BANKS LOOK TO RESORTS TO MODEL TIC LOAN

By J.K. Dineen
Staff Writer
Published: Monday, June 13, 2005

A new breed of individualized tenancy-in-common loans some observers say could shake up The City's housing market would likely be modeled after a financing structure used in the luxury world of fractional vacation resorts, according to real estate finance experts.

The fractionalized resorts, also known as "private residence clubs," typically allow investors to obtain an individualized loan for an undivided portion of a beach house or ski chalet. Four or five boutique lenders specialize in the loans.

On Thursday, The Examiner reported that a handful of banks are planning on unveiling a new individualized loan for tenancy-in-common buildings that would make it much easier and less risky to convert large rental apartment buildings into TICs. Currently, TICs, in which a group of investors own a building together, are financed through a shared mortgage, which make larger buildings cumbersome and risky to sell as TICs.

The news has sparked fear among tenants in larger buildings worried they will be evicted from their apartment to make way for TIC developments, but has brought optimism to would-be city homeowners hoping a massive influx of TIC apartments will create more middle-class homeownership possibilities.

Financing for fractional ownership started in mountain and beach destination resorts, and has recently started to spread to destination cities such as New York and London, according to Greg Pitts, of Realty Financial Resources, which specializes in resort financing.

"With apartments in San Francisco this type of financing could be extremely attractive and offer ownership opportunities not otherwise available," he said.

Bert Blicher, president of the Resort Capital Group, said he had never heard of fractional financing being applied to city apartment buildings, and said he would expect finance companies, rather than traditional banks, to be interested.

"It may be hard for some banks to understand that you may have lots of people owning one unit or building, but in reality it works out pretty well," he said.

He said the lenders would only go along if The City's real estate market remains robust.

"The fundamental question for the lender would be, in a worst-case scenario, if you had to take it back, could you sell it?"

Stephanie Brochier, a subdivision consultant for the San Francisco-based Old Republic Title Company said he would not expect any legal problems in insuring the individualized loans.

"We don't know of any reason why it should be illegal," she said. "There is nothing illegal about being a co-tenant and nothing illegal about someone getting or making a loan on an undivided interest in a property."

Ted Gullicksen, an organizer for the San Francisco Tenants Union, said banks that start issuing these loans would soon find protesters outside their offices.

"We would definitely make the banks a premier target," said Gullicksen. "I would think banks would be more responsive to public pressure than real estate companies."