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September 25, 2009

Fractional TIC Loans Thrive in San Francisco Market

I was surprised to hear recently that lender NCB recently suspended its fractional loan program. Which made me think: Are fractional loans here to stay? Are buyers risking the ultimate integrity of their multi-unit TIC ownership by assuming the individual loans will be available when they are ready to sell?

Fractional loans are apparently performing quite well, thank you, according to Sterling Bank’s Henry Jeanes. He says that Sterling is committed to offering its fractional loan product, a decision fueled by the consistent popularity of TIC interests among San Francisco buyers (particularly of the first-time variety).

Jeanes is presently seeing about five TIC loans closing per month at Sterling, and 15-20 loans closing monthly among all the lenders. Many clients he’s worked with who can afford less than, say, $800,000, are still turning to TICs, as TICs still offer more bang for the buck (especially if you’re looking for a quintessential Victorian/Edwardian flat, for example).

Jeanes expects more fractional TIC lenders to enter the market in the future; the borrowers for these loans are attractive in that they meet stringent financial requirements. (Full doc, and a minimum of 700 for a credit score, for starters.)

Lenders are also fairly careful about how many of these fractional loans they authorize. So I’m thinking that if the loans continue to perform well, there may be less of a risk such loans will ultimately disappear. Indeed, 249 TIC interests have sold so far in 2009, at an average price of $616,573.

But before you run out and start going to open houses for 3-6 unit TIC interests, do your homework. Get a sense for the details, and know what you’re getting into. TICs are not for everyone.

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