To keep prices down, some LA home buyers are sharing costs. But renters may pay a price

When Matt Mandarino and his wife, Chrissy Callan, were shopping for a house, one of their requirements was that it be within biking distance of Mandarino’s job in Hollywood.

He works in advertising. Callan designs costumes for film and TV, so her work is more mobile. They’re both 30 years old and wanted to find a two-bedroom, two-bathroom house for $700,000 or less. In and around central L.A., however, $700,000 doesn’t go very far.

“Everything we could afford was in dire need of fixing up,” said Mandarino. “We went to a bunch of open houses, which was really discouraging.”

When they came across a listing for a three-bedroom, two-bathroom apartment in Historic Filipinotown for $650,000, it seemed too good to be true. It was at least $100,000 cheaper than similar condominiums they’d seen. They kept trying to figure out the catch.

“I was like, something’s off because this is totally underpriced,” Mandarino said.

Turns out, the apartment is part of something called a tenants-in-common, or TIC for short. A TIC is a way for a group of people to come together and buy multifamily properties — usually small ones with no more than a half dozen units — in order to save money. Instead of buying a specific apartment like in a condo building, each buyer in a TIC gets a percentage of the property.

In Mandarino and Callan’s case, they closed on the apartment in Historic Filipinotown for list price and now, with two neighbors, own the duplex it’s in as well as a standalone unit in the back. Each household owns 33.3 percent of the entire property.

TICs are cheaper than condos partly because buyers are more entangled. For example, because TIC properties aren’t formally subdivided, everyone shares a property tax bill. TIC owners also have to work together to draw up a contract to determine who gets to live in which unit, common area use and general rules. For Mandarino and Callan, it was worth it.

“You take it as a given when you look for a home here that you will need to sacrifice something,” said Callan. “To us, putting in more effort to cooperate with our neighbors was a tradeoff that we were willing to make more so than size or location.”

A duplex in West Adams. Credit: Anna Scott.

A new model for LA living

People have been going in on properties together for decades. In the past, however, a TIC generally meant friends or family members coming together and splitting a mortgage. The kind of TIC Mandarino and Callan bought into is new to L.A.

It’s a model pioneered by one institution, Sterling Bank in San Francisco, which allows each buyer to get an individual loan. This so-called “fractional financing” makes TICs less risky and even allows strangers to buy into them together: if one owner defaults, it doesn’t necessarily drag everyone else down. That, along with having one go-to bank, has made TICs very popular in the Bay Area. Sterling Bank only started doing business in Los Angeles recently. Since then there’s been a flurry of TIC activity in the city.

It’s difficult to say exactly how many TICs have recently formed in L.A. Different real estate brokers estimate anywhere from dozens to hundreds. It’s a small slice of L.A.’s housing market, but has the potential to grow much larger if San Francisco is any indication.

Liz McDonald, owner of the real estate brokerage The Rental Girl, has sold units in nine TIC projects in the past year and a half. Since Sterling came on the scene McDonald has carved out a niche promoting and matching buyers together to create TICs. She sees them as a way to create more winners in the market.

“If you take a four-unit apartment building,” she said, “historically this property would have been sold to one person: an investor or a landlord. And now we’re selling it to four people, and this might be their only chance to buy. The way I look at it is we’re spreading equity around to more people.”

However, in L.A., the median home price stands slightly above $600,000 for the county, and TICs only open the door to homeownership a crack wider. They offer prices low enough to allow in buyers just barely priced out of the market, or priced out of their top choice neighborhoods.

Moreover, behind L.A.’s high home prices there’s a housing shortage, so more winners often means more losers. Who’s losing?

In recent weeks KCRW has spoken with a half-dozen rent-stabilized tenants being evicted from four different properties in Silver Lake, Los Feliz and Echo Park by TIC developers. One of them is Mimi Le, a 42-year-old stylist who has lived in her one-bedroom apartment near Hyperion Avenue for seven years and pays about $1,500 a month in rent.

“I have no idea where I’m going to go,” said Le. “I live here by myself and I realize it’s such a luxury to live in Los Angeles by yourself.”

Still, Le realizes she’s relatively fortunate. She’s not facing homelessness if she loses her apartment, and neither are the other renters KCRW spoke with. But Le says that’s not the point. She joined the L.A. Tenants Union, which advocates for renters’ rights and is putting up a fight to remain in her apartment and call attention to TICs.

“I’m fighting for my apartment for the bigger picture,” Le said. To her, that means protesting anything that’s “ripping rent-controlled stock from the city.”

The bigger picture

The bigger picture that worries Le and other tenant advocates is the loss of rent-stabilized housing in L.A. Since 2001, an estimated 24,000 rent-stabilized units have been taken off the market, nearly 4 percent of the total number. This loss impacts some very vulnerable renters. According to a study by USC, 48 percent of L.A.’s rent-stabilized tenants are at or close to the poverty line.

Tenants-in-common conversions right now have only nibbled away a tiny portion of L.A.’s rent-stabilized housing stock, but activists say they have the potential to gobble up a lot more if more investors and developers continue to get into the game.

A ‘great alternative’

Tenants-in-common properties aren’t only appealing to buyers. They’re also attractive to real estate investors for a very particular reason: “It’s a really great alternative when you can’t do a condo conversion,” said real estate broker and TIC investor consultant Christopher Stanley. He runs the L.A. office of the San Francisco-based company Tenants-in-Common Development.

Converting a rental property into condominiums in L.A. is a time-consuming, expensive undertaking. Condos come with a laundry list of requirements, such as parking minimums, which are often not worth the cost in an older building. “It’s not really profitable for the investor typically,” Stanley said.

The other issue with older buildings in L.A. is that they’re usually rent-stabilized (the city’s rent stabilization ordinance applies to multifamily properties constructed before 1978). In order to evict rent-stabilized tenants in Los Angeles, landlords generally have to remove the units from the rental market altogether. Until now that’s meant either a costly condo conversion or a teardown. TICs, however, offer a way to legally evict tenants and then sell the property off in pieces without having to jump through the hoops of a condo conversion.

“You could take a fourplex and convert it in a few months,” said Stanley. His company has three TIC projects underway in L.A. All of them are former rental buildings that have been renovated and put up for sale as TICs. “We did a project in two months, sold out in a month.”

Finding solutions

The Rental Girl, Liz McDonald, says tenants don’t always have to move when a rental property gets turned into a TIC. In some cases, she said, people already renting in a building become the buyers with this model. But she acknowledged that isn’t usually the case, and in a market as expensive and tight as L.A., renters by and large lack security. “I don’t think TIC is necessarily the end-all, be-all solution” to the housing crisis, she said. But she does believe that it is one solution that’s allowing more people to buy homes and “creating more opportunities to build wealth.”

Until there’s more housing in the city, however – especially affordable housing – opportunity for one household could mean another one pays a price.

By Anna Scott