How is Real Estate Benefiting From IPOs These Days?

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Alain Pinel, General Manager of Intero Prestigio international, Intero Real Estate Services, Inc.

ipo graphicYou know you’ve been in the real estate business for a while when, not only can you talk about the various market cycles of the past, but you actually experienced them first hand….You had a blast riding the good ones, and you somehow survived the bad ones. It makes for a great conversation piece at cocktail parties. You can offer your best take on why the up cycles usually last longer than the down slides and try to rationalize why it did not work that way during the last recession…

All Realtors have the nostalgia of good times, when sellers are getting a hefty price for their home in no time and most buyers are feeling no pain buying their dream home when they want and where they want. For me, the time my memory takes me to when thinking about good times is the late 90’s in Northern California. The market was hot. Crazy might be a better adjective in fact. Properties were moving as quickly as warm baguettes in a Parisian boulangerie in the early morning. Prices were being re-evaluated upwards every month, which did not slow the buying pace any as plenty of new money was available and anxious to be spent.

Sounds like a dream world, right? Well, I guarantee it was not a dream, it was for real. The magic, if there was any, was spelled with 3 letters: I.P.O.. Most people, prior to 1996, did not know what it meant. They learned quickly and, in the fast & furious Silicon Valley of the time, they made this acronym famous. Hi-Tech became Hi-Finance. All of a sudden in the most pricey zip codes of the Peninsula, new money started out-bidding old money for multi-million dollar properties.

This year, I have been reading in many papers that IPOs are back all over the US and they are roaring. Fact or fiction? We would like to believe it since the money flow that they eventually bring to local economies is what the doctor ordered at the high end.  Yes, IPOs are on the way up. By the time we close this year, we may have a couple hundreds and raise somewhere around $40 billion. More than half is still in the pipeline. Not bad, but don’t get too excited: it looks like small stuff compared to the second half of the 90’s.

Judge for yourselves. In the 4 years preceding 2000 -the year when the bubble burst-, the US registered a staggering 2,307 IPOs (roughly a quarter in California) totaling $232 billion, according to SEC Filings. In the 4 years stretch of 2009 to 2012, the US registered 389 IPOs –only a sixth of the 1996-1999 period-, for a total capital of $118 billion. Last year, with 102 IPOs nationally, we saw a nice surge relative to the previous years, but we will need more and for a lot more than just a year to re-energize the economy.

There is another mystery that puzzles me. In years past when a big IPO hit the street, you pretty much could count on a raid on luxury homes six to twelve months later, when the employees/jackpot winners could cash their interest without leaving too much to Uncle Sam. This year, we have not seen the demonstration of the theory. Take the Facebook IPO in the San Francisco Bay Area as an example. The IPO raised about $16 billion in 2012, 80% of all IPOs in California and nearly half of all IPOs in the US that year ($35 billion). Yet, so far, we have not seen that many Facebook “Nouveaux Riches’ buy multi-million dollar homes in the Valley.

My question is “Why?” Perhaps, the 1,000 or so employees who got at least $1 million out of the deal, are more reasonable than their late 90’s “ancestors” who burned their money as quickly as they possibly could. Perhaps also, the most entrepreneurial of the lot decided to emulate Steve Jobs or Mark Zuckerberg and use whatever cash they had to fund their own start-up. Or perhaps they learned to be patient watching the stock lose half of its value over the first 3 months, and fight back to see new highs slowly but surely.

Now, all eyes are focusing on Twitter, scheduled to go public in the near future. All Realtors, and particularly those doing business in San Francisco and the many affluent towns of the Bay Area, are already wondering how big an impact this mega IPO will have on sales and prices. We’ll find out next year. Stay tuned!


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