TIC Corner
by D. Andrew Sirkin
Q. In San Francisco, how does the new condominium-conversion lottery system work?
A. Under the old system, 200 apartments (or about 55 buildings) per year were selected in a series of lottery drawings. The first drawing, called “pool A,” selected 100 apartments from among buildings that had previously entered and lost the condo lottery three or more times. Each of these buildings got one pool A ticket regardless of the number of years it had entered. The second drawing, “pool B,” which selected another 100 apartments, was open to all buildings, including first-time entrants. Each building got a number of pool B tickets equal to the number of years it had participated in the lottery, up to a maximum of five tickets. After all of the winning buildings had been selected, the drawing continued, and buildings were placed on the “standby list” in the order drawn.
The standby-list buildings were permitted to convert only if winning buildings subsequently failed to submit applications by the deadline (usually July 31) or were found to be ineligible for conversion. The old system was amended in 2004 to provide that buildings from which certain elderly, disabled or catastrophically ill tenants were evicted after November 16, 2004, would be eligible for only 25 of the 200 conversions.
In recent years, the odds of winning the condominium-conversion lottery fell sharply. The likelihood of selection in the 2005 condo lottery ranged from approximately 3% for first-time entrants to approximately 38% for buildings that had participated five or more times. Moreover, the chances of winning for most buildings dropped from year to year even as their ticket allotment increased. For example, a building that entered for the second time in 2004 had about an 8% chance of having one of its two tickets chosen; the same building, entering for the third time in 2005, had only a 6% chance of having one of its three tickets chosen. The odds dropped even more precipitously for buildings that had reached their maximum allotment of five “pool B” tickets.
The new condominium conversion lottery system will not change either the rules governing eligibility to enter the condominium lottery, nor the number of apartments selected annually for conversion. Instead, the system will increase the preference shown for buildings that have previously entered and lost, theoretically guaranteeing that any building that continues to enter the lottery will eventually win.
The new system will continue the practice of dividing the drawing into “pool A” and “pool B,” each selecting 100 apartments for conversion. For the pool A selection, buildings that have previously entered and lost the condo lottery three or more times will be grouped according to the number of years they have entered. Thus, all buildings that have previously entered and lost six times will be considered “class 6,” buildings that have entered and lost five times will be considered “class 5” and so forth. If the number of apartments in the most senior class is less than 100, all of the buildings in that class will automatically qualify for conversion. The unused pool A slots will then be available for the next-most senior class. For example, if the total number of apartments in the senior class is 32, 68 places will be available for the next class. When the number of apartments in a particular class exceeds the number of places remaining in pool A, a lottery drawing will select the winning buildings from that class. The pool A selection will then be completed.
Unsuccessful pool A buildings, and buildings that are not eligible for pool A, will participate in the pool B drawing. Each building will get a number of pool B tickets equal to the number of years it has participated in the lottery. Unlike the old lottery system, the new system will not place a ceiling on the number of pool B tickets a building can obtain. The practice of maintaining a “standby list” will continue under the new lottery system, but placement on the list will be determined by building class; and ranking within each class will be determined by a separate lottery drawing to be held for each class. Buildings where certain elderly, disabled or catastrophically ill tenants have been evicted since January 1, 1999, cannot participate in the Pool A drawing. Buildings from which certain elderly, disabled or catastrophically ill tenants were evicted after November 16, 2004, will continue to be eligible for only 25 places in the Pool B drawing.
The new system will apply only to the 2006 lottery. The selection process will revert back to the old system if the legislation is not re-enacted next year.
Q. What were the odds of winning the 2006 condo conversion lottery?
A. The 2006 condominium lottery produced fairer results than lotteries of recent years, but there were some surprising anomalies. All of the sixth-time entrants were automatically selected (no buildings took part in more than six lotteries and there had been no sixth-time entrants in 2005). The fifth-time entrants had a statistical likelihood of 49.2%, and 48.7% were actually selected, a significant improvement over 2005 when their odds of winning were 37.5%. Fourth-time entrants had a statistical likelihood of 11.25% (compared with 33.6% in 2005) and only 6.6% actually won. This group was the most detrimentally affected by implementation of the new system because they were unable to participate in pool A.
Buildings entering for the first, second or third time actually had an improved chance of winning because there were fewer total tickets in pool B. For example, third-time entrants had a statistical likelihood of 8.4% (compared with 5.9% in 2005). Third-year entrants also turned out to be very lucky, with 10.4% being drawn, a better result than was achieved by the fourth-time entrants, despite worse odds. Second-time entrants had a statistical likelihood of 5.6% (compared with 3.9% in 2005) and 4.3% won. First-time entrants had a statistical likelihood of 2.8% (compared with 1.9% in 2005) and 4.0% won. The chart on the previous page illustrates these results and compares them with prior years.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. More detailed information on this topic is available online at www.andysirkin.com. D. Andrew Sirkin’s law practice is devoted exclusively to tenancy-in-common, equity sharing, investment partnerships and other co-ownership matters. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.