people us inevitable and in fact it is often doing someone a favor when they are evicted as it compels them to re-think their lives, and find a lifestyle that is sustainable, rather than one they have to rely on the generosity and kindness of strangers to maintain.

Evicted you would do you good in the long-term because it makes you more realistic, more sustainable, and more focued on social mobility and economic contributions.

Posted by anon on Feb. 09, 2013 @ 1:21 pm

being evicted would do me (or anyone else) good, I say

Fuck You, Troll.

Posted by Eddie on Feb. 09, 2013 @ 1:50 pm

reality is wrong. In fact, it means that, in your heart, you understand that you don't really deserve to be here on merit.

And yes, evictions often do people a lot of good, because it stops them freeloading and forces them to start taking responsibility for their own future rather than relying on others to provide it for them.

Posted by anon on Feb. 09, 2013 @ 3:07 pm

You are a psychopathic troll.

And you would justify any exploitative behavior as human nature because you profit from it.

Your existence takes oxygen away from a more deserving being.

Posted by Eddie on Feb. 09, 2013 @ 4:04 pm

"it replaces somebody in SF who wasn't contributing economically with someone who is. "

Unless it turns out again, like the dot.com boom, that those individuals who displaced others ended up sucking resources out of the City over the time they were here, net taking, not contributing.

Posted by marcos on Feb. 09, 2013 @ 2:50 pm

and that is thru money. Maybe some IT jobs are over-paid, and it would not surprize me if you were given how much time you goof off posting here. But it's the best and only measure we have, and if that measure says you are not viable in SF, then you are not viable here.

Posted by anon on Feb. 09, 2013 @ 3:09 pm