The San Francisco Bay Area could explode with new millionaires this year, as some of the top Bay Area-based tech companies file for initial public offerings. But will this influx of new cash actually have an appreciable impact on the nation’s most expensive housing market?
Rumors have swirled for months that companies like Uber, Lyft, Pinterest and Airbnb will go public in 2019. Depending on how those companies are received by the market, there could be a lot of new, young, millennials hitting the housing market with cash to burn.
Will the IPO boom cause prices to skyrocket?
A recent report from The New York Times said newly-minted millionaires could, “eat San Francisco alive,” with one agent suggesting single-family home prices could climb from a current median of $1.3 million (according to Zillow) to $5 million.
San Francisco has notoriously been a hot real estate market for years but experienced a bit of a cool down starting last summer, with price reductions up and sales down. It was clear that a shift was starting to take place, according to Patrick Carlisle, Compass’ Bay Area chief market analyst.
“If they all go public, one can’t help but assume tens of thousands of newly enriched employees and investors and owners are going to have an impact on the Bay Area market and San Francisco in particular since most of them are actually headquartered there,” Carlisle told Inman.
“I assume they will have an impact,” Carlisle added. “Only 6,500 homes selling [in San Francisco per year] and thousands of potential new buyers that want to buy their first home or upgrade their existing home – that will have an impact.”
But the big question is what exactly will that impact be? Carlisle told Inman there have been some hysterical articles about the huge impact these IPOs will have on the market, but there’s been a lot of money in San Francisco for a long time. And even in particular with these companies, venture capitalists have been privately buying stock from employees, something that wasn’t commonplace long ago.
Carlisle really doesn’t believe this will even lead to the hottest market in San Francisco history. Or even the hottest the market’s been in the last two years.
“I would say the spring of 2018 was probably the hottest market in San Francisco since the height of the dot com boom,” Carlisle said. “I find it hard to believe it’s going to get that hot again.”
Dan McGue, a San Francisco agent with Coldwell Banker, sells commercial, retail and apartment building investment properties in the city.
“As far as individual homes and housing goes, it makes sense that if you put a lot more money into the consumer’s hands, one of the things they buy are homes that there’s going to be some sort of positive push on value in the area,” McGue said.
Real estate investors, however, are more in a wait-and-see mode, according to McGue. He said, you can infer that, if you have more people with more money in the city, they will be looking for avenues for where to put that money and it’s not all going to go into consumer products.
“I don’t think, like the single-family housing market, that there’s a definite big impact that we expect to see, because the market already is pretty full of buckets of buyers and investors that have a lot of capital to deploy,” McGue said. “So depending on how many of these dollars really reach the real estate investment market, I’m not sure it will dent what’s already there.”
McGue thinks the influx of new money could lead to an increase in development in a city where housing inventory is an issue – if the city can streamline their processes for approving new development.
San Francisco’s affordability crisis has led to longtime residents and middle-and-lower income getting priced out of their neighborhoods, seeking affordable housing through a lottery and even living with roommates as married couples. McGue actually thinks the IPO boom could help open up more affordable units in a housing starved market.
“Where these so-called new millionaires are looking for housing of their own to buy homes or even rent upper-end apartments, it would free up a lot of the middle level and lower cost apartments in the city,” McGue said.
How can buyers and sellers prepare and what should they know?
Max Armour, a real estate agent with Compass, has represented a number of clients who have gone through big IPOs in recent years. He told Inman buyers need to be prepared for the quirks of San Francisco’s housing market where things go quickly with little inventory and no two homes are alike.
“You start with the low expectations, with, ‘remember, San Francisco real estate is just one big compromise,’” Armour said. “No matter how much money you have, there is no perfect house. There just isn’t, so get your priorities really in line.”
Armour explained that, in low inventory markets, buyers don’t have a lot of time to make a decision. They should make a list of 10 things they have to have and prioritize what they can live without.
Any connection they can make to the seller is great, in terms of writing a letter, or including a picture, but at the end of the day, it all comes down to price and term. That’s where a good agent can help, in educating the buyer on the nuances of pricing in order to make a competitive offer, Armour explained.
For sellers, presentation and pricing are the most important. You only have one chance to make a first impression, so you want to have the house looking tip-top. That may mean painting, landscaping, staging or serious edits of closets and storage spaces.
The San Francisco market performs the best when there are multiple people interested in a home, so it needs to be priced competitively, according to Armour. That means not overpricing, but finding a place where people are excited about the home and you can solicit multiple offers.
In terms of marketing, social media has opened up a whole new world for agents, especially in the upper end of the market. Armour recommends you tell the story of the home through social media, where on Facebook or through Instagram stories.
“Everyone interacts with the property for the first time online,” Armour said.
What can agents do to get a piece of the pie?
Armour draws in these high-value clients in a number of ways, including the classic referral method. He has been working in the upper-end of the San Francisco real estate market for 15 years, so he has the experience and the connections to draw in some of the new tech money coming onto the scene.
“I’ve worked with founders at big social media companies and tech companies,” Armour said. “I can get the buyers through them, strict referrals.”
But if that’s not enough, he’s also got a secret weapon – a Sprinter van he lets his clients take as a perk.
“You work with me, you get a weekend with the van,” Armour said.
Clients take the van to go mountain biking or surfing. Really just check out all California has to offer, Armour said.
SoftBank could be the biggest winner
A final peculiarity of all these companies potentially going to IPO – some of them have received investment funds from Japanese venture capital giant SoftBank, a company that has poured a ton of money into Compass, which is now one of the most prominent players in the Bay Area’s real estate scene.
SoftBank has investments in Uber and Slack, which means that, after potentially making money on the IPO, employees of these companies will then run to Compass agents to buy a new property, sending even more money to a company that SoftBank has a large stake in. It’s tech’s version of the ouroboros — tech money feeding back into itself.