‘Facebook Effect’ Coming, But Not Here Yet

Facebook logoAfter all the hubbub leading up to Facebook’s initial public offering on May 18, the three weeks since then have seemed positively anti-climactic. Its shares are trading nearly 30 percent below the IPO price, and the only talk on Wall Street is how the whole affair was mishandled.

But make no mistake: Facebook’s IPO is still a huge deal, especially here in the Bay Area where the practical effect of that $16 billion offering on our real estate markets and elsewhere — the so-called “Facebook Effect” — won’t become apparent for another two to five months.

That’s because nearly all of the shares awarded to Facebook investors and employees remain “locked up” until at least the middle of August. Most shares, in fact, cannot be redeemed or sold until the middle of November, which means those shareholders won’t be able to cash out for a while yet.

Newly issued stock belonging to company insiders is typically subject to a lock-up period of three to six months, allowing trading to stabilize. Facebook will release a fraction of those shares three months after the IPO, but most investors and employees have to wait six months before getting access to their shares.

After that, however, an estimated 850 new millionaires and billionaires – most of whom call the Bay Area home – will be looking to substantially upgrade their lifestyles.

Here at Pacific Union International, we’re already talking with a few Facebook insiders, and from intermediaries acting on their behalf, but the Facebook Effect is only beginning to materialize.

That’s why we’re urging both homebuyers and sellers to step up to the plate sooner rather than later. For homebuyers, this is a great time to lock in prices before Facebook inflation takes hold. For sellers, it’s critical that Facebook insiders and their agents see your listing before they settle on someone else’s property.

Looking beyond Facebook’s bedroom communities in Silicon Valley, multimillion-dollar properties in San Francisco and other desirable communities nearby will see strong interest throughout 2012 and into 2013. And demand for second homes and investment properties will grow across the Bay Area but especially in destination locations in Sonoma and Napa counties and the Truckee-North Lake Tahoe area.

“I expect a number of people now living in Silicon Valley will quit their Facebook jobs and relocate to San Francisco and beyond,” said Brent Thomson, senior vice president for Pacific Union’s Marin County region. “They’ll be leaving for new jobs or new adventures, including starting businesses of their own.”

Facebook employees could also shape the buying decisions of others, since real estate activity in the East Bay often picks up when buyers get priced out of San Francisco.

Meanwhile, some newly minted millionaires may sit on the sidelines, initially.

“A lot of these Facebook employees are not used to having money and they don’t know what to do with it, so they’re going to be sitting tight,” said Patrick Barber, president of the San Francisco region here at Pacific Union. “Obviously not those with $100 million or more, but those with $10 million, $20 million, up to $50 million — they may be lost, and a company like ours is a great place for them to discuss long-term investment strategies as well as their home needs.”

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