Preliminary November labor force data counts for San Francisco, Marin and San Mateo counties pegs the unemployment rates at 7.8%, 6.9% and 7.5% respectively, down 0.3 percentage points in San Francisco and Marin, down 0.4 in San Mateo.
On a revised basis, the number of unemployed in San Francisco fell by 1,400 in November (from 37,600 to 36,200) while the labor force increased by 1,700 (from 462,300 to 464,000) and the number of employed increased by 3,100 (from 424,700 to 427,800).
Overall unadjusted California unemployment fell to 10.9% as the labor force fell by 35,900 workers and the ranks of the unemployed fell by 71,100.
∙ Monthly Labor Force Data for Counties: November 2011 (Preliminary) [EDD]
∙ San Francisco County Employment Up By 2,700 In October [SocketSite]
Excellent trend, consistent with the statewide and nationwide trends. Let’s hope this bit of good news continues. The rates are still too high and this should be the focus of the Fed and Congress.
The unemployment numbers are basically meaningless at this point. What we should be looking at total employment since a reduction in the workforce counts as a positive thing in the unemployment numbers. Total employment is a much better gauge, which would put SF at marginally improved, and the state as a whole worsening. People giving up on looking for work is not a good thing.
lyqwyd: In SF, the size of the workforce *increased* by 1700, and the total number employed increased by 3100. That’s improvement anyway you look at it.
Total employment is a much better gauge, which would put SF at marginally improved
Marginally?
We got 1700 extra employable people that became employed, then absorbed 1400 formerly unemployed ones. 3100 less, over a total of 36000!
Do this each and every month and unemployment would be wiped out in less than 3 years!
Of course, this is only one data point. But compare it to LA’s dismal 11.5% rate.
We are the lucky few. It’s not all rosy but we are very very lucky.
Bad news for the SF Permabears. Wrong place for a total collapse like LV or the Central Valley.
SF is still at double the number of unemployed as a few years ago, so lots of need to improve, but the trends are all good (albeit too slow).
Unemployment and the state of the economy are certainly important factors in turning around the housing decline, but simply letting the effects of the credit bubble – which was a far larger factor in the housing bubble – run their course is a much more important factor. The housing price collapse was not caused by unemployment in Riverside, Stockton, Las Vegas, or SF.
A.T.
Unemployment is part of the self-fulfilling loop that keeps RE in the toilet. RE shuts down, pulls the rug under a whole segment of the economy, which itself creates unemployment, which prevents RE from recovering, even drags it further.
With unemployment quickly coming back from the deep end – yes I say quickly because look how fast this is going; not long ago we were over 10% in SF – there’s one less parameter to worry about.
Point well taken on the “let it run its course” argument. They should have done that from day one. But they didn’t. On the top of the decreases we have seen everywhere, inflation is slowly churning away value.
But SF is in a really good position. We have tangible assets: entrepreneurs, quality of life, highly educated workforce, people who easily think outside the box, and so on… Also, we are open to the outside, not a small asset in these globalized times.
@Dan, did you read my post? I said “which would put SF at marginally improved”
@lol, 3100 increase in 1 month is pretty decent, and if it were sustained over the long term it would be good, but I consider it marginal because 1 month does not make a trend and in all likelihood most of that increase is seasonal employment and will not last.
My point is much more important when looking at the broader picture in CA & the US. The unemployment percentage often goes down even when fewer people are unemployed as they take people of the list of unemployed when they are no longer actively looking for work. It’s too easy to play with those numbers and come out with conclusions that are not reflective of the real employment situation.
Overall employment as a percentage of the adult population is a better number if for no other reason than it is much harder to play with, and can be more easily compared over time.
Pretty good seasonal hiring by Macys, Best Buy, Fedex, UPS, etc.
It was decent hiring by tech companies, but with Zynga falling on its first day from a valuation that had already been halved, it’s going to be more of a struggle for tech companies to raise money going forward. We’ll probably start seeing some of them lay off next year to match their funding prospects.
^^^ hard to value a company whose business model is selling virtual assets for actual cash and tricking kids and game addicts into getting to a higher value game… I don’t really call this an actual business model, more like a series of very smart tricks on the top of good design. Good for them plenty of suckers are falling for it, both in the games and on the stock market.
Not hard. They had revenues, costs, trends, just like any other company, it’s all pretty easy to see. Walt Disney, Mattel, etc. have the same issues. It’s entertainment and people do pay for it. The problem is that the investors valued it higher than the stock market did.
As a result, some companies will get cut off, others will get lower valuations and will therefore have to shrink or grow more slowly. That’s going to affect employment going forward.
Sure it’s entertainment, and it runs on the premise that users will go on accepting paying for their non existing assets. All you need is see a Farmville addict bankrupted and broken crying his eyes out on Barbara Walters to see this company meet the fate of other Pets.com.
But about a further downturn and more layoffs, I am not so sure. The economy is recovering on sounder footings than before. People are still deleveraging but on a smaller scale, and it was just a question of time before people would come back from their RE crash / debt crisis collective stupor.
Ron Paul’s wild predictions didn’t come true. Time to open the air vents in the gold-bullion-packed bunker and go living your life. Yes, this applies to you too, tipster 😉
I’m not sure I agree that the economy is really recovering much on sounder footings. We have without doubt had a technical recovery in our economy, much of which was and is due to massive continued Govt intervention. We are still trapped in Zero Interest Rate Policy, we still require significant Fed intervention, and worst of all we still have a fetid bloated corpse of a banking system
But along side of these things we have a Eurozone that is imploding and the name of the game is still “austerity” around the globe, including the US. the US will not decouple.
Future headwinds are great in the global economy.
That said, I don’t know that I’d personally overthink the poor showing by Zynga. It was an intriguing company that was profitable (rare in the pre-IPO tech space), but it has and had operational issues and morale problems, and that has been making airwaves for a while. also, the last few so-called social media stocks haven’t fared great lately (regardless of how “tech” they really are), and the overall market is under significant pressure.
I brought the fact up at the beginning of the year that I thought it was a huge mistake for these tech firms to not go public end 2010 for exactly this reason. IMO Zynga goes for $20+ six months ago.
The most interesting thing about Zynga to me is how many of the employees got the shaft. It’s a tough place to work, and many of them have options at $14/share… ouch, because you certainly aren’t getting rich on the salary over there. I expect to see many of them jump ship and thus that’s the story to watch for now.
The possible weakness in the tech armour IMO is how many tech companies rely on advertising for revenue. (Google, Facebook, Zynga, LinkedIn, etc)
I totally agree with ex SF-er.
@lol, which Ron Paul predictions are you referring to? And who do you think is doing a better job of making predictions?
^^^ I dunno, maybe his predictions we would reach 50% inflation.
Many paranoid macro-economy analysis Paul-heads still believe we are in an hyper-inflation world. They believed it last year, 2 years ago, 3 years ago. Proven wrong, their sense or reality has disappeared a bit like the Tea Baggers who will swear on their mother’s ashes that Obama is a muslim foreigner.
It’s the echo chamber effect among paranoids: they chant reality away. 2 years ago it was “Death Panels!”, last year it was “Zimbabwe!”, Today it’s “Ron Paul 2012!”.
When reality prevails over faith, run for a messiah.
As I said earlier, the air in the paranoid’s bunkers is becoming stale. Lack of oxygen affects your brain. Just look at the assclowns parading at the GOP debates (where I will admit that Ron Paul is leading the blind). They haven’t looked at the outside of their bubbles in 10 years. The world has changed and they have become obsolete and incoherent. They are pretty much the result of the Alternative Reality FAUX NEWS channel.
I can’t comment on the Austrians and the Ron Paulites because I am neither, although I have done extensive research on Austrian economic theory and agree with some of it, I disagree with other aspects.
However, it has been clear for 4 years that we are undergoing a balance sheet recession, and these can take a decade or more.
Clearly, credit destruction, delevering, and deflation are the memes in our current environment. this process seems to be worsening and not improving.
Given that: one shouldn’t make up a false dichotomy. Lol, your previous post made it seem like one either believes in a hyperinflationary near term outcome, OR that one believes things are ok.
People (like me) can believe we are in neither at this time. I do not see emerging hyperinflation or even significant inflation… and yet I also think that we will see a crushing 2012… due to deflation. certainly good times are not ahead, at least IMO.
this is why I’ve long advocated
-not getting into debt
-living beneath one’s means
these will work whether or not we see inflationary or deflationary global economic collapse.
Lastly, although we are not in hyperinflationary times at this point, one does need to realize that this is possible, and can happen quickly. Thus, the ka-POOM that I was expecting (see my posts from 2007) is still possible although doesn’t appear likely in the next 12 months minimum.
disclosure as always:
please do not invest on my ideas, since they are not fully fleshed out here. (except DO get out of debt if possible!)
@lol
“Many paranoid macro-economy analysis Paul-heads”
insults do not make for a stronger argument.
“still believe we are in an hyper-inflation world”
I happen to believe that.
“They believed it last year, 2 years ago, 3 years ago. Proven wrong,”
Because something hasn’t happened yet doesn’t mean it can’t, or won’t. It’s certainly not proof.
The rest of your post just appears to be a rant against various groups you don’t like or disagree with.
Regarding hyperinflation:
Once the U.S. & global economy is on secure footing without massive governmental intervention, and no hyperinflation has happened, then one can say the predictions were wrong. From what I see, the global economy is teetering on the brink, there does not appear to be any true leadership who is addressing the problem. If things collapse, as appears likely to me, it will result in a massive deflationary depression, or hyperinflation. I think it will be hyperinflation triggered by moves made to fight a preliminary deflationary environment. Here’s why I think it will be hyperinflation rather than deflation:
1) It’s better for the major financial players/ institutions. If there’s a deflation, they will completely collapse, and be bankrupted.
2) The major world governments are much more afraid of a depression. Everybody still talks about the great depression. No major modern nation has experienced hyperinflation, and the influential people do not believe it can or will happen to the developed nations.
3) The U.S. already almost experienced hyperinflation in the late 70s & early 80s, but Volker was able to nip it in the bud with painfully high interest rates. This is no longer an option as our debt service would be too high with such a large national debt.
Deflation & depression are certainly still possible, but I give 10-1 odds that it will be hyperinflation over depression. I give 100-1 odds that neither will happen and the global economy will get back on sound footing without a major collapse. That’s how I see it.
Not going into debt?
I partly agree with you, except for properly priced assets. If you stumble upon a place in decent shape with a gross 12 or less multiplier (Purchasing cost is less than 12 times annual rents), then I’d definitely do some debt, within a very reasonable debt ratio (less than 25% to be on the safe side).
Debt is a wonderful invention. Debt brought Japan out of a feudal system post WWII. The US reorganized Japanese society to favor private ownership on land that people had lived and worked on for 100s of years. They borrowed over the land, bought equipment, went into ventures and it paid off 10-fold up to the point Japan became the 2nd world economic power. Then debt became their worst enemy…
I also think that the current political discourse is totally misguided. We should grow our way out of this, not shrink.
But politicians can just do so much damage. Europeans are currently cutting their own limbs and expecting to run faster. Protests and voter actions will probably reverse a lot of this in the next 2 years. Expect France to tilt towards the left in 2012 and renege on austerity measures because of massive union influence.
The US is in a better position for many reasons. We have already written off the bank’s debts as well as a lot of mortgage debt through foreclosures. The deflation has happened already. Government debt? The deficit is SHRINKING through growth.
“Debt is a wonderful invention”
I definitely agree with that, it’s a tool like any other that can be used for good or bad. Unfortunately the U.S. and much of the world currently has too much of it.
“The US is in a better position for many reasons”
True, but the main reason is that the others are just so bad off. Europe’s problems will very likely affect the U.S. in a massive way. Look at MF Global for an example.
“We have already written off the bank’s debts as well as a lot of mortgage debt through foreclosures.”
I don’t think the banks are anywhere near healthy. I could be wrong, but I think they are still operating on mark-to-model accounting, which to me means they would fail if they had to apply legitimate accounting rules.
“The deflation has happened already.”
That was just a taste of what’s to come.
“The deficit is SHRINKING through growth.”
Maybe, but only a little, and don’t expect the growth to last too long once Europe reaches it’s conclusion. Deficit shrinking still means growing debt, and I don’t expect the shrinking to last too long… Even worse is that the deficit is so large it will take a really long term high growth rate for us to grow enough to affect the deficit in any significant way. Even worse than that is that our debt is still growing faster than our GDP, and total U.S. debt will most likely be greater than our GDP in the next few months, and continuing to grow.
The only real way to address the deficit and debt is either hugely increased taxes, or massive austerity, neither of which seems remotely likely.
Every one of our major banks is completely insolvent. Not illiquid… insolvent. take the worst books you’ve ever seen in the history of earth… and then make them twice as bad… and then you have the TBTF bank balance sheets. Eurozone banks are even worse. The TBTF banks exist solely at the discretion of the US Taxpayer who is on the hook for 100% of the losses.
Don’t believe me? Then why did Bank of America just move all it’s derivatives exposures from the Merrill Lynch unit to the FDIC insured depository institution? JP Morgan has $75 Trillion in derivatives moved into its federally guaranteed institution. And of course Goldman Sachs, with all its retail banking operations (snark) has done the same thing.
The big banks have moved hundreds of Trillions of dollars (yes, Hundreds of Trillions) of risky assets/derivatives into federally guaranteed entities. A lot of those derivatives (about $15T)are bets on European sovereign and bank debt. How much? we have no way of knowing because they’re wonderfully not reported to anybody! Yay! of course all of the bets are levered.
This is the REAL reason why default in Greece was avoided. It has nothing to do with Greece, and everything to do with the French and German banks who bet on that debt using derviatives… The IMF and Fed are heavily involved because the TBTF US banks are heavily entwined with the French, German, Italian, and Spanish banks, again through the credit default swaps and other derivatives markets.
And no, “netting” won’t work.
As I said about 6 months ago, the Fed would go to covert QE type support… and it has. The $50Billion of swaps opened a few weeks ago happened for a reason… and not because the Fed is a benevolent institution that cares about EU well being.
Our economy is on life support, and worsening. our economy looks better when one compares to the Eurozone, but that is primarily because Our Fed has acted where the ECB will not, and because the EU banks are levered unbelievingly even more than ours are. Unfortunately, however, our Fed has papered over problems allowing the TBTF banks to get into a BIGGER mess than they were before.
Tell your sob story to all the people who got jobs this month, and the point of this post. Doesn’t take long for a positive to get turned around on this site.
I give 100-1 odds that neither will happen and the global economy will get back on sound footing without a major collapse.
Does this mean that you think there is a 99% chance that the economy will regain a sound footing? Because that is how I read what you said. I think you are a bit too optimistic here, but not by much.
Increased taxes are coming: all Obama has to do is let the sunset provision in the Bush tax cuts expire and that alone will wipe out half the deficit. Austerity is already happening to a modest degree, note all the employees shed at the state and local government level.
I still fear a more serious dose of austerity, depending on what happens with the 2012 elections. I expect a recession in 2013 if the GOP takes power, even just of both houses of Congress.
Europe still has time to get its act together. The only reasonable end game here is to create a stronger federation with a central bank and taxing authority. I think there is about a 2:1 chance of this happening.
A catastrophic and unplanned European disintegration would have a moderately bad impact on the US economy but probably not as serious as many think. There is more danger that a sudden withdrawal of European credit would negatively impact Asian economies, causing a contagion effect. None of these should seriously impact San Francisco real estate.
On the local level, the Zynga IPO money should start to be felt soon after the lock-up window expires in six months. There should be a 100 or so recently minted millionaires looking to buy and many more with a down payment burning a hole in their pockets. Probably even more significantly, Zynga will be using their IPO proceeds to go on a hiring sprees, heating up the local tech economy even more.
Remember, Yelp, Twitter and the Big Kahuna, Facebook are all waiting in the wings. They will all go public in 2012 unless the stock market melts down.
So I expect mid to high end local real estate markets to stay robust, especially in the rental area, at least through 2013.
After that my crystal ball is cloudy. Like ex-SFer says, it is too dependent on political decisions after that.
The standard response to a catastrophic event is known by the mnemonic SARA: Shock, Anger, Rejection (of the situation) and, finally, Acceptance.
We just saw all of that on Friday and today.
Shock: What the market got when Zynga dropped like a rock. The underwriters stepped in and propped it up to the extent they could, but it still went down.
Anger: Look at Sparky’s post above. The real estate industry in this town could TASTE that Zynga IPO money. It was theirs. But now all but a handful of employees will be completely underwater at the lockup and the few who aren’t will end up with a trivial amount of money. The sellers who have been keeping homes off the market will now have to fight for the crumbs. Should be fun to watch.
Rejection: Whoo boy, complete denial: look at NVJ’s post above. A catastrophic European meltdown will barely register? The Zinga IPO money will start…What Zynga IPO money? Unless the company is going to buy a house, there will be no Zynga IPO money because the overwhelming majority of the employee options will be vastly underwater at the end of the lockup. I’ll be surprised if Twitter has an IPO where anyone makes any money at all.
The Acceptance should start in the Spring.
I’m loving Zynga right now. All those free games, with ads I ignore, are giving me a warm feeling right now.
Noting you said was apt. Not a word. On and on about Zynga, just off on a wild tangent under some sort of cliche umbrella.
Read the S-1 dude, they gave out 100M RSUs. Those convert to stock, they are not options.
They also gave out 151M options in the 2007 grant, priced at an average of $0.93. The November 2009 options were priced at an average of $4.95, so yeah employees hired after that date aren’t going to do so well.
But there are at least 400 hired who have the 93 cent options and another 100M RSUs floating around. Even if Pincus held on to half, that is $1B sloshing around that needs to end up somewhere. Lots of potential down payments.
Plus another $1B raised at the IPO, most of which will go into salaries.
This is all peanuts compared to what Facebook will raise though. I am assuming the planned 2012 Facebook IPO comes off.
tipster, aren’t you the guy who told us Noe Valley prices would be off 50% from peak by now?
Must have been a neat trick to have 400 employees in 2007, when the company was founded in late November of 2007.
I think you mean the stock option plan was initiated in 2007 because they named it the 2007 plan and its the only one they have.
I’m hardly the expert in reading S-1s either, but to my untrained eye, it looks like about 5.03M shares granted in 2008 and 2009 total. If the stock ends up around $4 per share, then woo hoo, the ENTIRE value of the options granted that are not underwater will be $19M. The rest of the options granted are underwater and worthless – they granted almost all of the options in 2010 and those aren’t going to be worth anything at all.
I have to figure at least 1/4 of that was to Pincus, so $14M is left.
If you figure about 10% were clawed back or people walked away from them, that leaves $12.6M, which is just a teensey bit away from your $1B estimate. Likely split 50 ways, the average is $252K. Subtract 20% off the top in taxes and the 50 or so earliest employees will get $200K.
By the way, this is *exactly* in line with what people in startups tell me the average option take is if you hit it reasonably big. 2-3 hundred thousand dollars for the earliest employees. That’s it. By the time it starts looking hot, they get stingy with the options, and the later employees might get $10-50K, depending on when they were hired, though here, the later hires will likely get nothing for many years.
Now subtract the $10K/year (after taxes)by which they were underpaid (at least), and they net $150K. Woo hoo!!!
Hope they don’t spend the entire $150K in one place.
50 employees will net $150K each. Most of them are single 20 somethings who aren’t going to buy squat. I’m sure it helps, maybe 5 houses additional get sold for each of a few months. Every bit helps in a terrible market like the one we are in, but it doesn’t look like much to worry about.
And probably 100 companies planning on an IPO have now had those hopes dashed for a few more years at least. That was the bigger issue here.
Facebook will be big, for the peninsula at least, but they have a lot of employees and it’s been easy to recruit. I doubt it will be better for the employees, though there will be more of them and few will be underwater. This doesn’t appear to be big at all, and what it likely did was to shut down or severely limit the pipeline for all but the best companies. All in all a big negative.
Sorry dude. Your billion dollars is a pipe dream. Maybe to get to $1B, we can start talking in Yen? Rubles? Drachma?
I know (friends of friends) a couple of early Zynga employees, and they already own very lovely homes on the peninsula. I have never worked at a company that went through an IPO, so I don’t know how these things work, but at least some early employees purchased their lovely homes several years ago and won’t be looking in SOMA.
Also, keep in mind that a bunch of those Zynga employees are located outside the bay area e.g. Bangalore. I recently relocated from the bay area to Bangalore with one of the larger tech companies, and know some local Zynga employees here. They also get stock options / RSU – albeit few options/RSUs than their counterparts in the US.
Yes tipster, look at my anger. Who is in denial? I don’t think all the new hires in San Francisco care much about the Zynga stock options Just like they don’t care about the EU.
I wasn’t counting on or tasting the Zynga money. You are the one who buys every stock at peak.
Man. Tipster, you said:
“I’m hardly the expert in reading S-1s either,”
Then instead of full stop, it’s an “if … then ” logical progression,
beginning with
“If the stock ends up around $4 per share, ”
and then all sorts of tinkering and tailoring, (after you admitted you’re hardly the expert),
winding up with
“50 employees will net $150K each. Most of them are single 20 somethings who aren’t going to buy squat. I’m sure it helps, maybe 5 houses additional get sold for each of a few months”
———————-
Looking back at the thread, it was you who inserted Zynga. That isn’t what the thread is about. The thread is about a seasonal blip up in hiring. Jeez louise, man. You simply just haaaad to gloat about the 50 cent price drop and to take that to a Tipsteresque “logical” conclusion. It’s baloney, dude.
People have been hurting. The point of the thread is that there has been some hiring going on. It’s the holiday season, so why not be glad for that? By all means pick your Zynga spot and go for it when the present fits. Otherwise, save it, Ebenezer.
@NVJ
I believe that there is a 1% chance that the economy will get back to sound footing without a major crash at least as bad as 2007-2008.
tipster you aren’t even within an order of magnitude there. There will be at least five (C level) employees that walk away with more than $14M.
http://tctechcrunch.files.wordpress.com/2011/07/zynga-1.png
Your sources tell you that the average take is $200-300k if you hit it “reasonably big” and that is correct for something like a buyout. But this isn’t reasonably big, this is a Home Run. An early senior programmer at a start-up should get options for something like 0.1% of the outstanding shares. Even diluted in half, that would be $3.5M at Zyngas current market cap.
Here are some numbers that get passed around between VCs as to what kind of equity execs should be getting post Series A:
http://www.askthevc.com/wp/archives/2007/06/what-are-typical-compensation-numbers.html
As RenterAgain pointed out, a bunch of early employees have already cashed out via the secondary market and have already bought homes, so the effect on the housing market will be slightly diluted.
From the S-1 directly:
The number of shares of Class A common stock, Class B common stock and Class C common stock to be outstanding after this offering is based on no shares of our Class A common stock, 562,466,698 shares of our Class B common stock (including preferred stock on an as-converted basis) and 20,517,472 shares of our Class C common stock outstanding as of March 31, 2011, and excludes:
109,157,667 shares of Class B common stock issuable upon the exercise of stock options outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.93 per share;
77,031,114 shares of Class B common stock issuable from time to time after this offering upon the vesting of ZSUs outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan;
It is hard to say what the tax bite would be, anything from 15-45% depending on when shares were exercised but you can take that off my guess if you like. It still comes up with a much bigger number than you have.
And you have not addressed the hiring spree which is sure to follow. Zynga didn’t raise all that money to just leave it in the bank.
@RecentlyRelocated what is pay like in Bangalore compared to the Bay Area? The last time I checked it was about 1/3 for senior engineers, is that still about right?
Read it again. They list the average price per share for each of 2008, 2009 and 2010 and the value of shares issued in options. From that you can calculate how many options were issued in 2008 and 2009 and the average strike price. You’ll find my numbers to be accurate.
The 2010 shares will be shortly underwater so I ignored them. The COO of facebook quit to work there in 2010 and he just handed them back the all of the options they issued and resigned. He knows full well they will all be underwater by the end of the lockup. Their hiring spree was in 2010 as they prepared to go public, and those options are all going to be underwater shortly. Thus, most of the options they issued are going to be worthless.
The underwriters had to start buying shares at 9 or the stock would have broken through that. The 9.5 closing was a manipulated price. I suspect it would have hit 7.
2009 was a terrible year, people would have been happy to have a job. I doubt many options were needed in 2009. It doesn’t look like they handed out many at all.
And they didn’t need the money. They raised it to make the stock tradeable to people could cash out before their sales slowed. Apple and google each have billions, they hire to meet the needs of the business. Their business appears to be tapering off. And they just opened two offices out of the area. That’s where their growth, if any, will come from. I’m sure they’ll hire some, but probably mostly to replace the people who will start flying out of there when the stock hits about $5.
@NoeValleyJim — I would say 1/3 is about right for junior engineers. For senior engineers / engineering managers, it is a bit more than 1/3, but less that 1/2. For Directors and above it is 1/2 or a bit more.
Whatever the outcome of the ZNGA stock, the money raised through the IPO came from everywhere in the world and focused on a BA company. Some of this cash will find its way into the local economy. Multiply this story by the number of mid/late-2000s start-ups that are maturing and going full throttle today and you’ve got quite a few billions coming in.
What matters most is that growth, muted on a national level, reflects 2 sides: contracting industries and expending ones, usually related to global growth. It looks like we are on the receiving end of the expansion while suffering less from the contraction (even though banks are suffering today). It’s a good place to be nowadays, seriously.
I wholeheartedly agree with lol. BA economic trends have been not bad, compared with plain ol’ bad in many other areas.
The story here is that contrary to the expectations of many, and contrary to many reports in the press, the current tech market is not going to be anything even remotely resembling the dot-com boom and the real estate gains that followed. From 1997-2000 you had about an IPO a week in the BA, with stock prices rocketing up long after the IPO so tens of thousands of ordinary joes made really good money after the lock-up expored. They bought homes with that money. Now, you have a very small number of IPOs a year, with a very small number of founders/VCs making un-godly sums, but that is about the extent of it. The VCs learned they do not have to give away the company to fungible employees, so they didn’t. And without a 200-300% post-lock-up rise in stock price, those employees outside the tight inner circle who received options/grants are not going to see a big payday, although they may get in effect a decent bonus.
Tech money flowing into the BA is good news. Those expecting anything like 1999 again are going to be disappointed. And it’s not going to have a material effect on real estate pricing regardless given the much larger, broader trends dragging things down.
“The story here is that contrary to the expectations of many, and contrary to many reports in the press, the current tech market is not going to be anything even remotely resembling the dot-com boom and the real estate gains that followed.”
First, could you point to those stories, and those comments, please. Secondly, SFRE doesn’t need hundreds of buyers in order to maintain a decent level. It trades in the margins. A few dozen buyers from Zynga, LinkedIn, Facebook, Yelp, etc etc would probably be sufficient as far as creating tempests in teapots here and there. Not that I’ve seen or read that anybody is counting on it.
Tipster: “Now subtract the $10K/year (after taxes)by which they were underpaid (at least), and they net $150K.”
HAHAHAHA. I love how you just make $50k disappear so that you can come up with a lower “net”. I can see your imaginary person now doing your calculation, “I just sold my options and I deposited $200k in my checking account but since I was ‘underpaid’ by $10k for the last five years, I will just take the whiteout here and lower my checking account balance by $50k cause you know Tipster says that’s how its done. Such a bummer cause I would have loved to spend that $50k but apparently for some reason known only to Tipster, I can’t actually spend that money.”
Yeah, sure it’s not the dot-com years. Many players in the new tech wave are people who started during the dot-com bubble. They’re driven, but also more mature.
Tech money is seeping through all levels of the economy. It’s a Twitter employee going to a newly opened sandwich shop paying his $8 + tip that didn’t exist yesterday. The guy making the tip can then afford the $1600 for a master bedroom with his GF in a 3/2 which allows the landlord to charge 4000 and who can then afford to pay hos mortgage and pay for the repairs. It’s not pure trickle-down from the top 0.1% to the masses (trickle down is a lie promoted by obsessive tax cutters). It’s trickle through from the 99.9% to the rest of the 99.9%. Sure some people get priced out, but they get a job to go to each and every day…
“Not that I’ve seen or read that anybody is counting on it.”
C’mon, anon.ed there was that realtor publicist written article that Reuters picked up that described how some homeowners had been holding their homes off the market to go after all the Zynga millionaires.
Now those people are all going to come on the market together this spring and chase the same 5 buyers.
Facebook will do very well. But a much smaller number of facebook people live in SF. And their hiring plans are mostly out of the area right now. MZ has publicly stated he doesn’t like the easy job hopping silicon valley provides.
I don’t see any other companies on the horizon that are really going to make a dent. A Twitter IPO is probably off the table for a year. After this Friday, they are going to need to show strong financials with a track record and they have neither.
I agree that there will be a few surprises in terms of price, but watch the flow of money. If a billion dollars comes in, and then mostly flows to India, that doesn’t help much. By the way 3M and Boeing probably bring in more than that every year. I don’t see Seattle or Minnesota prices zooming up as a result. By LOL’s logic, prices around Minneapolis should be zooming to the sky forever: they bring in much more than Zynga ever will. It takes much more than a handful of IPOs to keep prices lofty.
tipster, you are kind of stretching my comments. My whole point is about expansion. Boeing and 3M are mature companies in highly competitive industries. They’re working really hard to stay at the top. The salaries are probably fixed, as is the number of employees.
Apart from the occasional windfall from an IPO (pretty minor in the big picture, I agree), what matters really is the level of activity brought by employees of companies that didn’t exist the year before, or the increase in compensation or overall volume of salary. You have a few new millionaires, but 1000s of middle class workers with their own wants and musts.
You come on Tipster. Read the language I responded to, as if it is a real notion that 97 to 2000 is to be expected again, that’s “the story,” etc. And look at your own example. That propery owner is holding a section of a section of a section, and fully in keeping with what I said, re “teapot.” This whole “I am gonna sum up everything” routine is silly. Your filters are deeply set.
“Prices zooming up” — your insertion.
Every single time something positive gets raised on here, there are these holier than thou anti-appreciation rants. The problem is that the appreciation argument itself is a strawman.
Another example of how global money comes to the By Area:
http://dealbook.nytimes.com/2011/12/19/saudi-prince-invests-300-million-in-twitter/
That’s a few millions extra flowing into the Twitter employee payroll, which itself will be found in sandwich shops around Mid-Market, and so on.
The good thing is: this is oil money. I hope the Twitter money will go into Tesla S-es, which is also a local company. It would be a nice twist to this.
Even though this saudi prince is investing $300 million in Twitter, it won’t net out to that much because Twitter has been underinvested for the last few years so it will only net out to like a $200 million investment. I’m sure some tipster can explain exactly how that $100 million vanishes.
lol, it’s not that simple. “Under the terms of the transaction, Prince Walid and the Kingdom Holding Company purchased shares from early investors that value Twitter at $8.4 billion.” No new money flowing into the Twitter employee payroll or local sandwich shops. Just money flowing into the pockets of a handful of prior investors.
The BA economy is about $350bb dollars/yr, and another $150bb if you include San Jose. A million or billion here and there makes no difference, particularly on real estate values. Again, I’m happy as a clam that the BA has a good industry that is growing (knock on wood), but this is nothing at all like 1999 and a better story in the media than in reality.
“A billion here and there makes no difference”.
300M here, 1B there and soon you’re looking at real money 😉
Seriously? It doesn’t double or triple the economy but ads one or 2 % points to the BA GDP. This is the difference between growth and recession, or growing and shrinking unemployment, or muted recovery and real growth!
Plus, just like $1 of money into Boeing produces $3 in activity, expect the same level of activity from tech.
As far as the $300M is concerned, this is probably unproductive or non-BA investment money moving from a burning pocket towards a growing BA business. Where it concretely goes is important, but what matters in the end is the big picture. Maybe Twitter will increase its hiring, maybe it will help fund other ventures, maybe it will postpone future correction.
So Zynga comes out and falls flat and now the early investors in twitter are running for the exits. Looks pretty omenous to me.
“Falls flat” in tipstertongue means “90% achieved” in normalspeak.
Similarly “running for the exists” means “getting more people to join the party”.
We can always trust tipster to look at the glass 10% empty.
Zynga actually did very well in one sense – the company captured pretty close to 100% of the value of what IPO investors were willing to shell out. If the stock had “popped” that would have indicated the IPO was priced too low and the money went to early first-day buyers rather than to the company.
However, it looks like a long shot for any employees outside the the small founder/manager core to really reap big gains as we’ll need a big post-lockup rise to realize that. That unemployed architect looking to unload his Potrero dump to one of the horde of new Zynga millionaires is probably sweating it as there isn’t any horde. Let’s face it, Zynga only shows “profits” on the books at all because it made a clever accounting change to speed up revenue recognition. Let’s see if it can generate any real growth or profits from here to justify the still sky-high valuation. May happen.
As I said earlier I am not a big fan of Zynga’s business model. They’re not only shaking out kids for their lunch money like other gaming companies, they’re also making the kids go steal cash from mom’s wallet. How many one-time-suckers vs long-term gamers is the big question.
I might not like the model, but they are essentially monetizing on “free” games. Had anything like this been attempted in late 2001 you’d have heard the big fat laughs from the “told-you-so” crowd crowing after the dot-com crash (I was in that crowd even though I cashed out on an IPO as a foot soldier around that time, wow, 2 disclaimers in one).
You gotta give Pincus the credit for being a very smart fellow.
“really reap big gains as we’ll need a big post-lockup rise to realize that.”
“Really big” is awful relative, there.
“It’s a Twitter employee going to a newly opened sandwich shop paying his $8 + tip that didn’t exist yesterday.”
“….the Twitter employee payroll, which itself will be found in sandwich shops around Mid-Market,…..”
Dude, I don’t think so…
http://sfist.com/2011/12/12/new_twitter_hq_to_feature_fancy_caf.php
http://blog.sfgate.com/techchron/2011/12/08/an-inside-look-at-twitters-future-home/
I’ve been in a company with a cafeteria. You do want to go out of the cushy cocoon once in a while. In-house coffee shops do not cut it neither. Even with free food inside, you’d have a positive fallout outside of the building. Also think of the Opera, the Ballet, the Symphony and the few theaters less than a 10 minutes stroll from there.
And the cafeteria won’t be run by Twitter, it will be contracted out to another business, so it’s essentially the same thing as a public cafe, just with a built in clientele.
“Also think of the Opera, the Ballet, the Symphony and the few theaters less than a 10 minutes stroll from there.”
Yes, not to mention the panhandlers, junkies, and dealers that scurry about in that part of Soma. Twitter employees can enjoy their gourmet sustainable organic vegan meal and then score some blow on their convenient walk down to see the Pirates of Penzance after lunch. And the minimum wage employees in the cafeteria can afford their $1,600 rent in the blue collar part of town.
Then the Twitter employees become instant billionaires from the IPO and buy a Pac Heights mansion. But the mansion is solar-powered plus has ample parking for their Teslas. Is that the chronology? Just want to make sure I’m keeping my urban legends straight.
Hmm, maybe the European problem could be worse than anticipated. From The Economist Global Forecasting Unit:
In focus: What if the euro zone collapses?
December 14th 2011
Efforts to preserve the euro zone and its common currency have accelerated in the past month—witness the summit in Brussels on December 8th-9th, which led to support for a “fiscal compact” to improve budget discipline. That said, the Economist Intelligence Unit continues to attach a 40% probability to the break-up of the euro area in the next two years. Were that to happen, the implications for countries and companies in the euro zone and globally would be severe—far worse than during the 2008-09 recession.
[…]
The US economy would be plunged into a deep recession if the depression in the euro zone were to be near the low end of our forecast. The sudden tightening of credit conditions, the loss of wealth across the economy and the collapse in external trade would cause the US economy to contract by at least as much as it did during the 2008-09 slump—3.5%—and possibly by twice that level. The effects on the US initially would come through the financial channel.
[…]
LD,
No good news will ever be good enough for you obviously.
Unemployment down, Millions of $$$ flowing into the BA, world-changing company coming to Mid Market bringing educated dynamic crowd among the blight, etc… There’s always a dark side to it all isn’t there?
Don’t get me wrong, lol – I agree that unemployment going down is a positive sign. But I couldn’t help laughing at your wispy, inflated musings about how Twitter was going to allow minimum wage employees to pay $4K/month in rent plus drive investment in Tesla and help the opera to boot. Some people see the glass half empty, some see it half full. I fear you may be seeing mirages at this stage. That oasis on the horizon may be just a puddle when you get to it.
But if I’ve learned anything in my years of living here, it’s that Bay Areans love them some good folklore, especially where real estate or tech are concerned. Why let facts get in the way of a good story?
Keep mid-Market blighted, eh Legacy Dude? That was out of line man. Let people be optimistic if they freaking feel like it.
On the plus side, zynga was up 2.1% today. On the down side, Oracle disappointed and is down 8% right now in after-hours. And one Oracle = about 50 Twitters.
On topic, we continue to climb out of the hole, but the hole is very, very deep and has slippery sides. There isn’t going to be a quick fix from tech or anything else. I’m just crossing my fingers that we keep making slow and steady progress as we move into year 4 of the downturn.
LD, reread my post. 1600 for a couple in a Master Bedroom of a 3BR apartment is something I have seen a few times around me. And that landlord can therefore charge 4K+ for the whole place.
As for the hyperbolic style, well, that tells more about you than about me…
Yeah that Oracle IPO is much anticipated. Yeah, Oracle, located right in the heart of SF. Oh wait. No it isn’t. And no it isn’t, and you often go to lengths to point out South Bay versus SF. Come on, AT. Even you can hate better than that.
Don’t understand how GOOG, Apple, facebook impact SF housing but Oracle doesn’t?
Oh. Didn’t say that. No, others say certain things about regions not overlapping and exect not to get called out. That’s all. Anyaway, forcing a day’s volatility of a mature company like Oracle into this is also ridiculous. You might have taken issue with that. It was glaring. But of course you’d rather do what you did and talk at me. So fake.
Stop being such a twat. I could care less about talking at you, and I am certainly not interested in being “fake.”
Here I thought you might actually be suggesting something interesting about ORCL demographics (older workers in suburbs vs. younger Googlers in SF), but I guess I’ll just go back to ignoring your posts. Thanks.
I don’t know you and if you said that to me in person, well, guess what, you wouldn’t think of doing that. A day of how Oracle trades was disingenously forced into this, by a poster who routinely discounts South Bay companies having any influence on SF. I took objection to that. Sorry for the misunderstanding. I probably would have seen it the way you intended in the first place if not for you mentioning Apple.
Here is another booming business: Butlers. I’m sure the personal assistant / butler market will be employing many folks here.
http://finance.yahoo.com/news/english-butlers-wanted-super-rich-000100362.html
🙂
There isn’t any way to sugar coat the Oracle announcement: spending on tech is falling. That’s going to hit this area big time.
Companies are apparently planning on a recession in Europe as essentially a forgone conclusion and are starting to hold off purchasing right now.
Oracle might not be having an upcoming IPO, but the fact is Oracle sells foundational software on which other software gets built – by companies large and small, including IPO hopefulls.
It’s like the cement company announcing that people have stopped buying cement. That means the building trades are about to get hammered.
Here, Oracle makes the databases used by almost all other business software No database purchases means people aren’t planning on buying other software. With no databases and software being purchased, hardware will get beaten up just as badly.
This could be a big deal for the area. One quarter does not a trend make, but I think everyone is planing on a slowdown in Europe next quarter which might have hit this area in the second quarter. The fact that it’s already affecting purchases is taking everyone a bit by surprise.
That means companies are going to have to downsize to fit the business opportunities. That’s going to affect employment in the area.
A.T., look up the green shoe option. It lets underwriters “stabilize” a new issue price early on. It’s no secret that it’s being used in Zynga’s case to prop up the value. It appears that the timing of the IPO was no accident: they went pubic just as the markets were slowing down, making the green show option for Zynga stock have a bigger impact with the low volumes this week and next. The fact is, it is permitted for the underwriters to manipulate the stock price early on, and so you probably won’t see even a hint of the market price until after the new year.
Gee, flujie, when did I ever “go to lengths to point out South Bay versus SF”? When did I ever “routinely discount South Bay companies having any influence on SF”?
I’ve always done just the opposite and pointed out the SF is no different from the rest of the bay area. It’s not an island, subject to broader trends, and certainly not immune to real estate or economic trends affecting the broader bay area, California, and the nation as a whole. But you keep on mocking your straw men – you are consistent in your errors, flawed reasoning, and inconsistencies!
Tipster, I had never heard of green show options. Interesting stuff. Never ceases to amaze me how many ways banks are permitted to deceive the public! I do a fair amount of work on securities class actions, so one would think I’d be hardened to this kind of thing by now (must get bamboozled by working on the defense side so much). Gotta go, my butler is bringing in breakfast.
Sure thing AT. Must have been Tipster.
naah. It was you. You’ll do it again, too. All good.
Another morning, another tipster post on one single data point making the case for the end of the world as we know it.
Sigh.
Just show up at open houses for a rental and see the reality of the economy. Crazy prices and demand is strong. This means these people have jobs and can afford rent, and there are not enough rentals for them.
No, the world is not ending and the sky is not falling.
But neither is the next SF real estate would-be savior on its way. Just like the hordes of Chinese and European buyers never materialized to drive up prices, neither will the hordes of IPO-aires. Yes, the rental market is pretty strong in SF and throughout the bay area – good news. But the great credit bubble continues to unwind, bringing down sale prices. Here are a couple of examples that closed yesterday.
Decent little SFR that sold for 11.2% below its 2005 price:
http://www.redfin.com/CA/San-Francisco/209-Quintara-St-94116/home/654238
Nice north side condo that sold for 5% below the May 2009 “bottom”:
http://www.redfin.com/CA/San-Francisco/240-Lombard-St-94111/unit-333/home/1778718
And inflation does matter, increasing those losses in real terms. Some will never accept the new reality. 1999 ain’t coming back, and 2006 really ain’t coming back. We’re probably done crashing and burning, but the slow slide continues. No amount of mocking and squawking will change that fact, but that won’t stop people with a vested, desperate interest in trying to bring back those fine times from pretending the world is otherwise. Caterpillar just announced solid earnings a few days ago. I’m sure realtors in Peoria are talking up the big jump in local home prices that is just around the corner.
You sound like you are saying that anyone that mentions some bright spots in the local economy is automatically arguing that there will be a “big jump in local home prices that is just around the corner.” I have yet to see anyone here arguing that there will be any big jumps up in home prices. The most common sentiment that gets drowned out by the roaring of the flames seems to be that the market is at or near the bottom and that there will likely be small gains and small losses ahead, particularly while the government & fed continue to intervene.
Rillion, sounds like we’re actually on the same page. I wasn’t suggesting anything at all about about mentioning of bright spots equaling big jumps in home prices. But there are lots of people – NAR, media, SS posters – who do argue that big jumps are just around the corner, and that’s who I was referring to.
If I’m wrong about that premise, and there is absolutely nobody arguing that big jumps are coming, then I guess we’re all in agreement!
“SS posters – who do argue that big jumps are just around the corner”
Who said that? Where, and when? Because that’s a strawman until proven otherwise. (Please, spare everybody the insertion of Legacy Dude’s series of hyperbolic paraphrhasings of LOL’s words.)
A.T.
Never say never.
Do not underestimate the capacity new generations to not learn from their elders. This is the job of the government to frame what’s possible vs what’s not, despite what dreamy Paul-heads fantasize about.
Deregulation invites risky behavior and no new meaningful regulation has actually made it into law to prevent another debt-fueled craze.
This means that once the current generation of sore home-debtors fades into our short memory span, we’ll be ready for the next clusterf@ck.
But as far as the current situation, this reminds me of 1996. We had suffered a blow but were coming back. If you read the newspapers at the time, everything sounded very negative. In retrospect, this was a very decent recovery that people take now as part of the good years. Maybe 2011 or 2012 will prove to be very decent years all things considered.
It’s all about perception. Many of us have been vindicated on having seen the bubble blowing and popping as predicted (at long time)) only to see the culprits getting away with bloody murder. It was time to move on for me last year when I realized quite a lot of red ink had flowed everywhere in the US. We’re a strong forward-looking people. It couldn’t last forever.
“absolutely nobody arguing that big jumps are coming” Great, so leave it alone then. Stop posting cherry picked apples and trying to talk down what is good new and the topic of this thread. MORE JOBS.
Goodness, why do you think the rental market is so strong?
Lets look at an Oracle employee who joined 4 years ago and got 10,000 options at the end of 2007 at a price of 22. This spring, the stock was at 35, so his options were worth $130,000. Downpayment on a decent home or condo? You bet.
Today the stock is at 25. The same options are now worth $30,000. That barely buys a new car. The condo is off the table. That person continues to rent.
And Oracle has more mature employees who are more likely to buy a home, unlike Zynga employees who tend to be young single guys, hardly the demographic for homebuyers. And there are a lot more Oracle employees than Zynga employees.
Thus, today’s Oracle catastrophe/Tech market slowdown is going to have a much bigger effect on the market than the handful of weak IPOs. It’s going to keep people renting, not buying.
Google stopped working out for you so you switched to Oracle.
“The only thing scarier than this place is any potential buyer’s stock portfolio.
The lazy google indicator has gone from 625 or so to 500, down 20% in less than a month.
Posted by: tipster at August 18, 2011 12:50 PM”
It used to be: “sales will be depressed because rent prices are dropping” in 2009. This proved to be true in a way, but as 2 effects of the same causes: a crisis of confidence combined with a massive deleveraging crisis.
Now it’s “sales will be depressed and the proof is high rental prices”.
Tipster playing Twister. Love it!
Here is a quote from the December San Francisco Association of Realtors Market Focus Report:
“As local tech companies like Zynga and Yelp prepare for initial public offerings, more and more of their employees are looking towards owning a home in San Francisco. Reuters reports that recent competitive bidding in some neighborhoods has pushed home prices up more than 15 percent from last year in some areas such as Noe Valley, SOMA and Potrero Hill. With the improving economy and surge in pending sales, 2012 is likely to see a stronger San Francisco
real estate market than what buyers and sellers have been accustomed to since 2008.”
But at least now we’ve nailed it down that nobody ever posts such dreamy sentiments on SS! Nothing but conservative, measured analysis here, so I guess there is no need ever to provide evidence of the actual market conditions rather than realtor blather.
ORCL has been living in alternate reality for a very long time. As a quasi-monopoly on database+enterprise software, they were charging almost whatever they wanted to charge. This is a mature business. It was time they got a taste of the real world like MSFT did a few years back. It’s a healthy business correction I think. Their product is becoming commoditized.
You can insert things out of context and then deliver sanctimonious conclusions all you like. It doesn’t mean that you’re saying a single thing.
A.T.
I consider whatever the NAR says as the equivalent of broadcast TV infomercials. Even the most permabulls on SS are 2 notches more sophisticated than the most soul-searching PR releases from the reliably unreliable NAR.
AT – My comments were not directed at anything outside of posters here, imo I do not feel any regular posters here have been arguing for big jumps just around the corner. There seems to be a tendency for guilt by association here, ie, if you argue “hey, things are starting to look up” then some posters here will attack that as the poster agreeing with industry puff pieces.
First off, flujnonn.ed, go reread this thread from the beginning. I quoted lol directly in his mentions of Twitter, Tesla, $8 sandwiches and the performing arts. If I’m paraphrasing/exaggerating, it’s not by much.
But whatever – as a Soma resident I would personally LOVE to see a transformation of the deco ghetto that is mid-Market. I just don’t think a profitless company with a useless product will make a material impact. I’ll be happy to be proven wrong in this case. At least the SF Mart building will actually get some use again.
Regarding the strong rental market, yes, rents are up and supply is down. But has anyone actually looked into why? Some of this is being driven by new tech employees moving into apartments they live in (i.e. real, fundamental demand). But a lot of it is being driven by companies and corporate housing middlemen leasing large blocks of units in anticipation of more corporate hiring from more money from more IPOs (i.e. speculation). These units – many of which are currently sitting empty – can be dumped on the market pretty quickly when reality doesn’t come in as planned, and rents can go right back down.
So let’s see what 2012 brings. I’m happy that unemployment is down. But mindless boosterism and zealous optimism are no better than unfounded pessimism and baseless negativity. Engaging in critical thinking does not make one a “hater.”
If I’m paraphrasing/exaggerating, it’s not by much.
lol. You did sound a bit like Romney quoting Obama. Sampling a few words, forgetting context, then doing creative writing. It amounts to pointing your finger at a freshly planted smoking gun.
“go reread this thread from the beginning. I quoted lol directly in his mentions of Twitter, Tesla, $8 sandwiches and the performing arts. If I’m paraphrasing/exaggerating, it’s not by much. ”
I did. You built up the guy’s hopeful musings, took them out of context, linked them all as if they were a singular argument, and actually went as far as to call your own hyperbolic paraphrasings “urban myth.”
^^^Not hopeful musings only.
In one of my past lives the company I worked with moved to an “up and coming area”. The addition of 500 new white collar jobs had a tremendous impact on the local economy. Yes we did have a cafeteria with (almost) free food and that food was very decent.
What one of my teammates smelled the opportunity … open a sandwich shop with his wife as a manager/employee one block away in a storefront that had been closed for a few years. He used to be in the commercial property business until 1991 when some of his riskiest ventures turned south and he went back to an office job. He still had the connections for a cheap remodel, good negotiating skills and most important a flair for what not to do.
His place was packed 3 hours a day. He made an absolute killing. People needed the fresh air I guess. Plus he was offering a convivial and veyr friendly space. It matters a lot when you transplant hundreds of office stiffs into the urban wastelands.
Anyway, just a 2-cents worth of personal experience. I’ll get my wife busy on her sandwich-making skills right away!
So it’s come to this: the only hope for “saving” SF real estate is rich sandwich shop owners!
^^^ You’re a funny guy twister. I get called for on why I think Twitter is good news to Mid-Market with potential for some of that long-due for revitalization, I then talk from personal experience and all you have to say is what?
When called yourself on why your uber-bear rants are disconnected from anything rational or real you’re permanently escaping debate. Please tell us what you see in real life that can be part of a constructive debate. Low rent: doom. High rent: doom. Healthy flip: doom. Missed flip: doom. Unemployment down: doom. GOOG at 620: doom.
I sense a pattern there.
“I just don’t think [Twitter] with a useless product…”
Wow, I certainly can see why you are so negative on Twitter if you believe your personal feelings about the usefulness of Twitter are representative. While I don’t use Twitter, I recognize that it is offering a service millions find useful.
Yeah, 2011 has been the year of “here’s what you can also do with social media”. It’s not only for following up friends or collecting groupies, but connecting people in a quick, efficient and open way.
lol, Don’t forget all the apps in 2011 (such as the one displayed in my name link)
As I was saying in an earlier post, the air in the Ron Paul doomsday bunker is pretty stale. His populist all out paranoid/totalitarian/racist past is coming to light.
The king of personal responsibility and accountability’s response: “he is not sure who wrote the articles that were published under his name”.
Another week. Another GOP clown joins the pile.
Up 15% from last year? That seems a bit on the high side, but prices are definitely on the upswing around here. I will see if I can find that Reuter’s article.
Do you consider 15%/yr a “big jump”? I don’t.
Looks like twitter is digging a tunnel to connect its new offices directly to Muni/BART underground so that its employees never have to actually interact with the outside world in the ‘loin.
That’ll revive this area . . .
http://www.businessinsider.com/before-it-moves-into-its-new-crappy-hood-twitter-is-adding-a-tunnel-to-the-bart-station-2012-1
No tunnel, A.T. That twitter comment was a joke.
That article is an example of how sarcasm can actually be funny in the right hands. You’re probably gonna pull your usual back up song and dance, and say you knew it was a joke. But “that’ll revive this area” tells a different story …
Story was a fake? Oh well, I fell for it because it made perfect sense!
Zynga is down 5% again today in early trading. But I’m sure that the twitter IPO will revive SF real estate . . .
A.T.
Looking at stocks on a daily basis to deduct a direct impact on SF RE is a bit of a stretch now, isn’t it?
What matters is how many jobs are there today that were not there yesterday, as well as the incomes and occasional windfalls they bring into the mix.
Also very important is the virtuous cycle of entrepreneurship in the BA. Some of the windfalls are used as seed money for the next generation of businesses. Some succeed, some fail but overall we’re all moving up as a result.
It’s sad that all of this is making SF RE too expensive for most and affecting their life plans. But would we prefer living in Detroit?
^Would have been quoting Zynga stock hourly, had it gone up.
tipster,
I am not wasting one second on your strawman’s argument. I’ll let you do the digging. Good luck on proving I ever did such a thing…
Yes, I agree that one cannot draw broad conclusions from daily stock moves. However, we are now several weeks into the zynga IPO and it is not looking like any big generator of IPO-millionaires as many had predicted and hoped. But you never know . . . Meanwhile, SF’s unemployment rate remains quite a bit higher than it was a few years ago, but moving in the right direction – not uniquely so but in line with the rest of the country.
But I don’t understand your comment that “all of this is making SF RE too expensive for most and affecting their life plans.” SF has become more and more affordable over the past five years, at least in terms of buying a home.
^^^ I beg to disagree. ZNGA’s market cap is 5.68B. 5 years ago it was 0. Some of it is liquid, some of it not. But overall a sizable part of these 5.68B are an increase of net worth of employees and investors in the BA.
Also, the median of home prices is still around the 600s and the average is higher. This represents 7-8 times the median SF family income. We all know this is down from a ratio of 10 or more in 2007-2008 but still 50% more than the “norm” of 4 that enables people to have a regular home and not skimp on other necessities. The compromise for SF-ers is to stay renters or live in smaller abodes. I know families who live in cramped apartments instead of the houses they’d need for their kids and it is not a choice. Like a family I know who squeeze their 2 kids in one bedroom in a 1000sf condo with no parking. It’s a daily struggle for them.
” Some of it is liquid, some of it not. But overall a sizable part of these 5.68B are an increase of net worth of employees and investors in the BA.”
If you look through the S-1 to see the large fraction of recent employees (i.e. un-vested, high strike price) and do some back of the envelope it doesn’t look like a wide spread payday baring some stock uptick. Could even be a bust for 2010 hires (over 1/2 the company) after a few more days like today. For housing purposes distribution matters. $1B to one person is vastly different then $1M to 1,000.
These jobs do have good income compared to bay area average per-capita income which is good economic news. But it’s old news in the sense that this is already captured by income data. And as you point out the bubble raised prices relative to income.
The newsworthiness of stock price to employee stock options is that the value of these options was not previously included in income data. i.e. a $100k salaried worker was counted the same as a $100k Zynga worker with a great deal of stock. But in realty peoples spending & borrowing patters will differ if they are vesting $0 vs $100k vs $1M vs $10M over the next few years.
tc_sf,
Valid points. What matters is the direction this is going. Maybe one guy will have 1B but he’s not likely to passively sit on it. Many SV/SF-made billionaires end up becoming angels or pooling some of their cash into other ventures. Overall this money increases the region net worth. It’s not evenly distributed, it never is.
Agreed on the incomes. Some of these jobs were not there 5 years ago. Sure enough, most were simply people hopping from one job to another. But overall this is 100s of new employees which reflects positively into SF.
That was exactly the problem that led to the employees getting options at $14 per share last year only to have those options underwater and currently worthless. Lots of amateur investors bid up the valuations of the companies and as a result, instead of the employees getting rich, the employees got screwed.
The investors bid Zynga up to $14 last year, the options were granted at $14 and the stock is at 8 (and only then because Morgan Stanley, the lead underwriter, is pumping it up), making the options worthless. So because of the amateur investors, the employees got nothing, and the investors lost money. Hardly the recipe for real estate success.
Commercial landlords are doing well. Certainly employees are getting jobs. But instead of getting rich, they are making enough money to live on. Better than the alternative, and it helps rental properties a lot, but few employees are making more than a salary off these startups and that doesn’t support the current home prices, In 2000, millionaires were being minted by the dozens each week.
^^^tipster’s glass 10% empty routine^^^
Like a family I know who squeeze their 2 kids in one bedroom in a 1000sf condo with no parking. It’s a daily struggle for them.
Oh come on. Having two kids share a bedroom is “a daily struggle”? You have got to be kidding me.
When I was a kid living in Wyoming, we had two bedrooms for the four of us, so me and my brother shared one and my sister and Mom shared the other. On really cold mornings, my mom would get up and start the heater and boil some water because ice had formed on any standing water left out over night. Getting up to get ready for school when it was under 32 degrees in the house was a “daily struggle.”
When I was a bit older living in Red Bluff, we had eight kids and two adults (including 3 teenage girls) sharing one bathroom. Getting ready in the morning was a “daily struggle.” We had kids living in the garage and in a camper shell in the front yard.
Having 1000 square feet of living space for four people is hardly a daily struggle. What a bunch of soft spoiled people we have come.
You keep prattling on about options tipster but you ignore what I posted about restricted stock units (what Zynga calls ZSUs). These are stock grants, so they don’t go “underwater.” It looks to me like there are 77M of them out there, so multiply by the current stock price to see how much available cash will be floating around over the next four years.
No doubt that there will not be too many instant millionaires outside of the first few hundred employees. That is still a lot of millionaires.
I do not think it will spark a big housing boom like what happened in 1999-2000. During that period we had a Zynga-like IPO every month.
But this will help prop up local prices compared to the national average. Just as the “horde of Chinese and European buyers” helped maintain San Francisco prices.
You don’t seriously claim that prices in the SF city proper dropped as much as prices did statewide or even nationwide do you?
@ NVJ,
“These are stock grants, so they don’t go “underwater.” It looks to me like there are 77M of them out there, so multiply by the current stock price to see how much available cash will be floating around over the next four years.”
Aren’t these grants at a strike price of like $5 and change? So it’s something like $3 per grant?
“During that period we had a Zynga-like IPO every month.”
During the dotcom years, we didn’t have a Zynga-like IPO every month. We had a couple of IPOs a week, and they were followed by meteoric stock price rises post-IPO (very unlike znga) which minted thousands upon thousands of local millionaires that reached into the rank and file. I’m glad that SF (and the bay area in general) is getting a fair number of the new tech jobs, but this is not even a pale shadow of the dotcom gold rush. A good bit of light in a still struggling economy — yes, struggling even in SF. But there are many more forces pulling down home prices (including a still deflating bubble) than there are propping them up.
For those who don’t know, company stock units like Zynga stock units are basically phantom shares of stock the company agrees to buy back for whatever the current value of the common stock is. They are typically granted as part of the compensation package of new hires. The grant frequently vests over time, meaning you get 1/5 of the total per year or something like that.
So lets say that you have two job offers in 2011. Company A has no stock units as part of their offer. They offer you $100K per year and that’s it.
But Zynga offers you 10,000 Zynga stock units, vesting over 5 years (so that you earn 2,000 per year), plus $70,000 in compensation.
Which offer do you take? Why, you take Zynga’s of course. Why? The stock is already at $14 per share in the pre-IPO trading and it is only going to go higher (you think). So at $20 per share, the total compensation from Zynga is $110K and it could go even higher based on the current 2011 trajectory. Slam dunk, you go to work for Zynga.
Only it doesn’t work out like you planned. The shares have fallen to $8, and that is only because of massive intervention from Morgan Stanley, the lead underwriter, desperately trying to keep it from falling too fast (they now own 16% of the stock and climbing – the share prices are comically flat – every couple of hours they sit at a predetermined level: someone from Morgan Stanley just sits there and buys more or sells, in case someone didn’t get the memo and actually buys for more than that day’s couple of hours’ predetermined price, right at the price they determined).
Let’s say the share price drops to $4 some time after Morgan Stanley stops propping it up. Now your 2000 per year Zynga stock units are worth $8000. Your total compensation is going to be $78,000 per year instead of the $100,000 you passed up.
NVJ thinks that is a good thing for housing. I fail to see that logic.
IPOs are not money from heaven. The labor market is composed of employers, who try to pay as little as possible, and employees to try to get the most possible.
The reason the dot com employees made so much money was that when people were being granted stock rights no one really expected what actually happened to happen. No one believed their money losing companies were going to go public and the share prices would soar. When the day finally came that the tide turned, the companies got more stingy with the stock. That was basically the difference. Do you really think Google would have paid their cook $4M or whatever the guy retired with if they really thought the stock would have been that valuable. If you do, you don’t understand employer dynamics: we keep as much as possible for ourselves.
Here, the employees were convinced that the stock would soar. Even Zynga finally started believing it and clawed it back. So what we have now is the opposite of dot com days: the employees overvalued the stock and phantom stock grants and have shot themselves in the foot.
What will happen next is the employees will stop assuming their stock units are going to be worth much, they’ll require higher compensation, the company will have to pay more and that will make it less profitable than it already is, which isn’t saying much. Unless something changes. which it might, the share price will thus drop further. Sorry, that’s the economic reality and you might want to take off your rose colored glasses.
Zynga is great for the rental market, and a few dozen early employees will no doubt do well. A couple hundred millionaires? Not gonna happen.
Re my above, stock grants are generally taxable (thus reported in income stats) and expensable when they vest. Unvested grants for non-execs are usually lost upon change of employment. And while not common, as Zynga has shown, can be clawed back by the company. (Since in an at will situation if you don’t agree to give back the shares the company can just let you go)
And as tipster alludes to are generally given out in much smaller quantities to rank and file then options were. For grants there not much difference between vesting you 1,000 shares of a $8 stock and giving you $8k. A very big difference not mentioned by tipster above is that options granted in the past were not required to be counted as a compensation expense by the company at the time of grant. (This is no longer the case) So they could be given out event to rank and file in much greater numbers. This combined with dot com skyrocketing share prices minted many millionaires.
Anecdotally though it wouldn’t be unheard of for some highly targeted technical talent to be granted 6 or low seven figure packages. Rather then stingyness it seems somewhat more efficient to have companies pay for what they need rather then pay millions to everyone who can throw together some HTML.
The above is mostly generic, but two noteworthy Zynga specific points are that they have a very low float compared to the pool of stock reserved for future compensation (RSU & options) so dilution would seem to be a problem if they issue these shares going forward (Probably an impetus for the share clawbacks). Also, their stock grants had a liquidity clause so none of them vested thus were not expensed until now. This would seem to impact their already precarious profit position going forward.
The takeaway is this: Zynga is a complete dud. Amateur investors like Marc Andreesen messed this one completely up for the employees by bidding up the shares far higher than the general investing public was willing to do, and he possibly did the same, at least to a degree, for Facebook.
I don’t understand why people give Marc Andreesen so much money. Netscape couldn’t hold its own against Microsoft, and the Loudcloud IPO was a complete bomb. The guy can spot trends but he’s a lousy businessman. He’s bid up everything in sight, which is great for the rental market but terrible for employees because their stock option and stock assumptions got distorted too high, and now they are finding that their stock options are worthless, and in my example above, their stock units have gone from being worth $200K, a nice downpayment, to $40K which doesn’t even make up to the hit to their savings.
Who knows how many potential sellers held their homes off the market, waiting for riches that will now never appear. I’d hate to think what’s going to happen when they all realize this and flood the market with those homes.
Why do you guys have to be such haterz? Check it out everybody, these haterz are ruining people’s cheery optimism with their annoying numberz again…
^^^
You predicted doom so many times you should start defining a DEFCON style doomsday index.
tipster-DEFCON #1 means a foreclosure tsunami is coming,
tipster-DEFCON #2 means sellers desperate to see the IPO cash vanished will flood the market with oversupply,
tipster-DEFCON #3 means all banks will collapse and take down SF RE with it,
tipster-DEFCON #4 means we’re in POOM side of the inevitable KA-POOM,
tipster-DEFCON #5 means that positive news everywhere are a sure sign everything will soon collapse
Seriously, there are pills for that.
“Amateur investors like Marc Andreesen messed this one completely up for the employees by bidding up the shares”
Zynga has some constraints as mentioned above that may inhibit this, but in the past the situation you mention was handled by re-pricing people’s options. i.e. people who received options with a strike of $40 only to have the stock quickly drop to $20 had their $40 grants canceled and grants under the same terms with a $20 strike re-issued.
Talent is required to grow and run these companies and top talent needs to get paid. The complexity is that the value of options (and to a lesser degree stock grants) at the time you provide them as incentive can be vastly different from their realized value.
I do wonder how the negative performance of some of these pre-IPO deals will affect things like second market. Morgan stanley actually sold a pre-ipo chuck on Zynga to some of their in house funds at $14 which has to be causing some chilly meetings between the i-banking and investing side!
Now the guy is talking about Facebook in the past tense, and seemingly people are actually reading the raving utterances? Riffing on them,even? Funny stuff. Pass.
Geez, I prove via rational analysis that only a few Zynga employees made any money at all from the IPO and the best you guys can come back with are some worthless ad hominem attacks? Weak.
It’s pretty obvious that joining a company 18mo pre-ipo isn’t going to make you an insta-millionaire. And what to do about all the hub-bub of Pincus asking for those options back? Those probably weren’t at 14/share. The whole thing has less to do with any one company going public; it’s the general wealth creation engine that is fueling the bay area. The ‘one company’ exception of course is Facebook. Personally, I’m still not sold on FB over the long run. Nevertheless, that company will mint more wealth at IPO than perhaps any other company.
But you didn’t disprove the fact that a company in the BA started from a $0 valuation 5 years ago to 5B+ today and a good part of that money is an increase of net worth overall.
My original point was not in the minutiae of whatever IPO of the week. It’s that our economy is expanding in great part due to new tech companies.
But you want to go into the details and forget the big picture, diverting the discussion. Rents are up, unemployment is down, the economy in SF is faring much better than most places. That doesn’t fit to your doomsday routine, therefore you are grabbing at straws.
^^^ what eddy said ^^^
But you didn’t prove that only a few Zynga employees made any money at all. You took the assumption that the grants are all above the current mark, and ran with that. You intentionally ignored that there are 77M, and that the company has been around for a while. Therfore there are going to be a good number of employees with a different strike price. (Not to mention Pincus losing face for asking for some back — think about that. Why bother?) No, you ignored that Tipster, plainly, and repeatedly.
eddy,
I recall a big metric of the dot-com heyday was the number of eyeballs you could attract. It turned out that not only you needed eyeballs, but you needed someone with a wallet behind with an interest in these eyeballs.
Google seemed like yet another search engine company at first. Then people realized their algorithms were unmatched even with the smaller late-90s internet. Google managed to monetize their dominant position and become extremely profitable.
Facebook has a dominant position in social networking. More than 800 Million active users. It’s old news already, but they’re in a similar position to Google in the early to mid 00s.
“It’s pretty obvious that joining a company 18mo pre-ipo isn’t going to make you an insta-millionaire.”
Looking up the numbers I mentioned above about the relative recency of most Zynga employees. They are: 60% being with them less then 1 year, 88% less then two years. It doesn’t seem from the above discussions that everyone thought it obvious that somewhere less then 88% of Zynga employees had no shot at being insta-millionairs.
We’ll know more when they file, but I do agree that Facebook should be big enough that many millionaires are created.
“But you didn’t disprove the fact that a company in the BA started from a $0 valuation 5 years ago to 5B+ today and a good part of that money is an increase of net worth overall.”
Creating even a $1B company from nothing is economic progress . But people hoping for not just progress but a dot com 2 bubble don’t appear to be getting it. During dot com 1 companies with more warts then Zynga shot straight up.
This is just a single company, but there aren’t that many tech IPO’s each year so each one that occurs is a chuck of “the market”. Zynga’s straight down path and above average loss is a bit of an outlier, but in general it hasn’t been a good year for IPOs. 70% of 2011 IPO’s were trading below open.
There are more homes in SF then tech IPOs and people make quite a bit of hay out of the occasional flat (or +50% loss) apple.
anon.ed, there is no strike price on stock units. You just get compensation relative to the stock price.
There is an implied strike price when the employees do their analysis, and you are correct in that the early employees will do well, but there were really very few early employees (as indicated in their S-1), and that is usually the case. The overwhelming majority of the employees came on in 2010 or later.
Note also that the ZSUs can be valued at 1/10 the share price or 1/100 of the share price, as they are up to the complete imagination of the company to value them as they wish. Without more, the 77M number is meaningless. But even if it is 1:1, it was already baked into the total compensation as noted above, and for the overwhelming majority of employees, they will come out behind. They will have enough to buy a decent car, but that’s really it.
Sorry. I took into account everything. When Marc Andreesen and the other amateur investors bid up the share prices, he screwed the employees and himself and his investors. Very few people sold at that high price, but that was the price to get the company to issue more shares. The high valuation meant the employees got diluted less than they otherwise would have (because Andreesen and others got fewer shares for the same money), but that’s more or less irrelevant when the price falls. The situation is what it is: the company made out by paying the employees less than they should have. Once the salaries get boosted up to what they should have been in the real world, the company is unprofitable.
“You intentionally ignored that there are 77M, ”
77M is the pool of future ZSU’s.
14M vested with the IPO
“But people hoping for not just progress but a dot com 2 bubble don’t appear to be getting it.”
Can we retire this strawman?
LNKD is expanding its presence in SF.
I am expecting our “it’s all downhill from there” to find a negative in the physical expansion of a local company with 6.69B in market cap.
During the dotcom years, we didn’t have a Zynga-like IPO every month. We had a couple of IPOs a week,
We had a couple of San Francisco based companies going public every week? Hardly. Most of them were based in Silicon Valley and most of the housing impact was there. Some of it trickled over here, but not much.
Tipster, just give it up. You have no idea what you are talking about.
From http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=7922586
the net issuance of 13,894,764 shares of Class B common
stock upon the vesting of outstanding ZSUs in connection with this offering
So that is $8.45 * 14M = $118M that vested immediately, about 10X your estimate from what the entire IPO would generate for employees.
And that does not include options at all. For options:
109,157,667 shares of Class B common stock issuable upon the exercise of stock options outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.93 per share
You see that the average exercise price of those options is 93 cents, right? So that is 8.45 – .93 = 7.52 * 109M = $820M worth of options out there, some of which have already vested. If you want to be really really conservative, you could estimate that perhaps 1/4 of those options have already vested, for another $200M available for sale when the lockup period expires.
And that is just to the employees! To the investors they give preferred stock and the report says this about preferred shares:
the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 304,887,421 shares of Class B common stock immediately prior to the closing of this offering
So another $2.6B for the investors. Some of those investors did pay as much as $14/share for those shares though not many. So not all of them made money.
As for your notion that employees would give a 140% dollar for dollar discount to their salary to receive some pre-IPO shares, all I can say is that you really don’t have any clue what you are talking about.
tc_sf, are you sure you aren’t talking about post-IPO companies? The numbers you are talking about are more like what you see in public companies — maybe 5-10k/yr of stock grants. Pre-IPO companies are generally more generous (which we can see was true at Zynga from their filings).
14M ZSUs vested at the IPO, meaning they were already granted at that point, divide that by the 40% of employees that you say have been there more than 2 years (1200 * .4 = 480) and you get about 30,000 shares in grants alone per employee. This pretty much aligns with my own personal experience, having been through three IPOs as an employee.
Then you have to add in options, which are typically worth a bit more.
^^^Nice post
An interesting article in the NYT yesterday:
http://dealbook.nytimes.com/2012/01/15/in-silicon-valley-the-ripe-scent-of-new-money/?scp=2&sq=silicon%20valley&st=cse
Banks are aggressively expanding in Northern California, even as they retrench globally. JPMorgan opened a 10,000-square-foot office in Palo Alto, Calif., a hub of venture capital activity. Goldman, which is eliminating some 1,000 jobs worldwide, plans to increase staff in San Francisco by 30 percent over the next year. UBS has more than doubled its wealth management staff in the area since 2008. “It’s very competitive,” said Joseph A. Camarda, who relocated from Philadelphia to lead Goldman’s wealth management group in San Francisco. “I think every firm has an A-list team out here.”
Great, lol, except their pay is way down (20-30% since 2010), so if their pay is falling faster than home prices, that doesn’t bode well for the market, I’m afraid.
And while one bank grows, others are laying off. So if all they do is cause employees to hop from one bank to another, without increasing the total number of employees, but each job hop is at lower and lower pay, then you can see where the effect on the housing market is heading.
“Banks worldwide have been cutting and deferring compensation and overhauling policies for clawing back payouts to traders and investment bankers over the past two years”.
http://www.bloomberg.com/news/2012-01-19/morgan-stanley-said-to-cut-senior-investment-banker-trader-pay-20-to-30-.html
That’s a sad industry right now.
tipster is playing Twister again. What this means is that some outfits are rebalancing towards growth areas. And the BA is definitely on the list.
Cool graphic.
http://allthingsd.com/20120118/viral-graphic-visualizing-the-facebook-ipo/facebook-ipo-1/
tipster, a Goldman wealth manager making 20-30% less than he/she did in 2010 still makes WAY more money than a techworker, doctor, lawyer, etc. More bankers = more money around. Hard to deny that much.
But whether an increase to the relatively small financial sector here is really enough to move the market appreciably is another question entirely.
shza,
The point I made earlier in this thread: Wealth has been created in the BA. Whichever the way it is distributed, we’re definitely on the winning end of today’s economical trends. For an individual this might not matter much because everyone is impacted differently. But we cannot deny that the end result is an overall improvement of the BA economy.
Even the Examiner and its doom-ish tilt acknowledges: The tech industry, which is credited with contributing to the boom in both residential and commercial real estate, has created a renter profile of young, well-paid professionals who can afford the cream of the crop.
http://www.sfexaminer.com/local/2012/01/bay-area-leads-nation-rental-price-increases#ixzz1jwGf4yX7
I give Twister 10 minutes to find a negative twist to these news.