The blogosphere has been buzzing since yesterday with news of the Microsoft-Facebook deal in which Microsoft invested $240M in Facebook in exchange for a 1.6% stake.  To spare you reaching for your calculators, that gives Facebook a whopping valuation of 15 billion (with a b) dollars — not bad for a company with a 24-year old college-dropout CEO.  (Perhaps part of the attraction of Facebook for Microsoft was a sort of nostalgic deja-vu on the part of Bill Gates, who is also a Harvard dropout, and was also running an exciting and very successful company by the age of 24.)

I’ll leave the analysis of the deal itself to pundits far more knowledgeable on the subject.  What interests me as a real estate professional is the impact this deal may have on real estate in the area.

The connection, in my mind, is quite simply:  One of the reasons why the real estate market here in Silicon Valley continues to chug along is that the tech industry is doing very well.  VC’s are flush with cash, busy investing in the next big thing.  Many of the local tech giants are having good years.  The current bellweather of the local tech economy is Mountain View-based Google, and with its shares well north of $600 each, and its ongoing voracious appetite for skilled engineers, the Valley is feeling pretty brash and confident these days.  That confidence, and the cash that comes from stock options, translates into buoyed demand for housing in this area.

So what happens if Google, which currently can do no wrong, stumbles a bit?  What if it fails to hit analysts’ quarterly earnings target?  What if it even fails to beat expectations by as much as analysts thought it would?  What if its stock drops to, say, $300, over a one year period?

Without a doubt, that would have a negative impact on our local real estate economy, both directly — Googlers not buying as much housing — and indirectly — the overall attitude of the local tech economy getting soured.

Here’s where Facebook, currently housed in downtown Palo Alto, comes in.  The company reminds many of us of the pre-IPO Google of, say, 5 years ago:  great product, smart people, excellent management, modest cash flow, and HUGE ambitious and expectations.  If Facebook continues along the same trajectory, it may well be that in, say, three years, it becomes our local bellweather.  It may well have several thousand stock-option-engorged employees right at the cusp of their homebuying life stage.  They may well do for our local housing economy what the Googlers are currently doing.

Tags: Consumer, Facebook, Microsoft, Mountain View, Palo Alto
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