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City Council Workshop Looks at Making Condo Conversion Work

By Judith Scherr
Friday November 02, 2007

The law governing Berkeley’s condominium conversion, revised multiple times over some three decades, is likely to undergo more changes in the next month or so.  

“[The ordinance] hasn’t been very successful and you have to ask why,” Don Holm, who sits on the Berkeley Property Owners Association Board of Directors, told the Daily Planet Wednesday. 

Although Condominium Con-version Ordinance revisions of 2005 were supposed to facilitate conversion and the eventual sale process, no rental apartments converted to condominiums have actually sold under the revised law, according to Jay Kelekian, executive director of the Berkeley Rent Stabilization Board. 

The question of revamping the ordinance will be discussed Tuesday at a 6 p.m. workshop before the regular City Council meeting at 2134 Martin Luther King Jr. Way. The council is slated to address some changes to the law in December and consider other changes next year. 

Topics discussed at the workshop will likely include the planning staff’s suggestion to simplify the steps it takes to convert a unit and a property owners’ group’s recommendation to lower conversion fees. 

Berkeley’s Condominium Con-version Ordinance regulates conversion of apartment and tenants-in-common buildings (TICs), in which a number of individuals have purchased a building together and live in separate units, to condominiums.  

It aims at ensuring that the Berkeley’s rental housing stock is protected and that middle- and low-income renters are not forced out of Berkeley. The ordinance also raises funds for the Housing Trust Fund, the city account which was set up to pay for low-income housing. 

Berkeley’s original ordinance prohibited conversions, which are considered by some to be a source of gentrification.  

Since 2005 a revised Condominium Conversion Ordinance has facilitated conversion of TICs. TICs are problematic, says Rent Board Executive Director Jay Kelekian, because if one partner has a crisis—say, a bankruptcy—all partners are jointly responsible.  

TICs “also create incentives to evict tenants through the Ellis Act [which allows landlords to go out of business and remove tenants from their properties] in order to sell a building as a TIC project,” says an Oct. 12 report by the ad hoc Committee on Condominium Conversion, comprised of Planning and Housing departments and Rent Board staff and the city attorney. 

Holm of the BPOA believes, however, that problems associated with TICs have been overstated. 

Beginning in 1992, the ordinance allowed conversion of apartments, but required a fee that amounted to about 70 percent of the selling price. While the ban on conversion had been lifted, the law’s intent was to discourage conversion. 

In 2005, the ordinance was modified to allow property owners to pay fees of 12.5 percent of the selling price, if, in return, the seller agreed to give sitting tenants who do not want to purchase their unit a lifetime guarantee of tenancy with guaranteed moderate increases in rent. The tenant would have the right of first refusal for a year to purchase the apartment. 

No such fee is associated with the conversion of TICs. 

It was expected that this plan would generate millions of dollars for the Housing Trust Fund that would be matched with federal low-income housing dollars to provide affordable housing. 

But while 230 property owners have applied for conversion since 2005 and 20 to 30 have actually converted, none have sold, Kelekian said. 

The reason for the slow pace of conversion depends on whom one asks. 


Fee question 

Holm cites a number of factors. One, he says, is the “burdensome” fees established by the ordinance. At 12.5 percent of the selling price, fees for a $500,000 condominium would be at $62,000. 

A more “reasonable” fee would be set at $8 to $12 per square foot, Holm said. “If the mitigation fees were lower, in the end we would have more units and more revenue,” he said. (Fees for an 800 square-foot-condo at $10 per square foot would be $8,000.)  

But Kelekian points out the instantaneous increase in value which property owners attain by converting. For example, he said, a four-unit property may have the value of $600,000, or $150,000 per unit, but when those units becomes condominiums, their value can go as high as $500,000 each. 


Process revision 

Holm said another reason the ordinance has been ineffective is that the planning staff is not familiar with the conversion process. 

“Sometimes staff doesn’t know what to do next,” he said. “It’s partly because the ordinance has changed so many times,” he said. 



In the current ordinance, 100 units per year can convert to condominiums. But Holm said among the suggestions made by BPOA is that more than 100 units should be allowed to enter the process, especially given that few actually are converted and sold.  

“There are 150 units in the pipeline,” Kelekian said, adding that not many property owners want to get in line. 


Local law compliance 

One of the demands of the ordinance that sidelines some potential converters is the requirement that if work has been done on the property without permits the owner is required to have the work inspected and brought up to code.  

“It’s a big issue,” Kelekian said, noting that he thinks there are good reasons to inspect the unit and bring it up to code for health and safety issues. Work done that does not affect health and safety should be noted and shared with the buyer, but not necessarily brought up to today’s codes, he said. 

Kelekian gave the example of a bathroom where a door was slightly too narrow: The owner had to spend $20,000 remodeling the bathroom, when this was not a health or safety issue. 

Staff will likely ask the council to consider making some changes in December, such as streamlining the ordinance and changing the code compliance requirement, while other questions could wait until March.  

A question that needs more time is how to treat inclusionary units in a building where the units are slated for conversion. One unit out of five in new buildings under state law must be affordable to relatively low-income people. Kelekian said the city should find a way to preserve inclusionary units in converted buildings.