Condo conversion compromise in the works despite Realtors' resistance

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SF Apartment Magazine advertises dozens of apartment buildings for sale and has advice on maximizing returns on the investment.

[UPDATED BELOW] Negotiations between tenant advocates and real estate interests (including the political advocacy group Plan C) over the controversial condo lottery bypass legislation haven't gone well or found common ground. But sources tell the Guardian that Sup. Jane Kim and Board President David Chiu, who has been mediating the dispute, are preparing to introduce compromise amendments that have the support of the San Francisco Tenants Union and other tenant advocates if a deal can't be worked out with real estate interests.

Details are still being hammered out with advocates and the City Attorney's Office, so the hearing scheduled for this Monday at the Land Use and Economic Development Committee will likely be postponed until March 25. But the basic deal is to allow the roughly 2,000 tenancies-in-common now seeking to convert into condos to do so in exchange for a long moratorium on new condo conversions, possibly indexed to construction of new affordable housing for the renters who comprise nearly two-thirds of San Franciscans.

The original legislation by Sups. Mark Farrell and Scott Wiener is being strongly backed by both current TIC owners who want the ability to refinance and Plan C and other real estate interests that want to continue converting ever more rent-controlled apartments into condos, rather than abiding the city's current limit of 200 per year, awarded through a lottery system. The SFTU has strenuously resisted opening up those flood gates, but it's open to clearing out the backlog in exchange to shutting the gates for awhile (see my story in this week's Guardian for more on the political dynamics surrounding this issue).

“We're hopeful that a majority of the board will support amendments which will significantly protect tenants and which will allow a version of the Wiener-Farrell legislation to be approved,” SFTU head Ted Gullicksen told us.

Progressives on the board oppose the legislation as currently written, and the swing votes are thought to be Sups. London Breed (which Plan C supported in the last election in exchange for what it says was her promise to support more condo conversions, an assurance she denies making), Norman Yee (who was brought into the Chiu-mediated negotiations), and Malia Cohen, with just one of them needed to force changes to the legislation.

But the real estate interests – including Plan C, the Association of Realtors (whose government affairs director we left a message for and are waiting to hear back from, and we'll update below if/when we do), San Francisco Apartment Association, and other downtown-based groups – who are pushing for more condo conversions are likely to strongly resist the amendments. They simply want more rent-controlled apartments turned into condos they can sell, period.

Their perspective is reflected in SF Apartment Magazine, put out by the San Francisco Apartment Association, which every month offers advice to real estate investors and apartment building owners on various ways to buy apartment buildings, evict tenants or increase their rents, and convert the buildings to TICs or condos.

It runs a regular column called “TIC Corner” with the latest tricks for financing acquisitions and getting rid of those pesky tenants. In the November 2012 issue, for example, attorney D. Andrew Sirkin wrote excitedly about a new Securities and Exchange Commission rule that will now allow owners to advertise the sale of apartment buildings as TIC/condo investments, which he said “will dramatically ease the regulatory burden for real estate entrepreneurs wishing to raise money for apartment acquisitions and make it much easier to find investors.”

Another feature story in the magazine, “The ABCs of OMIs,” teaches these investors all the tricks for evicting tenants from their buildings, while “Roommate Roulette” offers advice to owners of rent-controlled buildings for keeping new roommates of existing tenants off the lease so they can charge market rate rents as soon as possible.

And, of course, the magazine is filled with ads for San Francisco apartment buildings that are for sale and just waiting to be cleared of tenants and turned into amazing real estate investment opportunities. Gullicksen says it is this mentality, applied to what even Mayor Ed Lee has called the city's “precious few rent-controlled apartments,” that has animated the opposition to the Wiener-Farrell legislation. SFTU had planned a rally for Monday called “Stop Rent Control Attack,” which has now been postponed until March 25.

UPDATE 3/11: Sup. Wiener got back to us and said, "I hope we can move to a compromise and I don't want to prejudge that compromise." Asked about the concept of approving TICs in the pipeline in exchange for halting on all condo conversions for some number of years, he said, "It's definitely something to explore, a pause in the lottery, and I'm open to that. But the devil is in the details."

Comments

And you're wrong - property taxes are passed along, since if they were not, then the enterprise would be making a loss and would go out of business. This might happen under the extremes of rent control, where rent increases do not cover expenses. But, at least when the rent is initially set, the rent always includes the property tax because it has to cover all the costs of the property, plus the desired ROI.

Nobody is going to sell you a product or service at a loss, under nromal circumstances.

This is not to say that there is not speculation but, where that happens, it works only because rent control causes distortions in the market, which then get arbitraged away by Ellis evictions, other types of evictions, payoffs, change of use events, and so on.

Of course, when considering bond measures, they typically contain a provision to pass thru the extra tax to the tenants - the rent board has a special form for it. Some landlords do not bother but I ALWAYS do - it makes for better democracy if everyone pays for the costs of extra spending.

Posted by anon on Mar. 10, 2013 @ 3:39 pm

are fools with no memory of what got us Prop 13 in the first place: in the 1970s property tax increases in California averaged 65% year over year and in coastal California they hit 200% in some areas. A 200% tax increase every year is absolute lunacy, 65% tax increases every year is lunacy as well. The legislature could have tried to solve the problem but they thought scare tactics would work and they'd be able to keep raking in the cash - Prop 13 ended their delusions once and for all.

Prop 13 is going nowhere.

Posted by Lucretia Snapples on Mar. 10, 2013 @ 7:21 pm

As far as the new condos that are being built in the City, the quality of the one near me is absolute crap while they call it "Modern Luxury..." Single-pane aluminum windows kinda of cheapness. The one down by the Bay Bridge (the newest one which gets only an average rating), lots of complaints about that building and the people who run it. Some people have already moved out.

I agree with ending Proposition 13. I like that idea and think I will start passing that idea around. If you're going to remove rent control, then also remove Prop 13. Seems fair. Over two-thirds of the City residents are renters by the way. End Prop. 13 now and stop the "privileged class."

Posted by Guest on Mar. 09, 2013 @ 7:15 pm

demographics of the city.

Prop 13 will only go away when the voters trust the government, which effectively is never.

Posted by anon on Mar. 09, 2013 @ 7:39 pm

Wait, didn't you just say you trust the government about ten minutes ago on another thread?

Posted by Guest on Mar. 09, 2013 @ 8:51 pm
No

No

Posted by anon on Mar. 10, 2013 @ 3:31 pm

Your taste doesn't matter. And we all know that many SF residents tend to be very provincial and close-minded about real estate design.

A builder (and the bank/pension fund financing the construction) are usually very smart about what people will buy. As long as they know people will buy or rent the units, that's all that matters. Our taste is irrelevant.

Developers are also profit-maximizers, like all businesses. If they can get by with cheap-ass windows and other inferior design finishes - and the Planning Department lets them - of course they'll follow that route.

I always thought the buildings on Twin Peaks above Market are quite tacky and I'd never live in one, but obviously the people spending $1.5 million to buy them think differently. When there's little supply and limitless demand, people make difficult sacrifices.

Posted by Guest on Mar. 09, 2013 @ 8:52 pm

That's fine because there are all types of different buyers. Some like to pay more for top notch fixtures, and some just want cheap.

Remember also that up to half the cost of any SF home if for the land it sits on, and not the building at all. If you are in a premium area or an are with a great view, like Twin Peaks or Upper Market, then you are paying for that even if the house itself is a shack.

Overall, the better places will cost more, because the price discovery that takes place in a bidding situation is fairly efficient. It's the same with rents too. I once advertized a rental too cheaply and got 150 replies within a day. Rather than deal with all that, I didn't reply to any, jacked the rent up by $500 a month and re-advertized it. I got a much more manageable number of applicants and found one I liked at a much better profit margin.

Posted by anon on Mar. 10, 2013 @ 3:49 pm

Some people have been talking about "little supply" in San Francisco's housing market.

There seems to be ample supply in San Francisco between the:

For Rent
For Sale
Foreclosures
Buy vs. Rent

Look up San Francisco on Hotpads.com

(Spam filter blocked all link attempts).

Posted by Guest on Mar. 10, 2013 @ 12:34 am

the relative balance of that supply to the existing demand.

So if there are, say, 20,000 units available for sale or rent right now, then that is "ample" if there are 10,000 people needing a place, but far from ample if there are 30,000.

In practice, the price of that housing moves up or down to balance out the supply/demand ratio. The fact that home prices and rents are rising steeply in SF indicates more demand than supply right now.

Posted by anon on Mar. 10, 2013 @ 3:33 pm

When you cut through all of that newspeak, it comes out to meaning: GREED.

International Troll Society Member #12360969212

Posted by International Troll Society Member #12360969212 on Mar. 10, 2013 @ 5:09 pm

possible price for it, are you being greedy?

Should you be forced to sell that car cheaply to someone just because they earn less than someone else?

Posted by anon on Mar. 10, 2013 @ 5:24 pm

If you honestly believe the lower class (ie. people in rent controlled apartments) are just "too lazy" to get higher paying jobs, you are an ignorant human being and severely lacking in education. Disgusting to consider many of the commenters "San Franciscans"

Posted by Guest on Mar. 11, 2013 @ 3:02 pm

Most people are followers - particularly those content to live out their lives in a seedy rent-controlled dump while their betters go on to build a future capitalized around property ownership. It's so sad to hear otherwise accomplished people say "well I have my rent-controlled apartment!" Guess what - it's not an asset. And it's not yours.

Posted by Lucretia Snapples on Mar. 11, 2013 @ 3:20 pm

And no rent-controlled tenant ever gave me a home.

Posted by Guest on Mar. 11, 2013 @ 3:32 pm

I rented a room from a "master" tenant once. What a tyrant.

Posted by Guest on Mar. 11, 2013 @ 4:04 pm

They rent out rooms for more than the total rent they are paying or, worse, use AirBnB to make a profit on a place that is supposed to be their primary, permanent residence.

And they intimidate and harass their sub-tenants. It's gotten so bad that the SFTU refuses to counsel master tenants in disputes with their sub-tenants.

Posted by Guest on Mar. 11, 2013 @ 4:28 pm

Rent control turns "master tenants" into "monster tenants."

Posted by Lucretia Snapples on Mar. 11, 2013 @ 4:44 pm
+1

+1

Posted by Guest on Mar. 12, 2013 @ 9:58 am

support and subsidize them through welfare, handouts, and so on.

An affluent society can perhaps afford that generosity when the number needing help is relatively small, but when two thirds of the population of a city are getting some form of a handout, then that is wrong, unfair and unsustainable.

We need to target help to the genuinely poor, and not hand out rent subsidies to anyone and everyone who thinks they'd like to live here even though they know they cannot afford it.

Posted by Guest on Mar. 11, 2013 @ 3:31 pm

unsubstantiated statement that two-thirds of the San Francisco population receives a subsidy.

If he is referring to the percentage of people who rent their homes, then the SFASC must characterize this statement as stupid.

Down with stupidity!!!

Power to the thoughtful!!!

Posted by San Francisco Anti-Stupidity Campaign on Mar. 11, 2013 @ 4:46 pm

an artifically low rent. Some rent units that are not covered by rent control, while others are paying a market rent since they recently moved in.

You can guess what percentage that leaves as well as I can.

Posted by Guest on Mar. 11, 2013 @ 5:23 pm

All these fights are caused by a shortage of housing. A minority San Franciscans who own homes have scammed the majority into believing that they benefit from shortages of this basic human necessity.

Posted by Guest on Mar. 12, 2013 @ 3:18 pm

It's the only way to make homes affordable in Sf.

But it is the progressives who oppose development.

Posted by anon on Mar. 12, 2013 @ 3:42 pm

I don't think tenants should compromise.

We should make Scott Wiener follow through on his threat to put the ordinance to the Board with 4 votes and bypass committee.

Then the flood gates will open and progressives can totally ignore committee as well and just introduce ordinances the same way, with four votes.

Being afraid of 1/3 of the non-renter population is backward. They should fear the 2/3 renters.

Posted by Guest on Mar. 17, 2013 @ 7:33 am

opposing it is illogical unless you wish to oppose any benefit ever going to anyone when it does not benefit yourself directly not affect you in any way.

Posted by Guest on Mar. 17, 2013 @ 11:34 am

Another deposit (LIE) from The Conservative Propaganda Machine.

Posted by Guest on Mar. 17, 2013 @ 7:58 pm

Louis, where they had a son. They talked some of settling in St. Louis. Doc Marlowe told them they ought to buy a nice auto cheap and drive out, instead of going by train — it wouldn't cost much and they could see the country, give themselves a treat. Now, he knew where they could pick up just such a car.

Posted by tewasederwas on Apr. 06, 2013 @ 12:47 am

Have you tried to purchase a home or flat in San Francisco lately? Tenant in Common units are priced considerably lower than condominiums for the same square foot and therefore are an entry level purchase for the average income earner in San Francisco. TIC financing offers higher interest rates than condo loans and are difficult to qualify for. In the current market, rental rates are often higher than a mortgage payment rate for a condo loan. TIC's make homeownership possible for so many in San Francisco, while rent control holds landlords' captive to annual rent increases that are not even close to the annual cost of living increase. The issue is homeownership vs. rental stock, plain and simple. What then is the suggestion for allowing entry level purchasers affordable homes, when in fact, they make too much money to qualify for affordale housing. TIC's offer the middle ground alternative. Since these units are indeed already "owned", why not allow condo conversion which keeps these homewoners in San Francisco and allows them to stay in the housing market without penalizing them with higher interest rates, little opportunity, if any, to refinance. What we are forgetting about are these homeowners whose only advocates are the City Supervisors Farrell and Weiner & Plan C who have fought valiantly to protect these citizens rights for homeownership and their american dream.

Posted by Erika B on Apr. 17, 2013 @ 11:12 am

so the idea that tenants and TIC owners are opposed to each other is ridiculous. They are both at the lower end of the income spectrum and both are looking at the affordable end of the market.

And yes, once a rental unit is converted to a TIC, it is lost to tenants forever as a TIC owner would have to be insane to rent it out. In fact, it is more likely to be rented out if it is made a condo, as then and only then does the unit have the kind of protections for a landlord that might induce him or her to rent it out.

Tenants hurt themselves by opposing initiatives like this.

Posted by Guest on Apr. 17, 2013 @ 11:23 am