Airbnb IPO could generate billions for the Bay Area. How will housing prices react?

Airbnb unveiled long-anticipated plans to go public Monday, defying concerns that the coronavirus pandemic had permanently hurt its business of short-term rentals and revealing the underlying strength of the San Francisco company’s business.

The stock offering, which could take place as soon as December, will likely make Airbnb’s founders and investors billions and turn many employees into millionaires. While taxes on their windfall and spending by the newly wealthy will bolster state and local coffers at a time when such revenue is badly needed, it is unlikely to cause more than a blip in the already hot local real estate market, observers said.

CEO Brian Chesky had said Airbnb intended to go public in 2020, but the filing was delayed by the pandemic. The company raised $2 billion from investors in April and laid off 1,900 employees in May. Travel rebounded, as did Airbnb’s bookings, with many customers opting for closer-in destinations reachable by car rather than flying to far-off destinations and staying at hotels or resorts.

It was not clear from the filing how many shares Airbnb would offer or the price, but analysts in recent months have estimated that the company may seek a value between $30 billion and $38 billion.

The pandemic hit the company’s revenues hard as travel ground to a halt this year. The worsening spread of the coronavirus was an ongoing risk, the company said in the filing, admitting it might not be able to turn a profit.

Airbnb’s revenue jumped 32% to $4.8 billion in 2019, but it reported a net loss of $674 million that year. The company also lost money in 2018 and 2017.

This year, Airbnb said, revenue fell 32% to $2.5 billion in the first nine months as travelers canceled their plans after the pandemic crippled travel and forced lockdowns around the world. But bookings rebounded in the three months that ended in September, falling by just about a fifth from the same period a year ago and exceeding the level they reached in 2018.

Airbnb said it currently has 7.4 million listings run by 4 million hosts worldwide. Eighty-six percent of its hosts are outside the U.S. and 55% are women, the company said.

The company said it had 54 million guests in 2019 and 5,465 employees as of September.

Chesky, along with his co-founders Joe Gebbia and Nate Blecharczyk, own almost half of the company’s Class B shares, which hold disproportionate voting power. Several provisions in the company’s governance structure allow the trio to wield significant control over the company even after the offering, and they will also hold a significant amount of the company’s outstanding shares.

The company’s thousands of current and former employees also stand to benefit as they exercise their options and sell restricted stock.

But the wealth generated from the offering will add little to the pressures lifting Bay Area home prices, which are already lofty because of low interest rates, limited supply and interest in bigger homes as remote work becomes the norm in many industries.

Airbnb’s initial public offering “might add a little extra pressure to some Bay Area (real estate) markets, but probably nothing measurable as far as price increases,” said Patrick Carlisle, chief market analyst for the Compass real estate brokerage firm.

Another wild card in terms of the offering’s effect on home prices is the pandemic. Airbnb has encouraged employees to make use of the company’s product and work from anywhere during the pandemic, with the bulk of workers not required to show up at the office.

With employees fanned out across the U.S., Carlisle said the effect on Bay Area real estate could be more diluted than if all employees were living within an easy commute of the company’s Brannan Street headquarters in San Francisco.

Also, it’s not clear that the IPO will prompt employees who don’t already own homes to trade up.

“My guess is also that many Airbnb employees already own homes at this point,” Carlisle added.

Large IPOs can have an impact on real estate, particularly near a company’s headquarters.

One study looked at more than 700 IPOs by California companies between 1993 and 2017, looking at home price indexes in a range of locations near a company’s headquarters before and after an offering.

After a filing, the average home prices within a 10-mile radius of headquarters jumped by 1% more than prices on the whole in the same county, the study found.

That increased by an average of less than a percentage point once the company began selling shares, although there was no additional bump to prices after the lock-up period expired and employees could sell off shares.

“We really see a bigger impact when there’s a surprise” offering, said Barney Hartman-Glaser, an assistant finance professor at UCLA who co-authored the study.

Glaser said because the Airbnb offering has been anticipated for so long, its potential impact on real estate may have already rolled through the market.

There were reports last year the company was considering selling shares directly to the market instead of going through an initial public offering. That would have allowed employees to sell shares without a waiting period, as soon as the spring of 2020.

Hartman-Glaser noted that real estate prices may have notched up in anticipation of an event that never materialized.

“Demand is therefore a little bit less than people were counting on,” he said.

The filing comes toward the end of a turbulent year for the company.

In a note to employees announcing the May layoffs, Chesky said the company’s 2020 revenues would likely be half of what the company earned last year.

“In response, we raised $2 billion in capital and dramatically cut costs that touched nearly every corner of Airbnb,” he said, but that was not enough to avoid the cuts.

Those emergency measures may have brought the company back from the brink, but the virus is spreading at an alarming rate and could affect the future health of the company, as the company acknowledged in its filing.

On Monday Gov. Gavin Newsom announced the vast majority of California counties must revert to the strictest purple tier, a level where the virus is considered widespread. Many businesses must close or limit their operations and partial reopening of offices will be halted. In San Francisco, nonessential offices that reopened must close again.

Even with two promising vaccines headed for approval, employees at Airbnb are likely to work from home for the foreseeable future, affecting where they might choose to put down roots and buy homes.

“I don’t see it really having an effect on housing prices in San Francisco proper,” Hartman-Glaser said, noting regions like Lake Tahoe where some tech workers have relocated may see a price bump.

“Given that those employees are distributed all over the state, if not farther, it’s going to be harder to detect,” he said.

The Associated Press contributed to this report.

Chase DiFeliciantonio is a San Francisco Chronicle staff writer. Email: [email protected] Twitter: @ChaseDiFelice

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