Facebook IPO: Will It Boost Silicon Valley Real Estate Prices?

May 19, 2012 — -- Tax revenue from Facebook's $104 billion IPO may not fill California's $16 billion budget deficit, but it will likely give a boost to Silicon Valley's already inflated real estate prices.

The median home value in Menlo Park, Calif., the home of Facebook's headquarters, is $1 million, up 4.5 percent year-over-year according to the Zillow Home Value Index.

Old and new Facebook workers are buying up property in the Bay Area, adding to the demand from tech workers at nearby companies like Google, Zynga and LinkedIn.

In the nearby town of Cupertino, home of Apple Inc., the median home value is also $1 million, up 1.6 percent year-over-year, according to Zillow.

Around the time that Facebook announced its IPO and started its road show, there was an influx of multi-million dollar real estate coming onto the market in Silicon Valley, said Zillow chief economist Stan Humphries.

"Sellers clearly want to take advantage of those reaping rewards from this historic financial event," Humphries said.

Home prices have already been rising in many high-end neighborhoods and cities in the area, and Humphries said he expects they will continue to increase as the young Facebook IPO beneficiaries look to make moves in the real estate market.

Michael Dreyfus of Dreyfus Properties specializes in residential real estate in the towns of Palo Alto, Menlo Park, Woodside, Portola Valley and Atherton.

"There's no way there's not going to be an effect," Dreyfus said of Facebook's IPO and the local real estate market.

He said he knows sellers who have waited for two years, not yet listing their homes in anticipation of the IPO.

While Facebook's headquarters are in Menlo Park, Dreyfus said the hottest area is in neighboring Palo Alto.

"Palo Alto is ground zero for all of this, particularly because the younger money has always preferred Palo Alto because it's a more urban environment," Dreyfus said.

Downtown Palo Alto, by Stanford University, has numerous coffee shops, a movie theater, restaurants and bookstores.

"The schools are excellent, you can send your kid to public school and you are in the mix," Dreyfus said.

Dreyfus said the dotcom bubble and Google's IPO have educated property owners into becoming "savvy sellers."

"They've seen this song before, they think they can play it, and they may be right," said Dreyfus, who knows sellers who have held off and not responded immediately to increasing demand.

One reason for sellers' patience may be that companies and some regulations prevent some stockholders from selling their shares until a specified time. That "lockup" period means Facebook employees won't be using stock proceeds to buy homes in cash just yet. The period may be 90 days for institutional buyers and 180 days for employees. Companies like Zynga and LinkedIn have inititated more than one lockup period. Some lockup periods can encourage employees not to sell stock for as long as a year.

While most of his clients have been established executives who have moved to California to work at tech companies, the homes Dreyfus sold to Facebook employees in the past two years tend to have been to young families.

"I'm 50, so they all seem really young," he said.

When asked if he was participating in any Facebook employee-related sales on Friday, Dreyfus said one of his two offices was planning to host a party celebrating the IPO's completion.

"We're tired of hearing about it," Dreyfus said. "Imagine that every real estate conversation has worked Facebook in."

Though grateful for the boost from Facebook and every other tech economy, he hopes people will focus on living "fundamentals."

"The story is about all the companies in the Valley and how well they're all doing," he said. "And we want everyone to take a deep breath because we are really fortunate to live in this place."