New breed of homebuyers in Silicon Beach. High tech affords creative sources of income and tapping into financial resources not possible in the past. Stock options and crypto are big players to help the new tech professionals afford and be able to boost their purchasing power. This is all leading to a buying freenzy and further driving up demand when inventory of homes are still low. As a local real estate broker with my pulse on the market I'm dedicated to all your real estate needs. I've got the tools to help you navigate the home buying process. As a resident of LA's area dubbed Silicon Beach I know firsthand how frustrating it is to get into bidding wars so let's connect. I'll send you my link to search the MLS (multiple listing service) for up to date information on homes in your area of interest. Love for you to be my neighbor. sandy@sandralew.com
Techies tap stock options and crypto in deal making frenzy.
By
Alexei Barrionuevo |
June 06, 2018 10:00AM
There was a time when buying a first home meant patiently saving
money for several years — or cozying up to mom and dad for the down
payment.
While those practices remain, a growing number of young buyers in
Silicon Beach are purchasing multimillion-dollar homes by liquidating
stock options — or even cryptocurrency portfolios — in a bid to edge out
the competition and boost their purchasing power.
And cashing out is not the only way they are doing it.
Over the past year, big banks have become more open to allowing
buyers to use option grants as a measure of total compensation. That has
allowed buyers who work in tech to shop for far pricier homes than
their salaries alone would allow them to consider, mortgage brokers and
agents say.
“This is a huge part of how they are able to buy higher-priced
homes,” said James Kay, a private mortgage banker at Wells Fargo in El
Segundo.
The shifts help explain how Silicon Beach is, in some ways, becoming a
housing economy unto itself, driven by its own particular pools of cash
flowing from the tech industry. The beachy set of Los Angeles
neighborhoods that stretch from Playa del Rey to Santa Monica have seen
overall single-family home sales volume hit $2.3 billion between April
2017 and March 2018, a 69 percent increase from the 12-month period
ending March 2016, according to The Real Deal’s analysis of Redfin data.
The number of sales have also jumped significantly, to 1,133
transactions from 770.
“This is definitely fueling the market,” said Bianca Mitchell, a
30-year-old agent with Halton Pardee + Partners who lives in Santa
Monica and is engaged to a tech startup executive. “There is no way I
could afford to buy something here unless I had a large infusion of cash
like that.”
“How are you going to get that much cash, that quickly, at our age?,” she added.
A wave of new business
Of the five deals Mitchell did this year, she said that all but one
client tapped additional funds from stock options at large tech
companies, or from past startups, to help fund their down payments.
Stephanie Younger, who leads a Silicon Beach-focused team at Compass,
said that buyers used stock-option cash to help fund their purchases in
about 15 percent of the 168 sales her team did last year. Among buyers
35 or younger, more than half tapped option funds, she said.
Silicon Beach is an outgrowth of Silicon Valley, anchored by
mushrooming extensions of the tech behemoths based up there, including
Google, Facebook and Apple. These firms, and the ecosystem of smaller
companies that are built off them, are taking over millions of square
feet of space in L.A., reshaping the city’s office and residential
markets in the process.
The companies are hiring a steady stream of talent in L.A. from the
Bay Area, Seattle, Texas and New York, many of whom are looking to buy
homes within walking distance of their offices on the West Side, agents
say.
“The technology cluster in Silicon Beach is immense,” said Younger.
“We are seeing much more activity from media tech, advertising tech, and
companies like Tesla, SpaceX.”
Playa Vista, with its long row of tightly clustered apartments,
condos and detached homes feeding off of Jefferson Boulevard, is
considered the epicenter of the growing tech zone. Developer Brookfield
Residential shifted from building smaller condos in the area to larger
detached homes, some of which have sold for more than $4 million.
Facebook and Google have rented massive spaces in Playa Vista for expansions, with Google set this fall to take over the former Howard Hughes airplane hanger, dubbed the Spruce Goose.
Neighborhoods like Mar Vista, some four miles from Playa Vista, were
considered affordable just five years ago. Now, the bedroom community of
mostly single-family homes has become a magnet for tech executives with
families.
Earlier this year, Halton Pardee responded to the uptick in business
by opening a new office that straddles Culver City and Mar Vista, said
Tami Pardee, CEO of the firm, who sold a four-bedroom, five-bath home
last year in Mar Vista for $3.7 million.
With 25 buyer’s agents and five listing agents working the area,
Halton Pardee is the most active firm in Silicon Beach, agents and
mortgage brokers say. Younger’s 13-person Compass team is in second
place.
Driving the activity are the high salaries tech companies are paying,
generally ranging from $150,000 to $350,000, agents say, and the
ballooning rents in the area. The median rental price for a one-bedroom
apartment in the Marina del Rey/Playa Vista neighborhoods, was $2,900
this February, up 15 percent from 2015, according to Zumper.
“People are starting to see the value in owning a condo that is $1
million versus paying $5,000 in rent,” said Tamara Mattox, an agent with
Halton Pardee who did 20 transactions in Silicon Beach last year,
mostly to tech buyers. “Most of these guys have the income to
comfortably support any purchase under $2 million. The people that are
buying in excess of that have had to cash out a significant amount.”
Crypto and Stock Options Boosting Sales for Younger Buyers
This wouldn’t be a true techie haven without cryptocurrency making a cameo.
Agents like Mattox, a Bitcoin investor herself, have built almost
mini-practices around referrals from other crypto evangelists who are
looking for ways to turn their profits into a pad.
Last year one of her clients, who had bought Bitcoin when it was $200
per coin, used a portion of his $150,000 profit for a down payment on a
$1.6 million, three-bedroom home in Venice. To create the necessary
liquidity, Mattox steered him to Robinhood, a third-party platform where
investors can convert to dollars for a modest fee.
Kris Zacuto, an agent at Hilton & Hyland marketing homes in Playa
Vista, said he has been surprised by how open Silicon Beach buyers are
about their source of wealth, “walking around with million-dollar crypto
portfolios.”
But the use of cryptocurrency in real estate is still in the crawling
phase, as many brokerages and escrow companies are not yet equipped —
or trusting enough — of the monetary instruments to treat them as income
or assets.
Buyers also need to be careful to liquidate their portfolios into
dollars further out than 60 days, said Jonathan O’Donnell, a loan
officer at PERL Mortgage in Santa Monica. Any less time and banks may
not treat the funds as verified assets. O’Donnell said that some
crypto-holders, frustrated at the bank’s rules, have simply elected to
convert to dollars and then buy properties in cash.
More common in Silicon Beach has been the use of liquidated stock
options to fund purchases, with some buyers using restricted-stock units
to extend their buying power.
Where banks once shunned stock options from public companies, they
now seem more open to considering them as additional income, provided
buyers can show they have had the stock for at least two years and will
continue to receive shares as part of their compensation, mortgage
brokers said. Banks value the shares based on the average share price
for the last year.
The changes allow them to out-muscle lawyers and other professionals
working primarily with a salary. Tech buyers, even with median salaries
averaging $240,000 at companies like Facebook, “were at a disadvantage
previously,” O’Donnell said.
“They had all this income coming in and the banks were ignoring half
of it,” he added. “Now they are getting what they deserve. They feel
finally banks are willing to see this for what it is; it is part of
their compensation.”
Banks that have adjusted their stance on the stock awards include
Union Bank, Bank of America, Wells Fargo, Chase and Luther Burbank
Savings, O’Donnell said.
Kay, the mortgage banker, said Wells Fargo has adopted a “more
conservative” stance on how it qualifies restricted stock units as
income, compared to more “liberal interpretations” from banks based in
Silicon Valley. But he said that “in certain circumstances, yes, we can
use that as income to help them qualify for a higher purchase price.”
In one recent case, an employee of a dating app company was able to
qualify for a $1.4 million home in Silicon Beach this year on a base
salary of $120,000. Originally, his salary was only enough for him to
buy a $750,000 home. But with nearly 19,000 vested shares from 2016 and
2017 he was able to boost his income, in the eyes of lenders, by an
additional $237,000, to more than $357,000 in total income, according to
someone familiar with the deal.
Mortgage brokers worry that banks could adjust their view on the
stock awards again in light of companies like Snap, where shares prices
fell considerably after the company went public last year, potentially
putting some options underwater and future income in doubt. “Does that
buyer look the same now?” O’Donnell said.
Kay agreed, noting that lenders that approved loans for Snap
employees meant that “you just gave a loan to somebody based on income
that is probably going to go down.
“For that reason we are extra-conservative,” he said. “We look at it on a case-by-case basis.”
Source: https://therealdeal.com/la/2018/06/06/for-silicon-beach-homebuyers-a-salarys-just-a-starting-point/
