San Francisco real estate is booming even before AI’s IPO

News article: Last fall, more than 600 OpenAI employees sold $6.6 billion worth of company stock, turning paper millionaires into real billionaires.

This is also news. San Francisco’s real estate market is booming, especially for luxury properties where billionaires want to live.

Before thinking about correlation or causation, people think: No, we don’t know if every OpenAI employee who turned stock into cash immediately put that money into a house in San Francisco. However, something is disrupting the local real estate market, and everyone in town believes it is AI Money.

And all these things are happening in front OpenAI and Anthropic going public will inject even more money into an already incredibly frothy market.

That’s because the traditional Silicon Valley wealth cycle has changed. Once upon a time, you signed a contract to work for a high-risk, well-regarded startup. And if all goes well, the stock turns into real money a few years later when the startup becomes a publicly traded company.

Now you don’t have to wait for an IPO. It is common for large and valuable private companies to remain private, while giving employees and investors a way to raise capital through secondary stock sales before going public.

It’s not an AI innovation. We’ve seen for years that companies like Stripe routinely manage stock sales for current and former employees, creating millionaires without going public. Elon Musk’s SpaceX, which is about to go public, has been doing something similar for its employees for years.

But even by those standards, what happened with OpenAI last fall was unusual. The Wall Street Journal reported that Sam Altman’s company, which had previously limited stock sales to $10 million per employee, raised that limit to $30 million and about 75 employees sold all of their stock.

And all that new money is coming to a town that’s already seeing crazy compensation deals for in-demand AI employees who can negotiate NBA-level hiring packages or convince big tech companies to buy startups for billions.

So it’s not hard to see why Bay Area home prices rose 14% last year, largely due to sales of luxury properties, which went from an average of $5 million in 2020 to about $7 million now, according to RedFin.

And it’s easy to see why conversations about real estate in the region – a perennial obsession in a region with limited housing stock and ever-growing wealth – are more fraught than ever.

An obvious question arises here. If this is what the pre-IPO AI boom looks like, what happens when the IPO actually arrives?