There’s a flock of initial public offerings (IPOs) on the horizon, and that could be big news for real estate. Mostly concentrated in the San Francisco Bay Area, tech giants such as Pinterest, Uber, Lyft and Airbnb are looking to go or have recently gone public—and many are predicted to benefit. Overnight millionaires from IPO successes could have a heavy hand in real estate. The question is, will the real estate impact be as immediate as their potential windfall if the IPO success rings true, or will the markets see slow growth—or any growth at all?
According to Curbed, Patrick Carlisle, an analyst for Compass, predicts that at least 6,000 individuals will come out millionaires following the surge of IPOs, and will be clustered within a market that sells about 6,500 homes per year.
Angelo Raymundo, a real estate consultant at Red Oak Realty in the Bay Area, is skeptical of an IPO-spurred housing boom, and says the real estate impact highly depends on the success or failure of the IPO.
“I’m not sure it will have a great impact on the real estate industry. For one, there’s no guarantee that these IPOs will be successful, as we’ve seen with some past IPOs,” he says.
However, Mike Schlott, president of the Randall Family of Companies—No. 161 in sales volume in RISMedia’s 2019 Power Broker Report—believes there could be somewhat of an impact, but at an extremely localized level.
“I think the impact of the upcoming IPOs will be localized,” Schlott says. “As with Facebook and Twitter, when those companies went public, the effect on the real estate market was felt in California and, more specifically, in San Francisco. That will most likely be the case with the upcoming IPOs.”
Historically speaking, IPOs have, in fact, helped to drive growth to their local markets. According to a report released in November by researchers Barney Hartman-Glaser, Mark Thibodeau and Jiro Yoshida, IPOs had a positive impact on local housing prices in California between 1993 and 2017. Curbed reports the study looked at 725 IPOs initiated by California companies, finding that average home prices within a 10-mile radius of these headquarters increased by 1 percent after the filing date. After these companies went public, the index increased another 0.8 percent.
Zillow also looked at post-IPO housing impact, determining that between March 2012 and March 2013, home values grew faster (climbing 21 percent compared to the 17 percent average in all other Bay Area markets) in areas that Facebook employees call home. This growth boosted appreciation by about $29,800 over the typical home price.
Impact on a Challenged Market
An IPO today, however, could have a much different effect on these markets, especially with the nationwide inventory challenges, says Schlott.
“Lack of inventory is an issue in almost every market in this country today,” he says. “If newly minted millionaires cluster their real estate purchasing activity in a single market like San Francisco, it will definitely put a strain on the market and we are likely to see multiple offers and significant price appreciations.”
IPO success aside, home-buying might not be the first step for these overnight millionaires, says Raymundo. If these IPOs end up being profitable, he says, it will still take investors time to cash out.
“And when that happens, a home may not always be the first thing on their minds to buy,” he adds.
Schlott agrees, stating that “not all buyers will rush to make a purchase. Simply put, buyers behave differently from one another and some are deliberate in their approach.”
Regardless, the luxury space could see some business influx following these companies’ public offerings.
“I think it will be a slow build-up of luxury clients, as these new millionaires decide what to do with their newfound success,” says Raymundo, who believes the real estate agents working in the most desirable areas and cities will profit the most.
“These individuals will likely flock to the ‘nicer’ neighborhoods,” says Raymundo. “Having said that, I do think there will be more individuals who will be more cautious with their monies and invest where they can get the best bang for their buck.”
This balanced approach seems to be the most likely scenario, according to Schlott and Raymundo.
“The market has shifted a little and some buyers have become more weary,” says Raymundo. “Prices will increase but I don’t think at the same rate we’ve been used to for the last 5-6 years. I’m sure there will still be outliers that will sell for an ungodly amount, but generally speaking, the outlandish offers we’ve seen in the past may not be as common this time around.”
Schlott also foresees prices increasing, stating “any flurry of activity in a real estate market inevitably leads to price appreciation. It is a simple case of supply and demand…when demand outpaces supply, prices have to go up.”
Who is set to profit the most? Raymundo says his bet is on Uber.
“They’ve shown steady growth and have invested back into the company, which I think will pay off in the long term,” he says.
Schlott predicts the same, stating that at $10 billion, the Uber valuation “dwarfs that of the other potential IPOs. The opportunity for significant wealth creation with Uber is staggering.”
However, if Uber goes the way of Lyft, a competing ride-sharing company that recently went public, bets may be off. Currently, Lyft is trading at about 20 percent below its IPO price, according to Markets Insider.
Right now, Pinterest is a clear winner. The company is on its seventh consecutive day of gains, and the stock price has spiked up to 12 percent since its debut on April 18. Airbnb is set to go public later this year, and Uber’s IPO is more imminent—the company is looking to begin trading later this month.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at firstname.lastname@example.org.