Where did all the tech millionaires go? San Francisco faces the IPO fizzle
SAN FRANCISCO - Seven months ago, the Four Seasons in San Francisco sent out a news release announcing the glad tidings that would come soon: New residences for the new money.
Builders were hoisting glass and steel into a 43-story tower where residents would have their own on-staff wine concierge, plus Blue de Savoie French marble, German milled Poggenpohl cabinetry and Dornbracht fixtures. The building's $49 million penthouse would be the most expensive in San Francisco.
“Just in time for the coming wave of IPO millionaires in San Francisco,” the Four Seasons said, promising “an elevated sales experience” to cater to “this new class of buyers.”
But then the wave of tech initial public offerings - the one that was supposed to mint San Francisco's new ultra rich - fizzled. The stock of Uber, the ride-hailing giant, has dropped nearly 30% since the company went public in May. Lyft shares are down nearly 40%. Pinterest and Slack have declined, too.
San Francisco has been left as a slightly more normal town of tech workers who got rich-ish, maybe making a few hundred thousand dollars. But that doesn't go far in a city where the median cost of a single family home is about $1.6 million.
“Everyone that came back post-IPO seemed to be the same person. I didn't see any Louis Vuitton MacBook case covers or Champagne in their Yeti thermos,” said J.T. Forbus, a tax manager at Bogdan & Frasco in San Francisco.
Private wealth managers are now meeting with a chastened clientele. Developers are having to cut home prices - unheard-of a year ago. Party planners are signing nondisclosure agreements to stage secret parties where hosts can privately enjoy their wealth. Union organizers are finding an opportunity.
Everyone had gotten too excited, and who could blame them? The money was once so close: A startup that coordinated dog walkers raised $300 million. The valuations of the already giant ride-hailing behemoths had nearly doubled again. WeWork, a commercial real estate management startup that owned very little of its own real estate, was valued at $47 billion.
City of Towers
Towers rose across San Francisco to house the money. The marble was polished. The bathroom floors were warm. The private pools were being filled.
“The world has changed in a year,” said Herman Chan, a real estate broker with Sotheby's International. “We expected an upward trajectory at least, and it really kind of deflated. These companies aren't dying but the cultural zeitgeist, that momentum of IPOs, is gone. You don't even hear anyone talking about it anymore.”
The developers who had fought the odds of regulation and zoning to build their glass residences in the sky had timed their units to the IPOs. But on a recent visit with the Four Seasons sales team, they acknowledged that techie wealth was not what they were seeing. Interest was mostly coming from overseas buyers, young heirs to foreign fortunes and older executives looking for city pieds-à-terre, they said.
Also in time for the wave that was not a wave are more luxury towers: The Avery, The Harrison, 181 Fremont, The Mira.
“The definition of luxury is scarcity, and there's so many now,” Chan said. “Nowadays, my buyers are getting a contingency period and inspectors. Things you would never ask for before. There's not 10 offers on a house anymore.”
Case in point: A full-floor apartment in San Francisco's poshest neighborhood of Pacific Heights was listed at $21.6 million and advertised that “a sommelier-worthy wine cellar awaits 1,500 of your most prized bottles.” But more than a year later and after a $5 million price cut, it is still on the market.
Prices for the top 5% of San Francisco area real estate listings - the cream of the crop - rose 7% between 2017 and 2018. This year, they have fallen more than 1%, according to data prepared for The New York Times by the real estate listing service Zillow.
The malaise has spread south into Silicon Valley. A $10.8 million home listing in the town of Portola Valley, California, was slashed to $5.7 million. The median sale price for a nearby home in San Jose has dropped 10% in a year to just under $1 million, according to data from Zillow.
Before the tech IPOs, Deniz Kahramaner, then a real estate data analyst with the property brokerage Compass, had rallied packed rooms of real estate agents and investors about the bonanza that lay ahead. He had charts and estimates of thousands of new millionaires raising the average price of single family homes in San Francisco above $5 million.
Now, he is more muted. “The IPO cash-out hasn't played out as I mentioned in my original presentation,” he said.
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