Forget About the “Facebook Effect” For Now.

April 4, 2012


That's Not Your Main Competition.

In this superheated market that we're experiencing in San Carlos and all over the peninsula, it's astonishing to see the purchasing power that buyers are wielding, and the sheer number of well-funded buyers that are out there shopping.   It's not only the eye-popping statistics on multiple offers, but simply the amount of cash that buyers are bringing to the table.  There have been so many multi-million dollar all-cash offers in Palo Alto lately that it's hardly news anymore.

What is surprising to me is that everyone seems to be pointing the finger at the evil empire at 1 Hacker Way in Menlo Park — aka the headquarters of Facebook.   But they're not close to being the catalyst behind the fire hose of cash that is propelling this market.

…At least not yet.

Let us not forget that the stratospheric Facebook IPO hasn't even happened yet.   And granted, while there are some in the executive ranks who have been able to exercise some of their pre-IPO holdings on the private market to fund their home purchases, that's generally not the case for the thousands of rank-and-file employees.    Even after the company goes public, most employees will be restricted by vesting schedules and lockdown periods that will prevent them from truly accessing their new wealth until later this year, or into 2013.

So where's the money coming from?   Here are a few clues…

It Doesn't Have to Be an IPO.

If a picture is worth a thousand words, than this picture is worth a few billion dollars….

Apple Stock Performance -- 1 Year.

This is real money folks, not futures.  The portfolio of Apple employees and investors got an 82% boost in just the past 12 months, and if you extrapolate this chart back a few years, it's just more of the same kind of astonishing growth.     And bear in mind that there are far more employees at Apple now than there are at Facebook.

Here's another company that's had a profound but understated impact on the local real estate market:

LinkedIn Stock Performance -- YTD

While LinkedIn's stock has only grown about 5% over the past year, they've enjoyed a 57% bump since the beginning of the year.    And it's important to remember that the reference point we're starting with on this stock is pennies per share, for those lucky enough to own founder's shares.

The list goes on and on.  And there are the other companies and professions who directly feed off of the success of these companies, as well as the overall upswing in the tech market.   Have you driven by Sand Hill Road or downtown Palo Alto lately?  The corporate law and VC firms haven't been this swamped in 5 years.

In Due Time.

So let's give the “Facebook Effect” a rest for the time being.  That specter of the Facebook Effect is far more fear and hype than it is real money.   But that indeed will change in due time when Facebook finally steps into the limelight and mints a few thousand more millionaires…just not right now.

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