If
IPOs do come to fruition and there are some newly minted millionaires, Bay Area
housing markets could have another renaissance.
Bird’s
Eye View:
- Uber (and/or Lyft), Airbnb, Pinterest,
and Slack are believed to be going public in 2019 - Combined, the four potential
2019 IPOs could reach valuation of $176 billion, almost twice as large as
Facebook’s 2012 valuation - 10,000 San Francisco based
workers could be affected, which could have a notable impact on the Bay Area
housing market - Nevertheless, a company going
public does not necessarily guarantee wealth for all of its employees
Bay Area housing market dynamics may be changing once again
as a result of potentially large tech IPOs on the horizon. With Uber (and/or
Lyft), Airbnb, Pinterest, and Slack all believed to be going public in 2019,
their rumored IPO valuations would all rank among the 10 largest venture-backed
IPOs since 2012, according to CBInsights and Figure 1. In fact, if Uber alone
stands to its valuation at $120 billion, it would be bigger than Facebook’s
$104.2 billion valuation in 2012. Combined, the four potential 2019 IPOs could reach
valuation of $176 billion, almost twice as large as Facebook’s 2012 valuation.
However, even more importantly for the Bay Area, the headquarters
of all four IPOs are in San Francisco. And, with Uber and Airbnb being among
the largest employers in San Francisco, combined workforce of the four
companies that could be affected by IPOs adds up to about 10,000 workers.
Figure 1
Source: CBInsights, The 2019 Tech IPO Pipeline
Naturally, these IPOs could have a notable impact on the Bay
Area housing markets. However, it is difficult to say if the impact would be as
notable as the Facebook Effect – which according to some was one of the main
reasons that ignited Bay Area housing market starting in late-2011 as buyers
rushed to buy before IPOs and highest ever tech valuation.
To illustrate the Facebook Effect, Figure 2 tracks 3-month
rolling average of year-over-year change in median single-family home prices in
the Bay Area and California, with the onset of Facebook IPO marked in May 2012.
The chart illustrates that throughout 2011, year-over-year median price growth
was negative, and turned positive in early 2012. However, in the year following
the Facebook IPO, year-over-year median price growth in the Bay Area reached as
much as 37 percent. Overall California prices were also growing strongly as
housing market conditions at the time were very favorable and home prices still
hovered at their post-bust lows. Still, Bay Area’s price growth markedly outpaced
California’s overall growth. And while it’s out of the scope of this analysis
to tease out the marginal impact of Facebook on home price growth in the Bay
Area, Zillow’s previous analysis has shown that the Facebook Effect led to 21
percent increase in home values in census tracks where Facebook employees were
most likely to live compared to 17 percent increase in all other Bay Area
census tracks. “More precisely: Every 10 Facebook employees living in a given
census tract at the time of Facebook’s IPO in May 2012 were associated with an
additional 1.6 percentage points of home value increase over that year,” according
to the research.
Figure 2:
3-month rolling average of year-over-year change in median single-family home
prices in the Bay Area and California
Source: California Association of Realtors
In addition, sale of higher priced properties in San
Francisco surged following the Facebook IPO. Figure 3 illustrates
year-over-year growth in sales of residential properties priced below $2
million and above $2 million. Higher priced sales started increasing in the
last quarter of 2012 and jumped 84 percent year-over-year in January 2013. Note
that Facebook shares employee lockup was between 90 and 180 days, thus the
increase coincides with ending of lock-up periods.
Figure 3 6-month rolling average of year-over-year
change in San Francisco residential sales by price range
Source: SFRMLS
Nevertheless, it is important to note that going public for
companies in general does not necessarily guarantee wealth for all of its
employees. Many factors govern how much money an employee makes from an IPO,
including their tenure with a company, how many stock options or restricted
stock units they received, when they can exercise their options and ultimately when
they decide to sell. Also, different options have different stroke prices
pegged to the company’s private market valuation at the time they joined. And, as
noted above, employees are subject to an IPO lock-up period, which is a contractual
restriction preventing insiders who acquired shares of a company’s stock before
it went public from selling the stock for a stated period of time after it goes
public, typically from 90 to 180 days after the date of the IPO. Importantly
too, restricted stock units may be taxed at ordinary income rates, which can
exceed 39 percent at the federal level, plus the applicable state taxes.
Also, current housing market conditions are notably
different than prior to the Facebook Effect in 2012. Most specifically, median
home prices in the Bay Area now are about 2.2 times higher than they were at
the beginning of 2012. And, buyers have already shown significant restraint
leading to a jump in price reductions in recent months, as described in our recent
analysis. But, if IPOs do
come to fruition and there are some newly minted millionaires, Bay Area housing
markets could have another renaissance.
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Shared with permission from the Pacific Union Blog