IPO v.2019

Don't Believe the Hype: Yes, 2019's IPOs are about to blast off, but their impact will take longer to feel and may not be as great as feared

By now you've probably heard that the IPO for [insert company-of-the-moment here] is going to flood the city with millionaires and push already high real estate prices out of this world. A popular variation is that many sellers who would otherwise list and sell their properties now are withholding their properties until IPO money hits the market to cash in on the forthcoming cash surge. But delve deeper into these propositions and you'll see there's more to it than those eye-catching headlines. One: Will there really be that much new cash out there? Maybe but the Facebook IPO is instructive as the company's shares did not go crazy but went down by $20 a share in the first few months after its IPO. Okay, eventually, the stock went up and cash followed. Two: Assuming there is more cash on the market and in the accounts of all those coders and sales people, the question then becomes: when will that cash be felt on the market? What many forget is that IPOs are usually followed by restrictive periods of 6 months to a year after an IPO where employees are barred from cashing their RSUs or options in. And a lot can happen to a stock during that time. Also, remember we'll be in an election cycle by the time money from 2019 IPOs hits the market and who knows what the world will be like then. Three: Just how many employees are there who stand to benefit? Not that many, the headcount at many of the darling unicorns of the tech IPO isn't high. So is now a better time to buy or later? Even if just one property owner decides to hold on to their property for longer than they would have otherwise prices will rise as our already-limited inventory will have one less property to buy thus driving up scarcity and prices. With longer term prospects looking to be ones flush with cash, the only solace you can find mow is that interest rates have fallen since last fall and continue to be low for the time being.

By now you’ve probably heard that there are lots IPOs set to blast off for San Francisco-based companies [if not, then take a read here]. The impact of these IPOs will flood the city with copious amounts of cash and a bevy of freshly minted millionaires, who will then push already sky-high real estate prices out of this world.

A popular variation of this story is that many sellers who would otherwise list and sell their properties now are instead withholding their properties until IPO money hits the market to list the property to take advantage of the anticipated forthcoming cash surge.

But if you delve deeper into these propositions you’ll see there’s more to it than those eye-catching headlines.

Three Reasons Why Money Won’t Fall From the Sky Today… 

One: Will there really be that much cash out there? Maybe but the Facebook IPO is instructive as the company’s shares did not go crazy and went down by $20 a share in the first few months after its IPO.

(Okay, eventually, the stock went up and cash flowed forth.) 

Two: Assuming there is more cash on the market and in the accounts of all those coders and sales people, the question then becomes: when will that cash be felt on the market? What many forget is that IPOs are usually followed by restrictive periods of 6 months to a year after an IPO during which employees are barred from cashing in their RSUs or selling options. And a lot can happen to a stock during that time.

(And remember we’ll be in an election cycle by the time money from 2019 IPOs hits the market and who knows what the world will be like then.)

Three: Just how many employees are there who stand to benefit? Not that many, right? The headcount at many of the darling unicorns of the tech IPOs is relatively small.

So is now a better time to buy or later?

So, if even just a single property owner decides to hold on to their property for longer than they would have otherwise, prices will rise in the short term because that will mean one less property to buy thus driving up scarcity and prices. Indeed, the data from when Google IPO’s in 2004 that condo price growth in District 5 held at a steady 15% clip while house prices rose 5% faster than the year prior to the IPO.  

The take-away: prices for single-family homes will increase post-IPO at a higher rate than they would for condominiums so buy now while you can while interest rates are lower than they have been over the past 2 years.

 

So How Did It Go When Google Went IPO?

Google's IPO was in August 2004. We look at price growth rates for house and condo prices in District 5 (Noe Valley, Eureka Valley, Mission Dolores, Duboce Triangle and the Haight) in the year before and after the IPO.

Price Change From 2002–2005

During which the average house price in District 5 grew from $948,000 to $1,074,000 to $1,292,000— by 13% and 18% respectively

Sept 1 2002 – Sept 1 2003: $948,000
Sept 1 2003 – Sept 1 2004: $1,074,000
Sept 1 2004 – Sept 1 2005: $1,292,000

Price Change From 2002–2005

During which the average condominium price in District 5 grew from $613,000 to $713,000 to $827,000— holding at a steady 15% annual rate

Sept 1 2002 – Sept 1 2003: $613,000
Sept 1 2003 – Sept 1 2004: $713,000
Sept 1 2004 – Sept 1 2005: $827,000

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Kevin K. Ho, Esq. + Jonathan B. McNarry
San Francisco Real Estate Experts
+1-415.297-7462 (Kevin)
+1-415.215.4393 (Jonathan)
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