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Landlords are trying not to rent to startups in San Francisco

42floors.com

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Re: Landlords are trying not to rent to startups in San Francisco

#221

Post by compostor42 »

logical42 wrote: post #174
compostor42 wrote: post #154

Earlier quoted context omitted.

If you don't mind me asking, what are you paying for rent? Been considering moving out there so trying to get a feel for things.

I have an exceptional deal on my 2 bedroom in Mountain View which costs me around 2400/month. I believe the current market rate for my apartment is something like 3300. If you're willing to live a bit further out (like Milpitas/Santa Clara), you can live somewhere for under/around 2000, which (when split with a spouse/partner/roommate) can be reasonable given the salaries in the area.

So I'm assuming you split the place with someone else? I imagine it is no trouble to find roommates out there, or am I wrong?

Looks like I'd have to live with roommates if I moved out there.

Re: Landlords are trying not to rent to startups in San Francisco

#222

Post by [deleted] »

jt2190 wrote: post #186
AlexeyMK wrote: post #158

One solution that is not being discussed is for VCs to offer office space for start-ups. VCs have longer time-horizons (a typical VC fund will be spent over 5 or so years) and appear more stable to landlords. In addition, one of the toughest problems for VCs as I understand is dealflow - when it comes to a super-competitive round, Andreessen or Sequoia will often push other VC firms out of the round by throwing their…

Wouldn't this distort the VC's portfolio? Institutional investors give VCs their money to put into high-risk, high-reward investments, not real estate leases. How would they justify this?

[deleted]

Re: Landlords are trying not to rent to startups in San Francisco

#223

Post by andreyf »

jt2190 wrote: post #186
AlexeyMK wrote: post #158

One solution that is not being discussed is for VCs to offer office space for start-ups. VCs have longer time-horizons (a typical VC fund will be spent over 5 or so years) and appear more stable to landlords. In addition, one of the toughest problems for VCs as I understand is dealflow - when it comes to a super-competitive round, Andreessen or Sequoia will often push other VC firms out of the round by throwing their…

Wouldn't this distort the VC's portfolio? Institutional investors give VCs their money to put into high-risk, high-reward investments, not real estate leases. How would they justify this?

Institutional investors give VC's money part of which their investees then put into real estate leases anyway. Cutting out the hassle for the startup that should be focusing on product seems efficient in more than one way.

Re: Landlords are trying not to rent to startups in San Francisco

#224

Post by chvid »

I am going to ask a really stupid question and then run for the hills.

The article goes "low cost of capital", "5 year lease", "startups struggling to get their offers accepted by a landlord", "large security deposits" ...

Why don't these wellfunded startups just buy their own office buildings?

Re: Landlords are trying not to rent to startups in San Francisco

#225

Post by op00to »

ebiester wrote: post #207
jerrac wrote: post #123

Earlier quoted context omitted.

I wish people would do that. I know when I see jobs that interest me, they're almost always in SF or NYC. Neither location is somewhere I'd flourish. Seriously, what is the actual appeal of SF? I just don't see it.

It depends on who you are. Consider someone who likes walking to work, groceries, and everything they need; hates driving and owning a car; loves having top caliber arts and entertainment; feels more alive living in a place where people are on the street; and enjoy an evening walking bar to bar drinking with friends and not having to worry about a DUI on the way home, cities offer a lot. That is Boston, Manhattan, an…

And Philadelphia. And Portland ME. Even Burlington VT. The list goes on. All of these places have lower costs of living than NY, SF and Boston.

Re: Landlords are trying not to rent to startups in San Francisco

#226

Post by thedufer »

crdb wrote: post #206
superuser2 wrote: post #109

Earlier quoted context omitted.

Even if it doesn't fail and turns into a unicorn, its space needs will rapidly increase and it will still want to move on to bigger and better offices. The entire point of a startup is to not stay its current size - either it will grow wildly or disappear altogether. If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business.

Whatsapp? Instagram? Headcount != success.

Avoiding revenue does seem to be a good way to "grow" sans headcount growth, but that seems like a rare exception to the rule rather than a reason to believe that valuation growth doesn't generally correlate with employee count.

Re: Landlords are trying not to rent to startups in San Francisco

#227

Post by sib »

scarmig wrote: post #173
fredkbloggs wrote: post #137

Earlier quoted context omitted.

Which is likely. Echoes of the eurozone here for sure; SF probably needs 8% interest rates but even 0% is doing very little for the Rust Belt and other perennially depressed regions. Now, the eurozone critics think the problem is lack of fiscal union, but the US suggests it goes a lot deeper than that.

In principle, couldn't the issue be too few fiscal transfers? I.e. San Francisco should be paying even more into the federal coffers, to be redistributed even more to Alabama and New Mexico? Or, thinking about the other direction, even restricting ourselves to within California San Francisco and the Bay Area single-handedly pay for a massively disproportionate part of state government services and redistribution. Per…

See Tim Draper's proposal for splitting California into 6 separate states: https://en.wikipedia.org/wiki/Six_Californias

Re: Landlords are trying not to rent to startups in San Francisco

#228

Post by brudgers »

AlexeyMK wrote: post #158

One solution that is not being discussed is for VCs to offer office space for start-ups. VCs have longer time-horizons (a typical VC fund will be spent over 5 or so years) and appear more stable to landlords. In addition, one of the toughest problems for VCs as I understand is dealflow - when it comes to a super-competitive round, Andreessen or Sequoia will often push other VC firms out of the round by throwing their…

I once heard a story that Disney spent twenty years and several billion dollars on developing Celebration and made about as much money as one of their third tier animated movies...something in the 100 million dollar range. Which may or may not be true, but it does accurately portray the long time horizons of real-estate (e.g. thirty year mortgages) and the relatively low returns compared to startups.

For a VC firm the real-estate market and rising rents have a limited effect on the success of their investment portfolio and the returns from real-estate don't justify investing money that could otherwise be put into their core business of investing in startups. A $100,000,000 can fund a lot of startups. It's not going to buy a sound diversified portfolio of San Francisco office properties.

Re: Landlords are trying not to rent to startups in San Francisco

#229

Post by crdb »

austenallred wrote: post #209
crdb wrote: post #206

Earlier quoted context omitted.

Whatsapp? Instagram? Headcount != success.

Growth in users or revenue does not always cause growth of headcount, but they are definitely correlated, especially in organizations with sales teams.

Of course, but I was countering the OP's point that "If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business."

I agree with pg's definition of a startup as being about growth (in the eponymous essay). In users, not headcount, in revenue, not funding. Even if there are many cases where one drives the other, targeting headcount growth and fundraise amounts as success KPIs is an instance of the https://en.wikipedia.org/wiki/Cobra_effect.

Re: Landlords are trying not to rent to startups in San Francisco

#230

Post by brudgers »

ChuckMcM wrote: post #10
fredkbloggs wrote: post #3

This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's n…

Agreed, many landlords seem to feel like the trouble is a mere few months away, although often any attempt at getting them to discuss how they arrived at that conclusion gets something like "I just know it." So one wonders about the whole "wisdom of the crowds" or "herd" in this case, and whether or not they can sense something that isn't showing up in other indicators. I've been looking but other than the extensivel…

The REIT's that own Class A space are conservative. This reflects the investment goals of the institutional investors whose money they hold. Real-estate time horizons are long term in order to span across market cycles and because of the underlying nature of the asset. Real property really is different.
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