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After the 2008 Mortgage Meltdown, the real estate market heated up like crazy in 2012 with Facebook's IPO and the market has been going up since. With Lyft, Uber, Slack and other tech giants possibility IPOing this year, lower interest rates, the market started to feel like it's heating up in the last few weeks.
There is still limited inventory in desirable areas. I'm seeing multiple offers and over asking prices. What do you think? Janice Lee
If tech firms including Uber, Lyft, Airbnb and Slack go public this year, what will the effect be on Bay Area real estate?
We can look to the Facebook Effect for insight.
The Facebook Effect
Facebook's public offering had such a profound impact on the Bay Area that real estate insiders named it. The "Facebook Effect," felt full force in the spring of 2012 leading up to the company going public in May, continued to reverberate for the rest of that year -- and perhaps still does.
Facebook went public on May 18, 2012. On May 17, Julian Herbon of Basis Point wrote of multiple buyers hovering around limited properties, out-bidding one another with a frenzy unseen even in a market well accustomed to frenzy.
"It's what some are calling The Facebook Effect on San Francisco real estate," Herbon explained. One of the "main themes that set fire to this trend starting in late-2011 was a "rush to buy before IPOs set ever higher bars for tech firm valuations."
In Hebron's example, tech valuation refers to the idea that the perceived value a company has increases when it goes public; and then, those individuals who hold stock in the company are suddenly owners of some (sizable) portion of that increased value.
Hebron cites LinkedIn's and Zynga's IPOs as evidence, and then points out that Facebook dwarfed them all, especially after the latter acquired Instagram (which was still another high-value tech company), bringing numbers to the billions instead of just millions.
In 2012, valuations of then still-private Bay Area based companies were eye-popping:
– Twitter: $8b+
– Dropbox: $4b
– Square: $1-2b
– Path: $1b
– Airbnb: $1b
"You can argue against these absurdly high valuations all you want but thousands of liquid millionaires are being created before and after these firms go public—and the impact on our property market is real," wrote Hebron.
Effect on prices
There is no denying the effect is real. In studying census data, Zillow determined that starting around Facebook's 2012 public offering "home values in the census tracts where likely Facebook employees lived rose faster than in those not home to Facebook employees."
Using designated areas closest to Facebook Headquarters in Menlo Park, Zillow found that between 2012 and 2013, home values around likely Facebook employees climbed 21 percent, compared to 17 percent in all other Bay Area census tracts.
"This faster growth translated into an extra $29,800 in appreciation for the typical home in these Facebook-employee-heavy areas compared to homes in the rest of the Bay Area," said the report.
What's the next IPO to make an impact?
Rumored to be racing ahead of Uber, Lyft has filed filed a statement with the U.S. Securities and Exchange Commission for an initial public offering. If all goes as planned, Lyft could be the first major tech IPO of 2019.
According to NBC News, Lyft's currently enjoying a $15.1 billion valuation.
Uber, meanwhile, also plans to go public this year. In 2018, Investopedia wrote "Ride-hailing company Uber Technologies Inc could be valued at $120 billion, when it finally goes public next year."
Meanwhile, both AirBnb and Slack are in the mix to go public, but perhaps without banks, in the manner that Spotify went public in 2018.
Patrick Carlisle, data analyst with Compass Realty, told SFGate that "If the big IPOs actually occur, and the market reacts enthusiastically, one can only assume it will put upward pressure on prices in those areas where the unicorn employees live in greatest numbers."
But then again, maybe not.
What would happen to Bay Area real estate if all four go public in 2019? If the Facebook Effect is precedent, we could be in for a dramatic year.
By Anna Marie Erwert