California Bubbling?

“Hates California, it’s cold and it’s damp….”

Just back from a week in the San Francisco area and while it was indeed cold (record-setting in 30s) and while it was definitely not damp (the Sinatra lyric was written before the current dry climate spell), the main thing is that the tech start-up economy is frothy in the extreme. Below are some observations, with apologies for their anecdotal nature.

I am not talking “the Valley” per se, although much of the free-floating capital is sourced there.   I am talking the City of San Francisco and its exploding environs of Berkeley and Oakland.  Start-ups in many verticals are gaining significant equity and even debt financing.  I visited one start-up cloistered in a single large room in Oakland with nine-figure financing even though their loft-like space was accessed through an alley and was wracked by periodic construction noise from the vast hole being dug next door.

In fact, Oakland is experiencing the same kind of frenzied build-out (of what was a second-class location) as is occurring on the Boston waterfront.  If you have not seen the Boston waterfront lately, come on down; I am referring to the high rise offices and condos, not just the glitzy restaurant and bar scene, as tech growth demands more space, more close-in housing, and some relief from the inflated real estate costs of Boston and Cambridge.  The same dynamic obtains in Oakland, where the primary geographic characteristic is the construction crane.

Housing in San Francisco has always been foolishly expensive, as has been the case in Berkeley, which is fed by the vast campus and the lack of buildable parcels as the City climbs its way percipitously up the hills.  Oakland was always an “iffy” and somewhat more dangerous location, but now it is buzzing with companies, urban renewal and office and multi-housing construction; downtown looks a lot like the Boston waterfront, with a few restored deco structures blended in for a dash of character.

I have heard debate as to whether VC funding was harder to obtain in Boston than on the West Coast.  That is almost unanswerable as you cannot be sure you have an apples-to-apples comparison as to companies, available technology and the like.  But some people in California are talking that it feels like a bubble out there.  Putting aside the fact that many folks in the San Francisco tech community are too young to have experienced a bubble in their careers, the comment reflects an underlying nervousness in the face of what is clearly a booming environment.

As of this moment, my personal guess is that the safest good investment available is to buy real estate in Oakland; no need to bet on which technology will be victorious, as the pressure on housing and business space seems insatiable.

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