Why you should care
Because where’s all that tech money going?
Kelly Porter appreciates a beautiful home; he spent seven years renovating his own chateau. Now that his kids are grown and on their own, he’s looking to downsize — not downgrade but downsize. With one of the world’s most sought-after destinations as his hunting grounds and millions of dollars to pull the trigger with, looking for a new house should be a gratifying pursuit. Except it’s not.
Instead of marble floors and mahogany trim, it’s miles of manila tile. Saunas and infinity pools? Try wet bars. And rather than touring elegant estates, Porter says he shuffles through barely disguised track homes and ranches, houses that are distinctly indistinct. “You certainly have to have patience,” says the 51-year-old venture capitalist.
It may be one of the greater real estate paradoxes around. Here in Silicon Valley, the most outrageously booming startup land on planet Earth, the options for spending all the money so many entrepreneurs are making are surprisingly modest. While $20 million homes are practically a dime a dozen in cities like New York, Miami and Los Angeles, the market in the Bay Area, stretching between (but not including) San Jose and San Francisco, pretty much taps out at $10 million. A quick search on Zillow reveals that Manhattan has 179 options above the $20 million mark and Los Angeles County has 37, with the most expensive estate worth just under $200 million. Silicon Valley, which has almost double Manhattan’s population: Four. “Real estate plays out on a high level here, but not on the super-stratospheric level you get at other places,” says Sotheby’s Silicon Valley agent Art Sharif.
For some, the startup mentality dominates: better to pour your cash back into a venture than to splurge on a Hamptons estate.
There are of course many factors behind the cheaper home syndrome, but the one most real estate agents, academic experts and residents point to is this: People in the Valley, historically, just haven’t dropped a lot of money on toys. Look how its most famous executive, Mark Zuckerberg, dresses — hoodie and jeans. For some, the startup mentality dominates: better to pour your cash back into a venture than to splurge on a Hamptons estate. “In Silicon Valley, showing your friends your big house is not as important as showing you were one of the first investors in Facebook,” says consulting Stanford associate professor Steve Blank, who also co-founded four startups and was named by Forbes as one of the 30 most influential people in tech. “The people who founded it institutionalized a culture of not showing off: it’s anti-glitz.”
Of course, there are exceptions. The Zillow figures can’t measure a private marketplace so hush-hush it’s practically a whisper network. A lot of big deals happen behind the scenes, like when, several years ago, Sharif sold a Los Altos abode to a Russian billionaire for $100 million. And then there are micro markets like Atherton. The swanky suburb is No.1 in a ranking of the nation’s top 10 wealthiest ZIP codes by Altos Research, a real estate analysis firm. But at the same time, Atherton is the only ZIP code in the region to make the list, while six New York City neighborhoods make appearances. And just because you’re paying top dollar doesn’t necessarily mean you’re getting what you pay for. Take for instance, a 3,340 square-foot, completely basic ranch-style Atherton home built in 1971 that’s currently on the market for $4.6 million. Whereas for $4.5 million and a short drive through the Lincoln tunnel into the New Jersey suburbs, a home-buyer can get a 12,000-square-foot estate complete with a professional-grade wine-cellar, state-of-the-art gym with massage room and, of course, a ventilated cigar-cave.
Brokers are calling Silicon Valley a teardown market.
One way around the bungalow epidemic is to buy more than one. Take Zuckerberg, who may have only paid $7 million for his Palo Alto home but also nabbed the four adjacent to it, for a total of $30 million — and then bought another in San Francisco that he is rebuilding from the ground up. Google’s Larry Page took a similar approach. He purchased four adjoining properties and then constructed a sprawling 6,000-square-foot sanctuary. Considering how high prices already are for how little buyers get, realtor Sherry Bucolo predicts that over the coming years, as more houses are expanded and upgraded, “properties will start going for astronomical prices.”
Indeed, brokers are calling Silicon Valley a tear-down market. Anything in the $4 million and below range is likely going to be demolished. Clients are buying just for the land. And after spending a month scouring the available market, Porter says tear-down is likely what he will end up doing, too. Or he’ll rent. “I’m selective,” says Porter, who listed his Los Altos Tudor mansion for $27 million. “If I don’t find the right house, I’m seriously looking at renting as an alternative. It may make more sense to rent and invest my money other places.”
This OZY encore was originally published Dec. 15, 2014.