patrick.net

At some point Burbed is going to have to spend some time on this place. During my copious free time, ahahaha!

These are not starter homes by any means. They have Los Altos schools, and you pay big money for them. That means the land is expensive, which means the house is expensive. The typical family buying these homes will be either cashing in some stock options or appreciated stock, or trading up from a house in a less "special" area. However, the non-Fortress areas have all dropped between 30-50%, so the logical trade-up route is blocked.

Borrowing more than a million means not all the interest is tax-deductable, although buyers at that income level usually have Schedule A start to phase out deductions anyway.

Yeah I sent this to Burbed to feature in their overpriced homes of the RBA.

Its funny because the only way I as a single guy would ever be able to buy a home here in the bay area UNLESS the prices crash is to become the CEO of a large company.

Yes, I agree. French Laundry Restaurant prices will soon crash too. At those prices, how can anyone afford to feed themselves on a daily basis?

We are all entitled to eat culinary artistic creations every meal as you are to a home that nice.

SJ says

How can 2 people afford a 2 million dollar home? I know average salary is like 100-150k but even with dual incomes, that would be like 400k and most a bank would lend is like 1.2 million far less than the 1.6-2 million prices of these homes. At this point, I will forget about owning in bay area, save up 500k and move to Texas or North Carolina

Why do you suppose they are "Enclave"?

The Fortress is morphing into an Enclave of wealthy expats from other countries.

Since they are wealthy, who said anything about "two incomes" and borrowing all that money? They can put a huge downpayment and borrow a modest amount.

You (and probably nearly all other Americans, including Bay Area Natives) may think about cashing in, and cashing out, and moving on to greener pastures.

But the expats don't covet Red States places like that in Flyover Land. They only covet The Fortresses along the coasts. And besides, for what can be bought, sq meters and all, for what is paid, it is a huge Bargain Price compared to where they came from back home.

That's why its an "Enclave".

B.A.C.A.H. says

The Fortress is morphing into an Enclave of wealthy expats from other countries

Let them stick around and they will have to pay payrol, state, and fed income taxes in addition to their foreign income tax.... Does the foreign tax law allow for deductions on payment for US taxs.. nope! nada! zip! ... nor will the US host entity be willing to pay the additional payroll tax. Too much tax evasion risk and penalties.

Well I think that developers will call the next home development "Fortress" in the bay area, LOL. Now that Enclave is taken by this new overpriced development, fortress will be next followed by RBA or TRBA the real bay area because it is "special".

"Yes they are nice new homes"

This was the last virgin land, the last orchard west of 85.

Short walk to the MV hospital nexus.

Supply & demand.

Ah so all those rich bay area surgeons are buying these overpriced homes! Now it makes sense since its right down the street from El Camino Hospital. Not me, I'd rather retire in South America and buy a place for dirt cheap in cash no debt.

Took a quick look at the house, uh..., it's okay. I guess, it never ceases to amaze how much people are willing to pay for something that is *not much more than* ordinary. Coming from oversea (third world country) and my family built our own houses, I just don't know if people have the concept, like bang for the bucks or *quality* of what you pay for. At least these 1.6 to 2 million houses are new, I would be embarrassed to invite my parents if we have bought those 1.X million at Palo Alto, small yard, 40 years old ...it's like the houses for those who are not quite middle class back home. And, that's probably the reason we haven't bought a place, and guess I'm waiting for my husband to fall out of love bay area so that we can move.

SparrowBell says

I would be embarrassed to invite my parents if we have bought those 1.X million at Palo Alto,

All happened in the post 2000 era. The actual prices of such homes before the bubble were around 150-250K.

You may be embarrassed, but the f*ckheads who overpaid have this ego thing going on... so they can write back home and tell their friends they live in a $1M home in SFBA. They hit the big time.

$250K to $1M in under 5 years... and they still justify buying when it drops to 800K...

So everyone who is going to live in the "Enclave" is going to be LinkedIn employee :-)

Silicon Valley VPs, rich bay area surgeons, CXO's of well-funded startups, rich lawyers, or dual-income families in which both husband and wife are making director level salaries (200-250K each with bonus) are the once who usually buy houses in the range of 1.6M+.

In any case, its not too difficult to get names of buyers (in fact as far as I know this is public information). So once people move in here, it should be easy to figure out what they do based on internet searches, linkedin, and spybook. All the VPs, CXO's of well-funded startups, and surgeons that I know of live in 1.6+ million homes.

SFace says

In any case, Linkedin, which is nearby is close to their payday. There's 15M shares weighted at around $4 option strike waiting in the wings. At current share of $87 or so, there's going to be about 1.25B in gains spread out between 1,000 employees

Options per their plan start in 2008-2009 and vest over 5 years. By end of 2009 the headcount was raised to only 520. The top 5 executives hold 5.5M of the stock of which 3.5M is currently exercisable. The remaining comes to 1M shares exercisable amoung only 500 employees or so. Im pretty sure good chunk went to the some of the M&A activity as retention shares as well. The other 500 employees havent vested are in smaller proportion. Per my experience I would say 1000-5000 shares per employee. My number is fairly close to their 4.5 currently excersiable on page 5-25.

Not the shit you were expecting was it ? and certainly a fairy tale when reading the SEC docs.

alpo says

So everyone who is going to live in the "Enclave" is going to be LinkedIn employee

If they can find someone follish enough who is going to way way overpay for a stock with a nose bleed price to earnings of 500. S&P is bearly some 15-17 times earnings. Recall how Ariba and Yahoo were $300-400/share and then fell to single digits.

SFace says

In any case, Linkedin, which is nearby is close to their payday. There's 15M+ shares weighted at around $2 - $8 strike waiting in the wings. At current share price of $87 or so, there's going to be about 1.2B in gains spread out between 1,000 employees in a month.

SFace says

That's all I need to know to tell me you're wrong.

Read what you said... and read what they wrote.. Either you or they are lying...

They aren't paying for the homes. They're paying for the location, and the knowledge that no poor-middle class people will be their neighbors. That's why certain areas continue to stay pricey regardless of the economy...I dont see why you all dont understand that.

@StoutFiles- right, well they are paying WAY too much. Even if I was a rich CEO I would not be so foolish with my cash.

Yes- I know that location location location along with whatever political, cultural, culinary, weather preferences people have is EVERYTHING, but it still just seems stunning to me that small tract homes on small pieces of land would sell for 1 and 2 million bucks when my parents- who yes- live in the heart of "flyoverland" own a 2 story, 3 BR house on 15 acres of land with an orchard, a greenhouse, a larger workshop, and a ridge with hiking trail behind it is as of today valued at $150,000- roughly 14X's less than a smallish house in Silicon Valley. Is it realllllyyyy worth that much more?

Edvard2, the deal is that the kind of jobs that support this kind of purchase are not so common in "flyoverland". I could sell my house and buy something like your parents' place, but then I would not have a job either.

And obviously, living here has its benefits. I believe you live here (SFBA) right? Wouldn't it be cheaper to live somewhere else? Rent is higher here than elsewhere. This is not meant to be an ad hominem, but it puzzles me why people post on these boards that SFBA is so overpriced, yet, the same people live here.

thomas.wong1986 says

Options per their plan start in 2008-2009 and vest over 5 years. By end of 2009 the headcount was raised to only 520. The top 5 executives hold 5.5M of the stock of which 3.5M is currently exercisable. The remaining comes to 1M shares exercisable amoung only 500 employees or so. Im pretty sure good chunk went to the some of the M&A activity as retention shares as well. The other 500 employees havent vested are in smaller proportion. Per my experience I would say 1000-5000 shares per employee. My number is fairly close to their 4.5 currently excersiable on page 5-25.

Not the shit you were expecting was it ? and certainly a fairy tale when reading the SEC docs.

Yeah, agree with Thomas on most of this stuff. I looked over the S-1 and did the math on this. The vast majority of rank and file aren't getting much from this, relatively speaking (certainly not enough for a $2M house). Also, a lot of the rank and file are not vested yet -- just look at the stats on this in the S-1. Most haven't been there for the 4 years needed for full vesting. 6 month lockup is starting to wind down though.

In addition, most of the non-rank and file who got large numbers of shares probably already have houses here. A large number of the shareholders who will cash out big are not even employees -- the VCs and other investors, most of whom probably also have houses too.

SFace says

Here is a concrete one, Mr Buller, your counterpart, the controller who joined Linkedin in March 2008.

I know Ken very well. He already has a home. You expect him to rush out and do what with it ? Buy up some homes ? where ? Prime San Francisco.... Realtors are in a sugar high this week ...

edvard2 says

Is it realllllyyyy worth that much more?

yes if you want to have civilized neighbors in the south bay.

An hour of a high-powered person's time is worth $300.

Saving two of those every day is worth $13,000 a MONTH.

That pays the interest on ~$3M.

Bellingham Bill says

edvard2 says
Is it realllllyyyy worth that much more?

yes if you want to have civilized neighbors in the south bay.

Or the question could be why was it so much cheaper for decades before the bubble ?

>Or the question could be why was it so much cheaper for decades before the bubble ?

Population of Santa Clara County is up 50% since 1980.

Land area is up 0%.

Things started getting crazy in the fortress well before the dotcom money came in.

I have a friend who bought in 94024 in 1990 for $400,000.

Inflation alone puts that up to $700,000.

Mortgage rates were 10% then, now they're 3%. Another 2 - 3X appreciation factor.

Areas outside the fortress have become less livable due to traffic. Inside the fortress, things haven't changed much in decades.

Bellingham Bill says

Mortgage rates were 10% then, now they're 3%. Another 2 - 3X appreciation factor.

Rates have been dropping for a very very long time now, still have not prevented prices from falling as well. And we can certainly see that over the past few years as the correction continues.

Bellingham Bill says

I have a friend who bought in 94024 in 1990 for $400,000.
Inflation alone puts that up to $700,000.

Did you factor in the decline from 1989 to mid 90s ?

Bellingham Bill says

Areas outside the fortress have become less livable due to traffic. Inside the fortress, things haven't changed much in decades.

Wow! thats an interesting, if not incredible, comment to make. Frankly I dont see much difference since the early 80s. St Creek, El Camino, Central Exp, 280, 85, 87, 101.. done them all.
Have you ever been down to Almedan Valley.. South San Jose ?

LOL! "fortress" what a concept!

Almaden valley is nice, but, an extra 30 min each way for many jobs. Many people are willing to pay more for that daily hour.

Also, I don't think Palo alto houses were 250k in 1992. Santa Clara was 250k in the mid 90s. It's true that prices have gone up, perhaps more than some would like, but not 6x since 1992. Thomas' chart shows about 2.5x since 1992.

SiO2 says

Also, I don't think Palo alto houses were 250k in 1992. Santa Clara was 250k in the mid 90s. It's true that prices have gone up, perhaps more than some would like, but not 6x since 1992. Thomas' chart shows about 2.5x since 1992.

I was looking from 1992-3. Palo Alto had bottom-of-the-barrel Eichlers for the low $300s then, Los Altos started near $400K. I remember this because our metric was to buy in the best school district we could stand living in for what we could afford, and we could only get an Eichler in Palo Alto. We couldn't touch Los Altos, we could only get a townhouse in Saratoga (except the Campbell schools part which was a no-go), and we could get really meh houses in Cupertino. But we could get house that we actually liked looking at in Sunnyvale with Cupertino schools.

I suppose we could have made a pile if we'd traded up to Palo Alto, but that never happened for a number of reasons. The most important one was I never went back to work and we were able to manage this house on one income. Given the craziness that came with the housing bubble and pop, that decision worked out well for us. The house will be completely paid off in 21 months and I still don't work full-time.

My husband works in downtown Palo Alto and sometimes he can get home in 15 minutes, usually 35, sometimes it takes an hour. And we're paying a premium for "close-in"! He liked it a lot better when he worked 5 minutes away, no freeways needed, but that place got bought out and moved. Never any guarantees, and that's there's the renter's advantage, if work moves tomorrow you can move tomorrow too.

SiO2 says

Edvard2, the deal is that the kind of jobs that support this kind of purchase are not so common in "flyoverland". I could sell my house and buy something like your parents' place, but then I would not have a job either.

And obviously, living here has its benefits. I believe you live here (SFBA) right? Wouldn't it be cheaper to live somewhere else? Rent is higher here than elsewhere. This is not meant to be an ad hominem, but it puzzles me why people post on these boards that SFBA is so overpriced, yet, the same people live here.

But the thing is that you don't need to have the types of jobs that support Bay Area home prices in "flyoverland". That's a significant fact. The more important analysis of the cost of living comparisons between different areas is exactly how much money does it take to acquire "x" type of lifestyle. So for example my parents combined make about 75% of what I make myself. My wife makes about the same as I do. So we make about 2.5X's what they make and yet they own a pretty large piece of property that's close to a minor-sized metro. The type of property they own would easily cost on the magnitude of probably 5-10 million dollars in the Bay Area. Yet its valued dozens of times less. You would literally have to be a millionaire many times over to afford what they live in on lower middle class incomes if that same property were sold in the Bay Area. As it is in the Bay Area upper middle income people are pretty much vying to afford what amounts to lower income level type houses on small plots of land. So in conclusion the disparity here is quite enormous.

I'll even go one step further. I have several friends who all work in the same field as I do but stayed back home. All of them bought houses in pretty nice older neighborhoods 5-6 years ago. The average price was around $130,000-$150,000. One of them makes about 20k less than I do. Then again the house he bought was 3 and 4 times less than the crappiest starter home in the Bay Area. Truth be known I sometimes kick myself for not staying myself because in all likelihood none of this silly housing bubble business would've crossed my mind.

Yes- I am still here and a lot of us whine and complain. Some people reallllyyyy want to stay here forever and ever and like what you said, probably think they would never be able to make it outside the narrow confines of the Bay Area financially. Its daunting and the recession sort of put a delay on things but the reason I'm here is because after having spent years making crap for money we do pretty well financially. Rent is cheap and the house is nice. The job is stable too. But at the same time we're saving a lot of cash and if we wanted to we could just move away and buy something outright and be done with it. Might mean a change in careers and it will also probably mean a steep paycut. But if everything is paid for then so what? In the meantime life is comfortable, we save and the more we do so the easier it'll be to make that leap.

SparrowBell says

I just don't know if people have the concept, like bang for the bucks or *quality* of what you pay for.

yes they do, and they are above your social status. They are above you, and make much more than you can imagine. Come on, you get what you can afford. You cannot afford, don't assume people who buy them are stupid, crazy, or don't know what is a buck for the bang.

I'm with Edvard2, solmewhat.

The housing situation drives me batty and I'd love to move, but we'll have 2 college tuitions to pay in 10+ years, and I can't imagine being able to afford it on double-incomes in flyoverland.

Netreality says

The housing situation drives me batty and I'd love to move, but we'll have 2 college tuitions to pay in 10+ years, and I can't imagine being able to afford it on double-incomes in flyoverland.

Both my brother and I ( my brother graduated last year) both went to colleges in "flyoverland", we pitched in 50% of the bill ourselves, and we both graduated and both make 6-figure incomes. Granted these weren't ivy-league super-expensive schools. They were state colleges. But that's another whole ball of wax...

edvard2 says

Granted these weren't ivy-league super-expensive schools. They were state colleges. But that's another whole ball of wax...

No it's not. It's everything.

Some people are betting that if their kids goto a K-12 in The Fortress with high API's, then admission to elite UC's will follow, give them "that edge" in life.

It's everything.

edvard2 says

Both my brother and I ( my brother graduated last year) both went to colleges in "flyoverland", we pitched in 50% of the bill ourselves, and we both graduated and both make 6-figure incomes. Granted these weren't ivy-league super-expensive schools. They were state colleges. But that's another whole ball of wax...

Many people went to state colleges. Far more from SJSU went to work in Silicon Valley tech companies, than any other University and did very well in Engineering and Business.

Alumnus Rings NASDAQ Opening Bell

http://blogs.sjsu.edu/today/2011/alumnus-rings-nasdaq-opening-bell/

When Overland Storage Inc. visited the NASDAQ MarketSite in New York City’s Times Square Oct. 14, the company’s CEO, an SJSU alumnus, rang the opening bell. Eric Kelly has served as the data protection and management solutions provider’s CEO since January 2009 and as a board member since 2007.

Mr. Kelly spent nearly 30 years in computer technology developing distinct operational, marketing and sales expertise. His most recent corporate position was vice president and general manager of storage systems solutions at Adaptec, Inc. Prior to that, he served as president and CEO of Snap Appliance, which was acquired by Adaptec. Two years earlier, Kelly engineered the purchase of Snap from Quantum Corp., having recognized the inherent value in Snap, where the main product he drove became the volume market leader in Network Attached Storage (NAS) appliances. His previous corporate affiliations include Maxtor Corp., Dell Computer Corp., Diamond Multimedia, Conner Peripherals and IBM. Mr. Kelly earned an M.B.A. from San Francisco State University and a B.S. in Business from San Jose State University.

edvard2 says

Both my brother and I ( my brother graduated last year) both went to colleges in "flyoverland", we pitched in 50% of the bill ourselves, and we both graduated and both make 6-figure incomes. Granted these weren't ivy-league super-expensive schools. They were state colleges. But that's another whole ball of wax...

Many people went to state colleges. Far more from SJSU went to work in Silicon Valley tech companies, than any other University and did very well in Engineering and Business.

Alumnus Rings NASDAQ Opening Bell

http://blogs.sjsu.edu/today/2011/alumnus-rings-nasdaq-opening-bell/

When Overland Storage Inc. visited the NASDAQ MarketSite in New York City’s Times Square Oct. 14, the company’s CEO, an SJSU alumnus, rang the opening bell. Eric Kelly has served as the data protection and management solutions provider’s CEO since January 2009 and as a board member since 2007.

Mr. Kelly spent nearly 30 years in computer technology developing distinct operational, marketing and sales expertise. His most recent corporate position was vice president and general manager of storage systems solutions at Adaptec, Inc. Prior to that, he served as president and CEO of Snap Appliance, which was acquired by Adaptec. Two years earlier, Kelly engineered the purchase of Snap from Quantum Corp., having recognized the inherent value in Snap, where the main product he drove became the volume market leader in Network Attached Storage (NAS) appliances. His previous corporate affiliations include Maxtor Corp., Dell Computer Corp., Diamond Multimedia, Conner Peripherals and IBM. Mr. Kelly earned an M.B.A. from San Francisco State University and a B.S. in Business from San Jose State University.

Many people went to state colleges. Far more from SJSU went to work in Silicon Valley tech companies, than any other University and did very well in Engineering and Business.

Alumnus Rings NASDAQ Opening Bell

http://blogs.sjsu.edu/today/2011/alumnus-rings-nasdaq-opening-bell/

When Overland Storage Inc. visited the NASDAQ MarketSite in New York City’s Times Square Oct. 14, the company’s CEO, an SJSU alumnus, rang the opening bell. Eric Kelly has served as the data protection and management solutions provider’s CEO since January 2009 and as a board member since 2007.

Mr. Kelly spent nearly 30 years in computer technology developing distinct operational, marketing and sales expertise. His most recent corporate position was vice president and general manager of storage systems solutions at Adaptec, Inc. Prior to that, he served as president and CEO of Snap Appliance, which was acquired by Adaptec. Two years earlier, Kelly engineered the purchase of Snap from Quantum Corp., having recognized the inherent value in Snap, where the main product he drove became the volume market leader in Network Attached Storage (NAS) appliances. His previous corporate affiliations include Maxtor Corp., Dell Computer Corp., Diamond Multimedia, Conner Peripherals and IBM. Mr. Kelly earned an M.B.A. from San Francisco State University and a B.S. in Business from San Jose State University.