Fractional mortgage loans used to convert apartments into owner-occupied tenancies-in-common have fed the eviction and displacement crisis in San Francisco, where the median home price just surpassed $1 million for the first time. Now, some of the same San Francisco banks that pioneered fractional loans here have started offered them in the East Bay and on the Peninsula.
TIC housing is an ownership model for multi-unit buildings, where each unit is independently owned. This option appeals to would-be homeowners because it’s cheaper than a condominium, but less fraught than a traditional loan shared by various owners in a TIC building, which does not allow for independent ownership of each unit.
TICs local have grown in popularity in San Francisco as housing prices continue to skyrocket, since they help homeowners find something affordable, although that benefit usually comes at the cost of evicting all the tenants in the building, often including seniors, those with disabilities, and low-income people in rent-controlled units.
Previously, fractional TIC loans were only accessible in SF. Now, as people seek affordable housing outside of expensive San Francisco, the demand for fractional TIC loans has grown. And San Francisco bankers have stepped up to meet that demand, according to a recent article in the San Francisco Business Times (“High-priced SF housing market exports fractional tenants-in-common loans,” June 28).
Sterling Bank & Trust has become well-known for providing fractional TIC loans (more than $480 million worth so far, according to the Business Times), and is the first company to offer the loans outside of San Francisco. “We’re helping the firefighter and school teacher, or what I like to call the ‘non-tech’ buyer, purchase a home,” Stephen Adams, senior vice president of Sterling Bank & Trust, told the Business Times.
Adams is also president of the San Francisco Small Business Commission, presiding over what critics say is a shift in that commission toward rubber-stamping initiatives from the Mayor’s Office rather than defending small business interests. When we contacted Adams to ask about the evictions and displacement caused by fractional loans, he told he had “no comment to make at this time.”
Tommi Avicolli Mecca, the director of counseling programs at the Housing Rights Committee of San Francisco, said that he doesn't know how the TIC loans might affect those in the East Bay. But he does know they're bad news for San Francisco, where there's now a 10-year moratorium on new condo conversions but few controls on the creation of new TICs.
“They're scary,” Avicolli Mecca told us. "It's a disaster for San Francisco. Basically, if you're buying a tenancy in common, you don't need to condo convert. It used to be that you wanted a condo conversion so you could have a separate mortgage on what you own. With a fractional loan, you have your own mortgage from the start."
He added that the loans make it easier for sellers to convert buildings into any size that they can market to home buyers. With the loans, combined with the state Ellis Act allowing owners to remove apartments from the rental market, evicting tenants becomes even more profitable.
The Bank of San Francisco confirmed that it also offers TIC loans in the East Bay. The bank will be making them more attractive with interest-only payments, fractional financing for buildings with more than 12 units, and loans up to $2 million.
Dylan Desai, a spokesman for the Bank of San Francisco, told us that the bankers “do not extend financing to buildings where there has been an eviction” and, to their knowledge, they never have. “We’re sensitive to tenant rights.”
Hopefully the other banks offering these loans will be just as sensitive as they branch out into communities in the region that have already been absorbing an influx of working class former San Franciscans.