More venture capitalists are coming for real estate. Investors More and more investors are coming around to real estate startups and companies that focus on …
Why don’t Silicon Valley venture capitalists invest in dense real estate near public transportation in the East Bay to solve the housing crisis in San Francisco?
Well, why don’t *you* invest in building East Bay real estate?
Your answer is probably, “because I don’t have the money.” Well, the VCs don’t have the money either. The money that they do have was raised from limited partners who gave it to them with the expectation they would invest it in high-growth technology companies. The VCs can’t just take that money and invest in whatever they want. If the limited partners wanted to invest in real estate, they’d have given it to someone else.
Or, your answer might be, “because I know nothing about real estate.” Well, again, neither do they. They do not have the experience nor interest to develop real estate. They are VCs. They are good at being VCs, not at real estate. They aren’t good at surgery or dental hygiene either.
But the good news is that people exist who do have the expertise and can raise massive funds from investors who do want exposure to real estate. These people are called “real estate developers.”
And they do develop plenty in the Bay Area. And they would love to develop more, but there are many limitations to what they can do. Every project they do needs permits from local and state authorities, and they need to follow all of the relevant zoning laws and other regulations. This takes a great deal of time and often is not completely successfully.
In addition, these folks got crushed in the real estate crash of 2008. Many closed up shop and left town, and the pipeline of projects slowed down. It is moving again, but nowhere close to the speed needed to mop up the excess demand. And after three real estate crashes in 20 years (1991, 2001, 2008) the industry knows another crash is always right around the corner. Projects entering the pipeline now could be launched in 2018-2020, and we could be right back in the middle of another recession by then. This is what prevents overbuilding during the good times.
And, many of these communities do not want growth. Real people live there, and they care about their school system, traffic, parking, and open space. And rightfully so. You probably wouldn’t want someone to come build a high rise next to your house just because some other people need a place to live.
This is why real estate developers are just about as high as bankers and Google executives on the hate lists of the noisy people who like to find things to be against.
So we are left with the system we have – many Bay Area communities are growing, and many development projects are underway. However it is not fast enough to keep up with job growth. This is a choice these communities have made – the issue is not lack of capital.