The Condominium Conversion Program allows property owners of apartment buildings with six units or less to convert the properties into condominiums, thus increasing property value and creating more homeownership opportunities.
Background
What is a Condominium?
A condominium is an individually-owned housing unit and a share of group-owned common area. Condominium property owners pay mortgages, property taxes, and utilities, as well as homeowners’ association dues to cover group-owned common area costs. This is different from other housing ownership types in San Francisco, such as tenancy-in-common (TIC) buildings, housing cooperatives, or joint ownership buildings.
What is the Condominium Conversion Program Important?
Loans for TICs or joint ownership buildings are conservatively underwritten with higher interest rates and down payments than a comparable condominium unit would be subject to. As a result, many TIC properties convert to condominiums, thus increasing the value of the property and establishing a clear definition of ownership in a unit of the building.
The Condominium Conversion program is available for buildings of six residential units or less. For all buildings, owners must have occupied 50 percent or more of the units for three years continuously prior to entering the annual lottery for condo conversion. The lottery is limited to 200 units per year, and as of 2016 there was a backlog of 2,000 units with owners waiting to convert through the lottery.
Key Trends
Since 2009, the City has recorded 4,964 condominium conversions through Public Works (DPW).
Seventy percent of the condominium conversions in 2018 (134) were in buildings with two or three units, a trend repeated from 2014 through 2017.
There may be approximately four unauthorized units (UDUs) removed per year due to the condo conversion process due to the restriction that legalizations cannot have occurred in properties converting to condominiums.
Many removals of flexible spaces, such as ground-floor storage rooms or rooms with wet bars, may be UDUs but cannot be confirmed due to lack of evidence of occupancy of these spaces.
What’s Happening Now to Prevent Tenant Evictions and Loss of Affordable Homeownership Opportunities?
Past tenant evictions and buyouts can disqualify buildings from being converted to condominiums. Protected tenants (seniors 60+ years old, disabled tenants, and families with children) have a right to purchase or a lifetime lease if their building pursues condo conversion. Under the Expedited Conversion Program (ECP), which is available for two-unit buildings, all tenants who choose to not purchase the property must be offered a lifetime lease that is rent-stabilized. For the annual conversion lottery, disabled or senior tenants are offered a lifetime lease and all other tenants must be offered a one-year lease.
Issues with Converting to Condominiums
Condominium conversions introduce the loss of joint ownership or shared equity homes which are relatively affordable when compared to condominiums or duplexes. In addition, condominium conversions are strictly regulated by a unit cap and may incentivize property owners to remove illegal units and tenants. The conversion of multi-unit joint ownership housing buildings to condominiums may result in a decrease in the supply of units affordable to low-income renter and owner households.
TICs are generally more affordable for condominiums or single-family homes due to the contractual obligation of percentage ownerships and a more stringent loan or mortgage process. The conversion of units to condominiums may also impact the availability of these types of units on the rental market. Although it is not known what the exact number of condo-converted properties sell for on the market, condo conversion generally leads to the resale of the unit as a condominium rather than remaining as a possible rental unit. The condo conversion program may lead to the loss of these more affordable types of home ownership or rental units. Once rent-stabilized units are converted and sold, any relative affordability of units is lost.
Since the UDU legalization program went into effect after the condo conversion program, the restriction of legalized units in entering condo conversion seems to be tacked onto the program as an afterthought. As a result, one of the unintended consequences of restricting legalized units is that property owners are incentivized to remove them prior to seeking condo conversion. The condominium conversion is complex, paperwork intensive, often requires building renovations and involves a variety of outside consultants. The process goes between Public Works (DPW), Department of Building Inspection (DBI) and Planning at several levels. The identification of UDUs is ancillary to the overall application process and the information to make such an identification (building plans, interior photographs, specific notes on the issue from the in-person inspection) is not systematically available to the Planning Department.
For Future Consideration
The ideas for future consideration that have the potential to increase community stability in San Francisco are described below. They provide a starting point for agencies, decision-makers, and community members to explore stabilization efforts and identify critical pathways forward. Based on preliminary information, staff is qualifying these ideas according to the type of task, scale of resources and level of complexity to underscore that any of these ideas would require time and additional resources not currently identified. These are not City commitments or recommendations, rather informed ideas that will require careful vetting and analysis as to their reach, resource needs, feasibility, unintended consequences, legal implications, and racial and social equity considerations.
Allow buildings containing legalized UDUs to convert to condominiums
The condo conversion program does not allow buildings with legalized units to go through the application process. As a result, property owners may be incentivized to absorb previously illegal units into other legal units on the property before going through condo conversion. The City could consider allowing legalized units to participate in the condo conversion process either as independent dwelling units or as ADUs of the existing units on the property. If ADUs are allowed for condo converted buildings, then the legalization program could consider preserving these illegal units before condo conversion as well.
| Type of Response | Mitigation, Prevention |
|---|---|
| Type of Task | Regulation, Policy Implementation
|
| Resource | Generally only staff time would be required
|
| Complexity | Less Complex – generally no or limited legislation and/or an existing program, and one agency involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Department of Building and Inspection (DBI), Planning, Public Works (DPW) |
| Benefit | Allowing legalized units to participate in the condo conversion process would reduce the loss of UDUs or flexible spaces from properties considering condominium conversion. |
| Challenge | DBI and the Planning Department would need to work together to define an illegal unit and to provide resources for property owners with illegal units seeking condo conversion. |
Enhanced interagency coordination
The Planning Department, DBI, and PW could convene a working group to increase communication between departments around this issue and discuss how the application process could be modified to increase the likelihood that UDUs are identified prior to condominium conversion approval.
Additional information on this can be found in Tenant Counseling, Education, and Assistance summary.
Support for other types of innovative homeownership programs
Since TICs represented a method of co-owning homes to create more affordability, the City could consider creating or supporting similar programs (such as housing land trusts, housing cooperatives, and joint ownership properties) through legislation and funding.
| Type of Response | Mitigation, Prevention |
|---|---|
| Type of Task | Policy Implementation, Funding
|
| Resource | Generally only staff time and some program funding would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Planning, Mayor's Office of Housing and Community Development (MOHCD) |
| Benefit | Creating more avenues for affordable homeownership would help augment the variety of housing stock available in the city. |
| Challenge | Since co-ownership or trusts create more liability for households involved, it impacts the types of loans potential homeowners can receive for such housing units. |
