June 15 (Bloomberg) — A surge in wealth from technology stock sales and initial public offerings is spilling into the Silicon Valley real estate market as newly rich workers bid up home values in suburban cities south of San Francisco. Bloomberg’s Cris Valerio reports. (Source: Bloomberg)

A sold sticker is displayed on a for sale sign outside of a home in Palo Alto, California. Photographer: David Paul Morris/Bloomberg

The Hoover Tower stands at Stanford University in Palo Alto, California. Photographer: David Paul Morris/Bloomberg

A surge in wealth from technology
stock sales and initial public offerings is spilling into the
Silicon Valley real estate market as newly rich workers bid up
home values in suburban cities south of San Francisco.

The median price of single-family houses sold in Palo Alto,
home of Facebook Inc., climbed 20 percent in May from a year
earlier to $1.63 million, the biggest jump since 2008, according
to preliminary figures from research company DataQuick. In
Mountain View, the base of LinkedIn Corp., prices rose 3.1
percent to $957,500, the ninth year-over-year gain in 12 months.

The advances are defying a U.S. housing slump that has sent
national values to an eight-year low. Share sales such as the
IPO of LinkedIn — which doubled on its first day of trading –
and an expected offering from Facebook will fuel a boom in some
Silicon Valley cities into 2013, said Kenneth Rosen, an
economist at the University of California, Berkeley.

“It’s just the beginning of the story and I suspect we’ll
see an explosion in the next couple years,” Rosen, chairman of
the school’s Fisher Center for Real Estate and Urban Economics,
said in a telephone interview. “You’ve got young people with
real money, and it’s not surprising they want to have a house.”

IPO Filings

Almost 300 companies have filed for IPOs in 2011, the most
for any year during the same period since 2000, and more than 10
percent of those are in California, according to data compiled
by Bloomberg. Silicon Valley is the U.S. hub for early-stage
companies, receiving almost 40 percent of the $23.3 billion in
venture-firm investments last year, estimates from the National
Venture Capital Association show.

Pandora Media Inc. climbed 8.9 percent today as shares
began trading on the New York Stock Exchange. The online radio
company, based about 35 miles (56 kilometers) north of Silicon
Valley in Oakland, raised $234.9 million in its IPO. Shares were
priced at $16, above the expected $10 to $12 range.

The real estate gains in Silicon Valley, located primarily
in the San Jose metropolitan area, are mostly occurring in towns
where million-dollar values are already the norm. The median
price in Cupertino gained 12 percent last month from May 2010 to
$1.08 million, and values in Saratoga rose 4.7 percent to $1.62
million, according to San Diego-based DataQuick.

U.S. Price Declines

Housing in much of the rest of the nation is struggling as
foreclosures and unemployment of more than 9 percent weigh on
consumer sentiment. Home prices in 20 U.S. cities dropped 3.6
percent in March from a year earlier to the lowest since 2003,
according to the SP/Case-Shiller index of property values. The
measure has declined 33 percent from its 2006 peak.

In Palo Alto, traffic at home showings has tripled in the
last three weeks, with the average age of potential buyers
dropping from about 50 to the mid-30s, said Daniel Siciliano, an
associate dean at Stanford Law School who attends the tours
because he’s in the market for a bigger house.

“People at startups have a lot of pent-up demand and tend
to spend a portion of their new liquidity pretty quickly,”
Siciliano said of his newfound competition for residential real
estate. “They want to manifest their wealth.”

Past Silicon Valley property booms started in Palo Alto,
adjacent to the Stanford campus, and Cupertino, home of Apple
Inc. (AAPL), because of those institutional links and their coveted
public schools, said Stephen Levy, director of the Center for
Continuing Study of the California Economy in Palo Alto. Buyers
from China have also been drawn by education resources in
prestige valley locations and pushed up demand.

‘Happening Place’

“We’re a happening place because of the university and a
lot of the folks that have been buying are relatively young,”
said Levy, who has viewed downtown condominiums selling for
double what he paid in 2005. “We have the best train service to
San Francisco. I can be downtown in 35 minutes.”

Sean Scott, head of sales for Redwood City-based software
firm Ingenuity Systems Inc., looked at a four-bedroom, two-bath
home in Palo Alto last month priced at $1.8 million. The house
has “soaring ceilings and generous living spaces,” two patios
and a “lush backyard garden,” according to a marketing flyer.

A sale is pending for more than 20 percent above the asking
price, or at least $2.2 million, after five bids were received,
said Denise Simons, the listing agent at Alain Pinel Realtors.

“The market seems to be returning to the crazy days and
the question is whether or not it is a false recovery or a
sustained recovery,” Scott said in an e-mail after viewing two
more homes at $1.25 million or more, and declining to make any
offers. “I suspect that it is a sustained recovery, given the
planned liquidity events with social-networking companies.”

Facebook IPO

Speculation that Facebook will go public in the next year
is mounting even as the world’s largest social-media site
remains silent about its plans. The company may have an IPO in
the first quarter of 2012 with a valuation as high as $100
billion, cable channel CNBC reported June 13, citing people
familiar with the matter.

Some investors have already cashed in equity in their
companies through private share sales, boosting Silicon Valley
housing demand and contributing to price gains, Rosen said.
Stakes in closely held firms can be sold on secondary exchanges
such as SharesPost Inc., which connects buyers and sellers. The
exchange values Facebook at almost $53 billion.

Shares granted to employees of public companies can’t be
sold until 180 days after the IPO, under U.S. securities rules.

New Millionaires

“You will probably see hundreds, if not thousands, of
newly minted millionaires in the next two or three years,” said
Steve Eskenazi, a tech investor in Hillsborough, north of Palo
Alto, where the minimum lot size is a half acre (0.2 hectare).
He sold his portion of an online advertising network to
Sunnyvale-based Yahoo! Inc. in 2007.

“Most people in their 20s who find themselves millionaires
feel it’s their inalienable right to buy real estate, and
they’re typically not price sensitive,” Eskenazi said.

Facebook founder Mark Zuckerberg, 27, bought a house this
year in Palo Alto, said Larry Yu, a company spokesman. He
declined to disclose details. Zuckerberg paid $7 million for a
5,000-square-foot (465-square-meter), seven-bedroom home in a
“leafy and affluent” neighborhood, the San Jose Mercury News
reported May 5, without saying where it got the information.

The purchase was made before Facebook’s scheduled move to
Menlo Park, just north of Palo Alto.

15 Miles

As more firms go public and workers cash in shares, real
estate within 15 miles of the office will climb, said Rosen, who
gave a presentation at Google Inc. (GOOG)’s Mountain View headquarters
before the company’s 2004 IPO to educate employees on housing.
Sales are usually concentrated in the “middle to upper end,”
he said.

In Cupertino, about 12 miles from Palo Alto, a three-
bedroom home listed for $908,000 got more than a dozen offers
and sold for $950,000 on June 8, said Albert Kao, an agent at
Giant Realty Inc. in the city. The prior owner, who bought the
property in 2002, decided to sell after her children graduated
from the public schools. She made a $290,000 profit before
commissions, Kao said.

Lower-priced areas are still struggling with weak demand.
In all of Santa Clara County, which encompasses some Silicon
Valley cities, prices decreased 5.1 percent in May from a year
earlier to $498,000 as distressed sales pulled values down in
the broader market, DataQuick said in a report today. The drop
was smaller than in the rest of the San Francisco Bay area, with
the nine-county median in the region tumbling 9.3 percent.

Groupon, Zynga

Groupon Inc., an online coupon provider based in Chicago,
filed for an initial share sale June 2 and is hiring engineers
in California, according to its website. As early as March,
Groupon was in talks with bankers about an IPO that would value
the company at as much as $25 billion, two people familiar with
the matter said at the time.

Zynga Inc. of San Francisco, the largest maker of games for
Facebook and valued at $8.8 billion on SharesPost, may file for
an IPO by the end of the month, a person with knowledge of the
matter said June 3.

Those firms are among the companies that will help Silicon
Valley grow by about 20,000 workers in 2011, said Levy, the
California economist. Software publishers and Web portals
accounted for 5,600 of the 13,400 jobs added in the year through
April in the San Jose metropolitan area, according to the
California Employment Development Department.

“We’re at the beginnings of an expansion of the job
base,” said Levy. “There will be a lot of hiring.”

Simons, the agent for the four-bedroom Palo Alto home, said
there were five “excellent” offers for the 2,257-square-foot
residence. It was constructed in 1973 by California developer
Joseph Eichler, who built thousands of “progressive” tract
houses in middle-class neighborhoods, according to a website
devoted to the properties.

“There are people who want to get in and they’re willing
to pay,” Simons said outside the home, which was repainted,
landscaped and staged with furniture before the public showings.
“We’re just starting to see the market come back.”

To contact the reporter on this story:
Dan Levy in San Francisco at
dlevy13@bloomberg.net

To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net

Article source: http://www.bloomberg.com/news/2011-06-15/tech-ipos-boost-demand-for-silicon-valley-million-dollar-homes.html