The Tech & Tax Effects On San Francisco Real Estate (CHARTS)

As Facebook went public in May, I wrote a piece called The Facebook Effect On San Francisco Real Estate (TheBasisPoint and CNNMoney). It was about how San Francisco tax policy changes are helping keep tech companies in the city, and what that tech company growth is doing to San Francisco residential property values and rental rates.

I’m going to revisit those themes as we move through the fourth quarter. Starting today with some important updates on corporate tax policy and home prices in the city.

As for Facebook, they have 2.14 billion outstanding shares today. About 1.715 billion shares become eligible to trade between October 29 and December 14 as lockup periods expire for investors and employees, according this Sterne Agee/TheStreet schedule:

– October 29: 243 million shares – directors and employees other than Zuckerberg
– November 14: 1.323 billion shares – VCs and insiders including Zuckerberg
– December 14: 149 million shares – VCs

The firm is also reporting 3Q earnings on October 23, so we’ll see if these events push the stock lower or help it recover—shares closed at $19.62 today vs. IPO price of $38.

But my point was never about Facebook alone impacting San Francisco real estate. It was about the wealth effect of companies like Facebook, and what that does to property prices and rents.

So as certain employees cash out of Facebook (or start to think big dogs like Google, Apple, Salesforce are too old school), they’ll pocket their dough and go help build the next big dogs.

And The Next Big Dog list in San Francisco alone is formidable: Twitter, Dropbox, Pinterest, Square, Path, Uber, Airbnb, Trulia, to name a few.

Or they’ll go start their own firms. And all of these firms need to know whether they can stay in the city without the IPO upside getting whacked by the city’s 1.5% tax on gross earnings of all employees.

In May, I described how mayor Ed Lee altered this payroll tax policy to keep players like Twitter and meet city redevelopment goals in the process.

In short, Lee put a cap on total annual payroll tax on stock compensation of newly public companies.

That precedent left the door open for a broader business tax overhaul, which is now on the November ballot as Proposition E.

Prop E would replace the payroll tax with a tax on company’s total revenues, and the tax would vary by industry.

UPDATE ON TAX POLICIES USED TO KEEP TECH FIRMS IN SF
Yesterday, mayor Lee discussed this topic with Bloomberg, explaining his case for why it helps the city recruit and retain new tech firms. Watch it below (and I’ll cover Prop E it in more detail shortly):

UPDATE ON SAN FRANCISCO HOME PRICES
Meanwhile since the Facebook IPO in May, the San Francisco real estate market continued its tear that began late-2011.

Only recently has it started to calm slightly.

Below is a current report and charts used with permission from my friend Patrick Carlisle, chief market analyst at Paragon Real Estate Group.

Is Ferocious San Francisco Market Easing A Little?

September brought a burst of new inventory that helped satisfy some of the fierce buyer demand for San Francisco homes. Anecdotally, word on the street is that the market may have calmed down a little after Labor Day: not every listing is selling immediately amid high numbers of competing offers — though this may simply reflect the temporary increase in new listings, or sellers too hopeful in their asking prices. But it also appears that home price appreciation has been stabilizing or at least slowing in the last quarter after the big jump earlier in the year. It’s still too early for conclusions: Since most statistics are like looking in a rearview mirror, what is happening today will only become clear in coming months.

Even if the market has eased a little, it is still very strong and very competitive by any historical measure.

Below are 2 updated, mapped analyses of median sales prices and average dollar per square foot values. Almost all the current values reflect a significant jump from 2011: for the city overall, the increase has been in the 10 to 12% range, but it can vary from 4% to 18% by neighborhood and property type.

Median Sales Prices

After the big jump early in the year, median price appreciation for both house and condos appear to have stabilized or slowed – at least for the city as a whole. (Market conditions vary widely by neighborhood.) The median sales price for non-distressed SF condos now slightly exceeds the median price in 2007, the last peak of the market, while that of SF houses is only 5% below 2007.

Inventory

September had the highest number of new listings of any month in the past year, though well below previous Septembers: 760 new home listings in September 2012 vs. 888 in 2011 and 1138 in 2010. This significantly, if temporarily, expanded the choice of homes available to buyers. But now, in October, the number of new listings is dwindling again and inventory is still drastically low by any historical measure. Overall, in the third quarter, there were 1100 fewer listings than in the same period last year, but the number of sales increased by 21%.

2-bedroom condo median prices

In the 5 areas shown, condo values jumped across the board, though the most dramatic increase from the bottom of the market has been in South Beach/Yerba Buena — where in the last 2 quarters, the median price surged ahead of that for Pacific and Presidio Heights. Noe and Eureka Valleys and surrounding neighborhoods, SoMa and Hayes Valley/NoPa have also seen large increases.

Average Dollar Per Square Foot House Prices

Though pretty much all SF neighborhoods are seeing increases in dollar per square foot values for houses, the more affluent districts 5 (Noe/Eureka/Cole Valleys) and 7 (Pacific Heights-Marina) have seen some of the largest jumps. In the last 2 quarters, District 5 hit a point matching the peak of the market in 2007.

Luxury Home Sales

Comparing the 3rd Quarter 2012 with 3rd Quarter 2011, MLS listings of San Francisco homes of $1,500,000 and above increased by 23% and sales soared by 54%. This map shows where those sales occurred: 18 in the Sea Cliff-Lake Street-Richmond district; 26 in the Pacific Heights-Marina district; 21 in Russian-Nob-Telegraph Hills; 19 in the greater SoMa-South Beach area; 53 in the Noe-Eureka-Cole Valleys district; 10 in the St. Francis Wood-Forest Hill district; 2 in Potrero Hill and 3 in Bernal Heights. The highest prices are still generally achieved in the band of very affluent neighborhoods running across the northern boundary of the city, though growth in the number of luxury home sales is strongest in the central and northeastern areas.

Months Supply of Inventory (MSI)

Still bumping along at the lowest levels in memory. MSI reflects the amount of time it would take to sell the current inventory of homes for sale at the existing rate of sales. Lower MSI means higher demand as compared to supply.

Percentage of Listings Accepting Offers

Houses, condos and TICs all hit historic highs in the 54% to 60% range earlier in the year, but have now fallen back a bit. In the third quarter, TICs saw a rather large decrease, but their percentage is still much higher than in the last four calendar years. The percentages for houses and condos are still extraordinarily high. This statistic is one of the clearest measures of supply and demand.

Average Days On Market

For those listings that did accept offers in September, the average days on market was the lowest in a long while. Many new listings, especially those considered most appealing and well-priced, are accepting offers within 7 to 10 days of coming on market.


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Reference:
San Francisco Real Estate Market Dynamics (Paragon Real Estate Group)

San Francisco Mayor Ed Lee On How To Keep Tech Companies Local (Bloomberg)

San Francisco Prop E Payroll Tax Lovefest (SF Chronicle)

Tax Breaks Pay Off In San Francisco (WSJ)

Here’s The Rest of Facebook’s Share Lockup Schedule (TheStreet)

– The Facebook Effect On San Francisco Real Estate (TheBasisPoint and CNNMoney)

– SF tech stocks: $ZNGA, $TWIT, $YELP, $TRLA, $CRM

– Near-SF tech stocks: $FB, $AAPL, $GOOG, $LNKD