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Real Estate Today

Two-unit building bypass

The loss of rental units has been a long-standing issue in San Fran-cisco. After 15 years of debate, a new condominium conversion lottery bypass law was passed, and the Expedited Conversion Program began accepting applications on July 29, 2013. The previous conversion program has been suspended for 10 years, and there has been permanent disqualification of many buildings that qualified under that law.

The good news for buyers is that two-unit buildings with a clean eviction history can still convert to condos if each unit is occupied for one year by separate parties who each own at least a 25 percent interest during the entire occupancy period. This exemption also applies to mixed-use buildings (commercial and residential) with no more than two residential units that are both owner-occupied. This may sound like old news, but in real estate changes do not happen quickly.

The easy road to conversion has always been a two-unit building. Now that there is a 10-year moratorium built into the law, the conversion of two-unit buildings to condos has found a new following. Single family home buyers priced out of the market can make a smaller step down, find a partner, buy a two-unit building and one year later begin the condo conversion process. There is even hope of upside potential here.

Here are a few things that may be interesting. Considering how inventory has dropped dramatically, it is interesting to me that checking the MLS I found the number of two-unit buildings sold over the past three years is not dramatically different year to year. 371 in 2012, 352 in 2013, and 345 in 2014. Currently, citywide there are 25 two-unit buildings for sale.

For a detailed look into what has happened with condo conversions the past three years, I spoke to Bruce R. Storrs, city and county surveyor for the San Francisco Department of Public Works Bureau of Street Use and Mapping. He provided me with the statistics in the charts above.

Numbers are always interesting, because we now know that TICs have been converted to condos. Now the issue is to move from fantasies about home ownership to the reality of the condo conversion process.

Often I am asked how long it take to complete a condo conversion. Now that I had the ear of Storrs, I asked a few more questions: How long does it take from the day the application is submitted until it is approved? Can you tell me the minimum amount of time and the maximum? It was no surprise to hear the time to complete a condo conversion may vary considerably.

“This is almost entirely dependent on the applicant,” Storrs told me. “If the applicants have their code compliance issues resolved — they have had a physical inspection and resolved all of the Department of Building Inspection issues — and there are no additional issues, a project can record in as little as three months. If there are lingering code compliance issues or there is an issue that needs resolution with the Department of City Planning, the recordation may take much much longer.”

Today the most important question is what can be done to make the condo conversion process go more smoothly? Here are Storrs’s tips:

  • Perform their own due diligence, including eviction history of the building.
  • Make sure that you meet the minimum qualifications and have the ability to maintain these qualifications.
  • Understand the subdivision process from start to finish.
  • Understand what a common interest development is.
  • Retain a knowledgeable and capable attorney that understands the conversion process in San Francisco.
  • Retain a knowledgeable and capable land surveyor that understands the conversion process in San Francisco.
  • Order your physical inspection from the Department of Building Inspection as soon as you are certain you will be converting.
  • Be prepared financially: just the application fee (not the ECP fee), the attorney and the surveyor will be about $20,000. This does not include any building alterations.

I have found that the key to success is having patience with the process. There are no short cuts here. Success is possible if you methodically follow through on every step.

There is no magic pill to home ownership in San Francisco, but for those who are willing to take on the additional work involved in the condo conversion process, this is one way where sweat equity can be turned into real equity for the long term.

On Dec. 29, 2014, there was only one two-unit building for sale in the northern neighborhoods that include Cow Hollow, the Marina, North Beach, Pacific Heights, and Russian Hill. December and January are always the slowest sale periods in real estate, and there will be more property on the market in the new year. Even so, the lack of inventory is stunning.

Of course in 2015 there will be more two-unit buildings coming onto the market. One can expect that some of these buildings will be qualified for fast-track condo conversion. They will be sprinkled all over the city and provide an opportunity for buyers willing to expand their options and think creatively.

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Carole Isaacs is a Realtor with McGuire Real Estate, where she is a Top Producer. Follow her on Twitter @CaroleIsaacs or visit her online at caroleisaacs.com or call (415) 608-1267.

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