Bank Makes It Easier to Share Cost of Home

People desperate enough to own a home in this hyperactive real estate market have long resorted to a risky exercise in group dynamics: sharing a multimillion-dollar mortgage on a small apartment building with a bunch of friends or even strangers.

The advantages of the increasingly popular route to homeownership known as “tenancies-in-common” are obvious in a city where three-bedroom homes average about $800,000. The hazards also are well known and include deadbeat partners and the difficulty of extracting equity.

That’s why a bank’s offer of individual mortgages to tenancies-in-common buyers sent shivers of excitement and fear through the city this summer. By making tenancies-in-common less codependent and more like individually owned condominiums, the Bank of Marin’s so-called fractionalized mortgages were designed to make the option attractive to even more first-time buyers.

But the move, expected to be duplicated soon by other lenders, also has exacerbated suspicions among the city’s powerful tenant’s lobby that the tool is being used by developers to dump rent-controlled properties and get around San Francisco’s strict condominium conversion limits.

Unlike condos, tenancies-in-common partners do not own their apartments, but only a portion of the building, which leaves the city unable to regulate them as it does condo conversions. In some ways they resemble New York City’s co-ops, but smaller and with a decidedly “do-it-yourself” bent.

The San Francisco Tenant’s Union, warning that mass evictions would result if the main disadvantage of tenancies-in-common ownership were removed, is picketing open houses and lobbying the city supervisors to make it even harder for tenancies-in-common buildings to be turned into condominiums.

“As we turn rent-controlled apartments to TICs, which are getting close to $700,000 for a two-bedroom, we are displacing low- and moderate-income people,” said Ted Gullicksen, of the tenant union.

Although tenancies-in-common are familiar in commercial real estate, residential arrangements have been a California phenomenon mostly limited to San Francisco, where there are 2 1/2 times as many renters as homeowners and the median price of all homes was $721,000 in September.

In keeping with strong political support for rent control, the city allows 200 apartments a year to be converted to condominiums through a lottery and those can only be in buildings with six or fewer units. The regulations were a turnoff for people who went in on tenancies-in-common buildings -- in many cases relying on mixers and online matchmaking services to find partners -- hoping they would one day be able to convert their units.

Ann Bassi, a mortgage broker with GT Financial in San Francisco, said residential tenancies-in-common could spread outside California if state regulators permit them. Cities with expensive housing and condo conversion limits are particularly ripe.

“It’s only a matter of time,” Bassi said. “The more expensive things get, the more creative people get.”

Bank of Marin’s new product sparked a mild frenzy despite carrying a higher, variable interest rate and requiring a down payment of 25%; its initial $20-million investment was spoken for the minute it was unveiled, pledged to developers looking to transform rental properties.

“The phones were ringing off the hook,” said Keith Zimmerman, Bank of Marin’s senior vice president.