How do you figure out percentages of ownership in a TIC sale?

Asked by Mark, San Francisco, CA Sat Oct 23, 2010

If all the owners on a group loan are coming in with different loan amounts, how is ownership percentage determined?

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7
Shaban Shako…, Agent, San Francisco, CA
Wed Oct 27, 2010
I have seen ownership percentages determined largely by square footage of the unit vs. the whole building. I have also seen ownership percentages done by the percentage the unit's price compares to the overall building price. The latter method accounts for particular amenities that a given unit may have (eg views, outdoor space).

Loan percentages are a separate issue and are determined according to your share of the overall debt, whether senior or junior.

Good luck!
Web Reference:  http://Www.residentialsf.com
0 votes
Herb Alston, Agent, San Francisco, CA
Mon Oct 25, 2010
i have sold a lot of TICs in the last 10 years and here is how some past clients have done it (I'm going to keep it simple).

3 unit building, 4200 Square feet
Top: 1600 SqFt 38.09%
Middle: 1330 SqFt 31.66%
Bottom: 1270 SqFt 30.23%

or

2 unit building 3000 SqFt
Top: 1700 SqFt 56.66%
Bottom: 1300 SqFt 43.34%

That is the most simplistic explanation of percentage ownership. Hypothetically, lets say it is a building with no parking. That is the most simplistic for my examples. Each unit gets one vote post conversion, blah, blah, blah.

If you're purchasing a 2 unit building and yours is $500K, you put $300K down, your partner $550K upstairs puts 165K down(30%) and you have one loan your ownership of the structure does not change(you have more equity). If you get a fractional loan (which I don't like) then down payments and loan amounts are irrelevant(basically... for the quick Trulia answer) as the bank (i.e Bank of Marin) looks at them as 3 separate units with separate loans. Your structural percentage still doesn't change.

In San Francisco, the SFAR purchase contract has a section for you to outline that the property is a TIC and the percentages are to be designated in the contract. Hopefully whomever set up the original listing agreement measured the units and outlined the square footages and outlined each units' percentage of the whole.

If you are purchasing a 2 unit building and you get one loan, both partners are ultimately responsible for the loan. It is tricky when you get into partnership on a building. You must investigate each other's financials and be aware each other's intentions and abilities. I have put people together from scratch and rescued a failing TIC by bringing in a new capable buyer. I have seen it from all angles.

My suggestion to you is to get a good TIC agreement. Hire good attorneys (DON'T GO CHEAP!) Herzog, Sirkin, etc.. stick with known entities who know what their doing. Just because your cousin's best friend's sister's husband is a real estate attorney in Fresno... San Francisco and TICs are a different animal.

This is brain surgery... and you don't want to hire a dentist.

Lastly, I live by the philosophy that you should be excited that you are buying a new home. It's a new and exciting adventure. If you can't sleep while you are in escrow, wake up uneasy with 35 questions and/or doubts. A TIC purchase may not be the right transaction for you.

Most likely you have a competent agent. Take advantage of their knowledge and expertise. Hopefully they have done a TIC transaction in the past and know the challenges. Most companies here in the city are familiar with TIC transactions; make sure if they(your Agent) needs assistance they are relying on their Broker. Rely on them to protect your interests. That is their job. Let them do the leg work for you and get your questions answered. That's what we get paid for.

Best of luck to you. Please feel free to contact me directly (415)341-8881 if I can assist you in any way.

Herb Alston
Coldwell Banker
(415)341-8881
herb@herbalston.com
0 votes
Leopold A Ro…, , San Francisco, CA
Sat Oct 23, 2010
You do not specify whether the group loan is a purchase money loan, or a refinance loan. I will assume the former.

In general percentage of ownership is based on relative square footage or on list price. The beauty of the former is mathematical precision. The beauty of the latter is that the market determines relative value.

I do not understand how you had your offer accepted without you and the seller specifying on YOUR purchase contract, YOUR percentage of ownership. The same would be true for your cotenants.

So I suspect that what you really want to know is: must the ltv for each co-tenant's interest be identical? If not, how should the disparate percentages be adjusted?

If you remain confused, have the group consult the attorney who published the TIC Agreement, for guidance.

Best of luck. Enjoy your new home.

Leopold A Rodriguez
Broker/Attorney
BlackStone
400 Montgomery Street 505
San Francisco CA 94104
(415) 781-3000
0 votes
Lance King, Agent, San Francisco, CA
Sat Oct 23, 2010
Mark,

Normally it is based upon size but there could be variations on that if one (or more) unit has some special attributes. Also, many times ownership percentage and some of the splits on bills that get paid are not the same.

We deal a lot with TICs - if you don't have an agent make sure you have knowledgeable representation as this type of property is complicated and all TICs are not created equal.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes
, ,
Sat Oct 23, 2010
The two answers below are correct. In a TIC, you will typically keep track of your ownership percentages and your loan percentages on a separate basis. Rarely are they exactly the same.
0 votes
Jed Lane, Agent, Petaluma, CA
Sat Oct 23, 2010
The percentage is based on the percentage each unit's square footage is of the building. For example 3,000 SF building with three units of 1,000 SF each owner would own 1/3 of the building. There can be variations on that but that is the basic and most usual.
0 votes
Jack Murray, Agent, San Francisco, CA
Sat Oct 23, 2010
Hi Mark,
A lot of times the ownership percentage is pre-determined. It actually has more to do with the "space", and has nothing to do with the loan amounts. When a shared loan(s) are the financing there is a different percentage for the debt amounts. Additionally, there will be a different percentage for property taxes. While instinct may be to "own" a larger percentage in the property, in my opinion it the exclusive right to occupy space that has the value. The larger the percentage, typically the larger amount you pay in costs for the building.
Do not hesitate to call if you are not already represented for further discussion. If you have an agent questions are best posed to the agent representing you.
Sincerely,
Jack Murray
Broker~Associate
Prudential California Realty
415-664-0800
DRE#01298765
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