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Posted 10:00 am
February 20, 2013

Controversy looms over potential condo conversion law

The flames of discord rage on between homeowner advocates and tenant rights activists over a new law that, if passed, would allow for a onetime citywide increase in the amount of residential units that could be converted into condominiums.

The Condominium Conversion Impact Fee would grant eligible owners of tenancy in commons a onetime opportunity to bypass current regulations, a citywide lottery that caps the amount of unit conversions at 200 a year, and convert their buildings into condominiums by paying a fee. Tenancy in commons is an agreement among a group of people to purchase a building under one mortgage, commonly called TICs. They are usually tenants who are looking to become homeowners. The fees would range for $4,000 to $20,000 per unit, depending on the years the applicants have participated in the lottery but weren’t chosen. The fees collected would go toward an affordable housing fund.

Fearing that an increase in condo conversions will lead to more evictions and less affordable apartments, rent control advocates grabbed their pitch forks, rallied the troops and began an opposition campaigning to defeat the amendment.

Rent control supporter Fran Taylor opposes condo conversion. She’s been a renter in San Francisco since 1976, and said she’s been evicted on two separate occasions — once in 1986 and again in 1995. After the evictions, she said that finding a new affordable place to live was difficult, but manageable. With the way rent is now, she thinks it would be impossible.

“If I got evicted now I would probably have to leave the city,” Taylor said, adding that for the past 11 years she has lived in a rent controlled apartment and pays $1,100.

For 2013, the average rent for a two-bedroom apartment is $3,250, according to Apartmentratings.com.

Michael Sullivan, co-chairman of Plan C, a housing advocacy group in support of the condo conversion bypass, said the legislation addresses all the tenants needs by offering protections against evictions with a lifetime lease for current tenants, plus, he added, the fees for conversion will go toward building more affordable housing.

The city controller predicts the money collected from the onetime bypass fee could range somewhere between $7 million to $24 million.

Sullivan said the conversion bypass will help first-time homebuyers get the support they need to secure their footing in San Francisco’s competitive, high-priced housing market. He added that the homeowners who need this legislation most are young, middle class and first time homebuyers who are not wealthy.

“Giving people the opportunity for first-time homeownership is important for this city. It’s important for any city,” Sullivan said. “We don’t want to lose people to the suburbs.”

The longtime rivalry came to a head during the Jan. 28 land use hearing. Dozens of people flocked to City Hall to voice support or raise concerns with the proposed condo conversion bypass. President of the Board of Supervisors David Chiu postponed the vote, suggesting that opposing sides negotiate.

When the legislation returns to the hearing, committee supervisors can kill it or pass it through for a full board to vote on it. There it will need six of the 12 votes to pass. It has the support of Supervisors Mark Farrell, Scott Wiener and Chiu.

With negotiations under way and only a handful of days left before the proposal comes before the committee Feb. 25, opposing sides remain deeply polarized.

“The main fundamental problem with the proposal is that condo conversion leads to a reduction of our rental housing stock,” Sara Shortt, executive director of the Housing Rights Committee, said. “We have a huge housing shortage problem in San Francisco and to lose anymore rent controlled housing is extremely problematic.”

Supervisor Farrell, who introduced the condo conversion bypass amendment, and his legislative aides, refused to comment on the negotiation or any other part of the proposal for fear of disrupting the integrity of the process.

Director of the Tenants Union, Ted Gullicksen, said he thinks the legislation will be difficult to pass in its current form.

“The two most important laws in San Francisco are its condo conversion and rent control laws,” Gullicksen said. “By passing a law like this, it would send a strong message to real estate developers that San Francisco is relaxing on condo conversion laws and a wave of speculation, evictions and conversions would follow.”

Gullicksen said there are 2,600 units, roughly 630 buildings that are eligible for condo conversion.

Buildings that qualify for conversion are 3-6 unit residential buildings under TIC agreements. TICs are often marketed as the gateway to homeownership. They are often cheaper than purchasing a condo but come with a lot more hassles. The proposed bypass is a onetime deal, only applying to TICs eligible for the lottery this year.

“There are a lot of problems associated with TICs,” Sullivan said, adding that TIC owners go through “hell.” “Most banks won’t give loans and if they do they charge 2 to 3 percent higher. If for some reason they want to refinance it will be a lot a harder.”

Plus, tenants have a shared lease and have to cooperate with each other, which can add a whole other set of problems.

Michael Potepan, SF State economics professor and expert on the city’s housing market, affirmed that TICs produce a unique set of problems. But these problems can be worth it for TIC owners if they can wait it out a few years and then convert to condos, which will substantially increase the unit’s value.

The current lottery that regulates TIC to condo conversion caps the limit of units at 200 a year. With the increase in TIC agreements, the wait time for the lottery can be between 10 to 15 years.

Sullivan said that most TIC owners didn’t expect the lottery to be a 15 year wait.

“More and more homeowners are in this bind, and they are gathering together and organizing,” Sullivan said. Sullivan, a corporate lawyer for the Pillsbury law firm, added that homeowners have watched many tenants right issues get resolved while their issues remain unsolved. “If it doesn’t pass we will bring it up again and again.”

Tenants rights advocates said they understand the dilemma of homeowners, but the risk to the renter is too great for them support condo conversion.

“As we speak, TICs are being created,” Gullicksen said. “In another five or six years another 2,600 hundred units will be waiting to convert.”

Potepan backs opponent’s claims that a bypass of the current lottery would create “more of an incentive for landlords to get rid of tenants and sell their buildings on the TIC market.”

While it is illegal to convert existing residential units to condos, TICs have no such restrictions and can be seen as a pathway to condo conversion.

On the other hand, he added, rent control may not be the answer either. In fact, the condo conversion laws were created in response to rent control advocates who feared condo conversion would deplete the rental stock. TICs are then an unintended consequence of rent control policy. Plus rent control doesn’t meet the needs of low income people, he added.

“I think there is a better way to support affordable rent than rent control,” Potepan said.

There is no way to guarantee that rent control will benefit low income people. With a lot of higher paying jobs available in San Francisco, he added, people with high incomes are often the people taking advantage of apartments below market rate.  Unfortunately, he added, the policies required to meet the financial needs of low income renters in  the city can’t be done on the local level and must be pursued on the state and federal level.