Make Way for More New TICs & Loans

By Gordon Friedman, Plan C Board Member
October 3, 2006

With many properties available and new TIC loan products, the choices are widening for first-time homeowners. But two new TIC loans in particular work extremely well in San Francisco.

It's no secret that it's now a buyer’s market in San Francisco. Sales are down considerably from last year’s numbers, including the sales of TIC's. Many properties have been idle for months with the exception of a few well-located ones that have sold quickly. The upshot is that TIC buyers now have many more properties to choose from, including two of the largest TIC projects ever offered for sale in San Francisco. In addition, TIC buyers now have access to two new TIC loans which work extremely well in San Francisco’s market.

In February, America California Bank of San Francisco introduced a fractional TIC loan product similar to what's currently offered by Circle Bank in Novato. The adjustable-rate mortgage carries a rate of 7.6%, fixed for the first five years. The maximum loan amount allowed is 75% of the TIC unit's value, or no more than $750,000. America California has an initial allocation of $10 million available to fund fractional TIC loans.

According to Kathryn Sommer, Chief Lending Officer at America California Bank, the bank began offering TIC loans in response to a request from Bank of Marin. Although Bank of Marin offers TIC financing, it lends only to developers for building acquisition. (When the developer is ready to sell the units Bank of Marin provides fractional TIC loans to each purchaser.) Bank of Marin had been receiving so many requests from TIC buyers for financing that it asked America California Bank to enter the business so it could refer borrowers to them. Although it has not yet funded its first TIC loan, America California Bank is excited to be offering its fractional loans. They believe strongly that TIC’s provide an important opportunity for San Francisco residents to become homeowners.

Fractional TIC loans offer the best financing arrangement for buyers of TIC's. However, they require a minimum down payment of between 20%-25%. For this reason, not all TIC buyers are able to benefit from them. The best alternative is to secure partially assumable TIC financing that allows subsequent buyers to take over a selling owner's share of the group mortgage. Several mortgage brokers are offering a newly available, partially assumable group TIC loan. The loan allows for loan amounts equal to 80% of a building's value up to $1,800,000. The maximum number of units per building is four. On a case-by-case basis, the lender will allow the TIC group to make a down payment as low as ten percent.

Guidelines for these loans are more liberal than other currently available assumable TIC loans, and the interest rates are better. The best part is that if a co-owner needs to sell his or her unit, a buyer can assume the departing partner's portion of the group loan for a minimal assumption fee of $2400. This makes it much easier for TIC partners to sell their units and mitigates one of the primary risks associated with TIC ownership: co-owner control over a partner's ability to sell his or her TIC unit freely.