08 February, 2012

Silicon Valley economy rebounding, report says

But leaders call for re-examination of 'outmoded' tax structure to fund public services
Uploaded: Tuesday, February 7, 2012, 4:11 PM                                            
Updated: Wednesday, February 8, 2012, 5:18 PM

Editor's note: In an earlier version of this story, the Almanac erred in reporting the asking and sales price of a 1,082-square-foot home in Midtown Palo Also. This story has been changed to reflect the correct asking and sales prices.

By Barbara Wood
Special to the Almanac

What will happen to the local real estate market when Facebook goes public?

That question was on the minds of just about everyone Menlo Park real estate broker Tom LeMieux spoke to last week after Facebook announced on Wednesday that it soon will make an initial public offering of stock that could make millionaires of many of the company's more than 2,000 employees working in its Menlo Park headquarters.

"I think this IPO is the talk of the town and the nation," said Mr. LeMieux, who works for Coldwell Banker in Menlo Park.

On Saturday, even his barber asked: "So Tom, are you going to be selling a ton of homes to Facebook employees when they go public?" he said. "Every buyer and seller I meet with, this is one of the first things that comes up."

Real estate broker Ken DeLeon, of DeLeon Realty in Palo Alto, says that just the rumor of Facebook's plans to go public may have fueled unusual January activity in Palo Alto, during a month that is traditionally slow for sales.

Palo Alto had 19 home sales last month, he said, with all selling for at least $200,000 over the listing price and three for more than $400,000 over.

Many buyers are trying to close deals before they face what they see as competition from the newly wealthy Facebook employees.

"People are so motivated right now," he said.

Last week a 1,082-square-foot home in Midtown Palo Alto, not far from the freeway, and on a 6,600-square-foot lot, was sold for $1.3 million with 17 offers. The asking price was $1.098 million.

"For 2012 Palo Alto's going to reach all-time highs," Mr. DeLeon predicted. "The first wave is going to benefit Palo Alto more than Menlo Park," he said. "The reality is, prices probably will go up 8 to 11 percent depending on the neighborhood, and maybe a little bit less in Menlo Park," he said.

Other real estate agents say the news of Facebook's IPO has already motivated some to sell their homes. Cutty Smith, a Woodside-based real estate agent with Keller Williams in Palo Alto, said that by Saturday she had heard from a client who wanted to put her Palo Alto home on the market and buy in either Menlo Park or Atherton. "I'm talking to potential sellers wondering about the timing," Ms. Smith said.

On the other side, "I have clients who have actually gone into contract sooner than they planned to try to beat this explosion," she said.

She, too, believes that Palo Alto will be the main beneficiary of an increase in sales activity. "However, because the inventory is so low, there will be spillover into Menlo Park, Woodside and Atherton," Ms. Smith said. "All these neighboring communities are going to benefit from this."

Mr. LeMieux was cautious. "I remember the same types of expectations in 2004 when Google went public," he said. "I think oftentimes the expectation doesn't match the reality, though."

People think they will see an "overnight phenomenon," he said. "The reality is these situations play out on a longer-term basis."

After the Google IPO in August 2004, Atherton's median sales price actually declined by 5 percent in 2005 before rising again by 11 percent in 2006 for a two-year 6 percent increase. Menlo Park did have a jump, with the median price increasing 24 percent between 2004 and 2005, but then increasing less than one percent more in 2006.

"That's not the hype that everyone was talking about back then," Mr. LeMieux said. "Over time, as their families expand and especially because Facebook is now headquartered in Menlo Park, I think Menlo Park will benefit."

All the agents cautioned that putting a home on the market at an inflated price is not likely to succeed, no matter how many newly minted millionaires are competing for the sale.

"The buyers are still brilliant," Mr. DeLeon said. "Overpricing doesn't really work."

Mr. LeMieux agreed. "I like to think buyers and sellers are smarter than that," he said. "We have very informed buyers here," he said, and the value of a home is still what recent comparable homes have sold for.

Those who still have dollar signs in their eyes might also do well to reflect on where Facebook employees currently live. According to a housing impact study prepared by the company as part of its request to expand the Menlo Park headquarters, 27.4 percent of Facebook employees live in San Francisco, 20.4 percent in Palo Alto, 9.5 percent in San Jose and 8.8 percent in Mountain View. Only 3.1 percent live in Menlo Park, 0.5 percent in Atherton, 0.4 percent in Woodside and 0.2 percent in Portola Valley.

New housing
For those Facebook employees who want to live within walking distance of their work, Facebook has been working with local developers to try to get some new multi-family housing built on the 700 and 800 blocks of Hamilton Avenue.

They have had discussions with the Sares Regis Group and others, Facebook spokesperson Tucker Bounds says.

"We have been working with local developers to find ways we can support new housing projects so that our growth doesn't negatively impact the integrity of the existing housing market," he said.

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