Investing in San Francisco Tech Boom

Brian Hicks

Written By Brian Hicks

Posted November 4, 2013

About four unicorns are born every year.

They’re not hoofing their way down some mystical prairie, though – they’re coming from San Francisco.

“Unicorn” is a term being used to describe U.S. Companies founded since 2003 that are valued at more than a billion dollars by private or public investors. They received this title because they’re rare – less than one percent of venture-backed tech startups reach this level.

Yet they’re disproportionately coming from San Francisco, and not Silicon Valley.

One of these rare unicorns, Twitter, moved its headquarters to a 1930’s art deco masterpiece in Mid-Market San Francisco that was unoccupied for more than five years. Now, more than 15 tech companies, including unicorns Spotify, Square, and Yammer, are all moving to the Mid-Market District.

The massive emigration is thanks to a tax incentive from the city of San Francisco that exempts the companies from payroll taxes in exchange for moving to the Central Market/Tenderloin area.

Prior to the influx of business, these neighborhoods were in steep decline and home to some of the highest crime rates in the city.

In the map on the right, the bright red areas have the most concentrated amount of crime, and they are almost exactly the same locations where the city is pushing its payroll tax credit.

san francisco crime map

What’s more, San Francisco doesn’t have many vacancies to spare and rent is extremely high in the ones it does have.

Investment firm Jones Lang LaSalle (NYSE: JLL) declared San Francisco had the lowest office-space vacancy rate in all of the United States, surpassing Houston early in the summer. Over the last five years, vacancies dropped by approximately seven percent.

In 2013, the city was also ranked by Kiplinger as the third most expensive U.S. city to live, behind Honolulu and New York City.

As a result, there is a construction boom taking place in San Francisco right now, where new office buildings and apartment blocks are being erected to accommodate the flourishing tech sector and all the money it promises.

Even non-terrestrial building projects are flourishing in San Francisco. Google has a mysterious 250-foot barge floating in the San Francisco bay which is believed to be a floating data center built from re-purposed shipping containers.

Industrial shipping containers have been supremely hyped as a building material in recent years, since they can be obtained rather cheaply, are mostly water-tight, and are very structurally sound. Architects can use them like giant-sized building blocks that cost between $2500 and $5000 per block.

The use of shipping containers, or indeed using old buildings for purposes they weren’t intended, is known as adaptive reuse. Baltimore’s Power Plant building, located across the street from our offices here at Energy and Capital, is a prime example of adaptive reuse.

The old United Railways and Electric Company, complete with its towering smokestacks, has been everything from an indoor theme park, to a dance club, to an indoor/outdoor shopping mall.

Embracing alternative buildings and building methods, San Francisco’s wealthy unicorns are also likely to invest in alternative energy solutions beyond those weak options provided by Pacific Gas & Electric.

Interestingly, if you were to look at a map of the same section of San Francisco on a solar energy map, you’d see that this section of market street has very few solar energy emplacements.

…And just a couple miles up Market Street, you find the home of Sunrun, the “be your own power company” that received a $1.6 million grant from the Department of Energy two weeks ago.

The grant, part of the DOE’s Sunshot Incubator program, is being put toward developing new workflow software to automate solar design and streamline the process of licensing small-scale and home solar projects.

When we combine the strong presence of new tech companies –often the early adopters of new technology themselves– with a promising new piece of software to simplify solar deployment, and we’re looking at a very favorable situation for new adoption of solar by the visionaries of the American tech world.  Maybe they won’t end up on the roof of Twitter’s vintage office building, but they are certainly perfect for the nearby homes of Twitter employees.

Here’s my tip, If you want to find the big opportunities in alternative energy, heating and cooling, transportation, or hell, even dining and entertainment, follow the unicorns! 

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