Vulnerable San Francisco ignores growing tech bubble talk

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SF-based Twitter's tanking stock is one of a growing number of indicators that the tech industry is a bubble that may burst.

While business and political leaders within San Francisco continue to express optimism that the technology industry will keep growing and filling all the new office space we can build — there’s even talk in the business community about overturning Prop. M, the 1985 measure that placed limits on new office construction — the rest of the world seems more concerned that the latest tech bubble could pop.

That would hit San Francisco -- where 13 percent of private sector jobs are in the tech/information sector, giving just this city more job growth since 2007 than all but three entire US states -- harder than other single city in the world. San Francisco Controller’s Office has repeatedly warned how vulnerable we are to significant drop in tech valuation, even though it has also predicted that this time is different and things seem fine for the foreseeable future.

But with indicators such as Twitter’s rapidly tanking stock, the irrational exhuberance of Google and Facebook paying billions for companies with big ideas but no real business model, and total venture capital investments surpassing levels from the last dot.com crash, San Francisco could be in big trouble.

The May 2 issue of the San Francisco Business Times opens with an article about Ken Rosen, the chairman of UC Berkelely’s Fisher Center and someone who predicted the last dot.com crash when most other analysts throught the party would never end, predicting that half of the tech companies out there will fail in the next two-three years (and that was before Twitter stock fell by 18 percent just today).

“When you’re leasing to these companies, you have to remember half of them are going to go out of business,” Rosen told a gathering of real estate professionals on April 28, according to the Business Times.

Meanwhile, while tech-loving San Franciscans continue to party like it’s 1999, San Francisco city government is still facing big budget deficits because tax-cutting city officials have failed to capture our share of the wealth. And if much of that wealth evaporates, like it did last time, both the overall economic and city finances could take a deep and painful hit.

But hey, at least maybe rents would come down.   

Comments

I can just see Steven just quivering with excitement, anxiously awaiting the imminent tech crash! It will be just like Christmas!

"But hey, at least maybe rents would come down."

But on the bright side, the value of Marcos' condo will plummet as well!

Posted by racer さ on May. 06, 2014 @ 3:20 pm

"San Francisco city government is still facing big budget deficits because tax-cutting city officials have failed to capture our share of the wealth"

Wow. So we have deficits because city officials have failed to capture "our share" of illusionary bubble money.

We all know that the city never ran deficits before Twitter.

The stuff you learn from Steven T Jones...somebody should write a book.

Posted by Guest on May. 06, 2014 @ 4:13 pm

If the city was actually run on the cheap this would go down a little less idiotic. As it is SF is a whirlpool of lost dollars.

The fact that SF is run in a state of fiscal crisis escapes these new comers.

Posted by Guest on May. 06, 2014 @ 5:30 pm

Being that he's in charge of the sinking ship SS SFBG and presided over a massacre of the SFBG's newsroom. Yeah - Twitter needs to come ask Steven Jones about how to build a successful business!

Posted by Guest on May. 06, 2014 @ 4:31 pm

Twitter stock hasn't been doing all that great, but referring to today's 18% drop without mentioning that today was the end of the 6 month lockout period is deceptive.

Roughly 81% of Twitter's common stock became available for sale for the first time today. giving insiders and employees their first chance to cash in.

For the record Twitter had $250 million in revenue in the first quarter compared to $114 last year. After today's plunge Twitter's valuation is $18 billion, roughly what it was at the time of the IPO. As a comparison, Facebook dropped about 40% in its first six month and was subject to SFBG gloating, since that time it has tripled in price.

Readers might consider getting their financial news from a more impartial source than the SFBG.

Posted by Guest on May. 06, 2014 @ 4:49 pm

Not every company tanks 18% when the lockout expires. When Facebook's lockout expired (and I'm no big fan of the company), the stock went up 13%. But Twitter is a turkey. Ed Lee pissed away a huge amount of taxpayer money on it.

Posted by Greg on May. 06, 2014 @ 9:17 pm
Posted by Guest on May. 06, 2014 @ 9:33 pm
Posted by Guest on May. 06, 2014 @ 10:32 pm

And how much money would the city have gotten if Twitter moved its campus to Brisbane? All of nothing is still NOTHING.

Posted by Guest on May. 06, 2014 @ 9:44 pm

Oh...please move to Brisbane...Australia. Actually wherever, but please move...please leave San Francisco.

Posted by Guest on May. 08, 2014 @ 12:34 pm

You made me laugh! I don't mind their presence... just another local attraction for inspired tech's to be!

Posted by Tom on May. 10, 2014 @ 3:41 am

It certainly wasn't a great day for Twitter but every company is structured differently.

The point is, for Steven to not even mention the lockout and just run a picture of a dead mouse...

...exactly how does that type of deceptive "journalism" help anyone?

...and why can't a Progressive writer make his points without being sleazy??

A Progressive writer can't be honest with his readers??? Why not?

Posted by Guest on May. 06, 2014 @ 10:52 pm

One, when I mentioned Twitter, I linked to articles explaining the context of the lockout. But two, most companies don't experience 18 percent drops when their lockouts end (particularly when all the founders and some big investment firms have pledged to hold onto the stock), which clearly indicates a lack of faith in Twitter's financials. My passing mention to Twitter's stock slide -- which began before the lockout and continues today -- just didn't require going into a lockout that you find so significant but I still don't. Clearly, it would have dropped even earlier if not for the lockout. 

Posted by steven on May. 07, 2014 @ 12:49 pm

Twitter has no viable business model moving forward unlike Apple, Facebook, Salesforce, Genentech and Google, hence circle the drain, lather, rinse, repeat.

Ed Lee got all star crossed and genuflected before the elites without even having to be asked to.

Posted by marcos on May. 07, 2014 @ 1:38 pm

Amen....in fact, Twitter is on track to only bring in a billion dollars of revenue this year.

And who uses it? Pope Francis? Barack Obama? The Dalai Lama? The Bay Guardian? David Campos? Vladimir Putin?

BFD.

What possible business model could they build with a billion dollars in sales, a market cap of $17 billion and worldwide brand recognition?

Too bad Ed Lee isn't smart like Marcos.

Posted by Guest on May. 07, 2014 @ 2:09 pm

The city is always hurting for money. There's never enough money to spend. Every public works project runs way over time and budget estimates. Even if you take all the money from the tech tax breaks back, you still wouldn't close the deficit. There's also the possibility some of that money wouldn't exist since some businesses would have left the city. Oh, and the payroll tax is being phased out soon, so it's a bit of a moot point.

But it's not about the money. It's about the lack of competence. The city doesn't seem to be very good about managing its finances, managing projects, or just conducting day-to-day business. It's a giant bureaucracy that seems to be more interesting in serving itself than the people. We spend over $600M on transit - not enough. $160M on homelessness - not enough. We're coming up on a budget of $8B - still not enough.

I would love to see better city services. I'm just not willing to pony up more money because I'm not convinced that the city will spend it wisely. Unfortunately every time there's a boom, everyone runs like pigs to the trough to increase spending. Then we have to slash things during the lean times. It's a never-ending roller coaster. Find a level of city services that most people are happy with, find a sustainable way to fund them.

Posted by robco on May. 06, 2014 @ 5:48 pm

Steve's complaint is that tech money is going to run out and the city will be shit out of luck, so we should have more tech money to support the ever growing government employment bubble.

Posted by Guest on May. 07, 2014 @ 12:03 am

Every higher taxes to support ever higher pay and benefits for the city family.

Consider it a form of welfare for people who otherwise be unemployable.

Posted by Guest on May. 07, 2014 @ 1:16 am

SF should drive out technology companies and go all in on the poverty industry. That's where the job security is, at least for progressive activists, politicians, and SFBG employees. I can even see the anti-chamber of commerce campaign: Hey America, keep your worker bees, send us more poor!

Posted by Guest on May. 06, 2014 @ 5:58 pm

I know that you are being facetious but it is noteworthy that the SFBG is always so risk adverse.

Don't bank on tech because it MIGHT be bubble. Don't bring in the America's Cup because it MIGHT bomb. Don't take any chances, period.

The city is lucky in that is has an adult, prudent risk taker in the Mayor's office. He won't always be right but he is making reasonable choices.

And, yes, we're also lucky in that we have our own personal Steven Colbert in the SFBG editorial office, bringing some levity to our lives.

Posted by Guest on May. 06, 2014 @ 6:22 pm

Now there's an idea, give Steven his own show. I don't think it's so much risk adversity as cheering for failure, as far as America's Cup or the tech industry goes, motivated by petty politics and an us-vs-them-mentality. He'll be right, in the long run, in that most tech companies will fail. Most of any type of startup companies fail in the long run. Its the law of averages. But a few should survive and hopefully San Francisco will be attractive for employers long after.

Posted by Guest on May. 06, 2014 @ 8:27 pm

Jesus Steve, can you please do at least a lick of research before you write posts like this? Twitter fell because the lockup ended. And Twitter, like many, many other tech companies in the region, are seeing huge growth in revenue.

Furthermore, explain this rationale to me: the City has budget deficits because they didn't capture a share of the increased wealth, but yet the city budget is vulnerable to a drop in wealth. So the deficit will happen because the money that the city didn't get will evaporate?

BTW- Ron Conway's citi.gov just announced that they've gotten 75 tech companies to support Ellis Act reform. You going to mention that?

Posted by Dizzy on May. 06, 2014 @ 6:04 pm

San Francisco hasn't had a real fiscal crisis in many years. The few times they have had to cut back, it is from ridiculously high levels of spending. The evil real estate market provides huge tax windfalls year after year and properties are re-assessed at time of sale and large new buildings are built on low-tax-base vacant or under-developed lots.

Posted by Postphunk on May. 06, 2014 @ 6:33 pm

and his superior intellect? Will NO ONE LISTEN????

Posted by Guest on May. 06, 2014 @ 7:34 pm

Everyone here doesn't understand Steven's perspective on tech. He wants tech money and wants more of it to go into city coffers, but he doesn't want the companies here in San Francisco. He also wants the money that tech employees pay into the city, wants more of it, but also doesn't want them to live in the city. He has this fantasy that if the tech companies and techies leave, rents will go down, the city will have a balanced budget, and everything will be hunky-dorey.

Hey Steven... It's not the fault of the tech companies that the city runs a constant deficit. It's a city government that spends 7.5 BILLION dollars a year and cannot balance its budget. You want to know what happens if those evil tech companies leave? Bye bye tech money. Hello more budget deficit. But hey cheaper rent, right? Just at the cost of police (Okay I know you'd be fine with that. Right up until the crime rate skyrockets and we join Oakland as the robbery capital of the country), fire, libraries, social services, nonprofits, schools, Muni, and a whole lot less of your favorite SEIU people.

Posted by Guest on May. 06, 2014 @ 8:06 pm

The Ludites of SF just wish the Technies would let them continue to type on their Underwood typewritters.

Posted by Paul Kangas on May. 07, 2014 @ 12:06 pm

Does he like his porridge too hot or too cold?

Posted by Guest on May. 06, 2014 @ 10:33 pm

Twitter should be a darling for progressives. No technology has ever done such a great job of giving voice to so many people, regardless of economic or social status or nationality. It's the mass democratization of public discourse on a scale like we've never seen. It has even been credited, accurately or not, with contributing to people's movements such as the Arab Spring.

You'd think that SF progressive would be marching on city hall demanding honorary non-profit, tax exempt status for Twitter.

Are they? No. They're too blinded by petty jealousy over the average employee's compensation package (which seems generous, but taken as a whole about on par with a BART manager's).

Progressives are so devoted to the culture of failure and the dropouts from society and an anti-progress, stuck in the 60's mentality that here they are, as Steven is, cheering for failure. The vapid, clown dancing, bus barfing progressive are too preoccupied with the great human rights issue of our time -- who gets to live in SF and who has to go live in Oakland.

God has this movement lost its way.

Posted by Guest on May. 07, 2014 @ 5:45 am

On the SFBG Joe Fitzgerald does posts that are 80% Tweets from various parties.

I don't think that the SFBG has a problem with Twitter as a product, they just don't like the fact that it is a local company the brings in about a billion dollars a year and employs thousands of local people.

Self sufficiency is a real threat to the SFBG vision of how society should be.

Posted by Guest on May. 07, 2014 @ 6:37 am

TWTR down 4.18% as of now after yesterday’s 18% plummet. Fly-by-night get-rich-quick schemes!

Posted by marcos on May. 07, 2014 @ 7:06 am
Posted by Guest on May. 07, 2014 @ 9:58 am

Problem: Hitching San Francisco's future to a company whose stock is tanking.

Posted by marcos on May. 07, 2014 @ 12:16 pm

If you really believe we're in a tech bubble, there's an easy answer: short tech stocks. That way, if Twitter or Facebook or Apple go bankrupt, you'll get rich. Put your money where your mouth is!

(Or, just keep complaining online, which is consequence free.)

Posted by SFRealist on May. 07, 2014 @ 5:56 am

If you really believe we're in a tech bubble, there's an easy answer: short tech stocks. That way, if Twitter or Facebook or Apple go bankrupt, you'll get rich. Put your money where your mouth is!

(Or, just keep complaining online, which is consequence free.)

Posted by SFRealist on May. 07, 2014 @ 5:58 am

@SFRealist - Brilliant idea, if only we had the sort of tech that could travel backwards through time.

Posted by Percival Dunwoody on May. 08, 2014 @ 5:08 pm

If the bubble pops and rents fall, look forward to lower tax revenue. Where would you make big cuts to balance the budget?

Posted by Guest on May. 07, 2014 @ 6:45 am

Perhaps I should have been clearer about what all this means: we need to diversify our economy, as the city economist has called for, and try to avoid letting tech overwhelm everything. If there are tax breaks to be given out, give them to light industry or other businesses that need the support. Take steps to avoid displacing the residents and small business we'll want back when tech shrinks.
Another point: Use the boom to help build things we need, like capital improvements to transit and streets, knowing that a bust is coming. We haven't even used the boom to address our structural budget deficit, let alone establishing rainy days funds like the state is talking about, and that's not smart. Busts always follow booms, that's capitalism, and we're suckers if the city is letting Ron Conway and other big investors sneak off with the money when the bubble pops without seeing to this vulnerable city's needs.

Posted by Steven T. Jones on May. 07, 2014 @ 7:52 am

"Ron Conway and other big investors sneak off with the money when the bubble pops without seeing to this vulnerable city's needs."

Steven, it might help if you could explain how Ron Conway is sneaking off with the city's money.

Are you talking about the tax break on stock options? The one that even Mirkarimi and Campos supported?

Posted by Guest on May. 07, 2014 @ 8:15 am

Repeal prop 13

Create a dozen more parcel taxes...

And then try and attract light industry, baby steps.

Posted by Guest on May. 07, 2014 @ 9:23 am

"We haven't even used the boom to address our structural budget deficit, let alone establishing rainy days funds"

To address our structural budget deficit, we need big spending cuts or big tax increases.

To run a surplus and create a rainy day fund, we need big cuts and big tax increases.

"Use the boom to help build things we need, like capital improvements to transit and streets"

Even more cuts needed.

What spending cuts do you propose, specifically?

Posted by Guest on May. 07, 2014 @ 9:54 am

we should have in SF?

Who shall staff that committee? Avalos? Campos? Harland?

Posted by Guest on May. 07, 2014 @ 10:00 am

What part of "counter-cyclical economic policies" are you not understanding?

Posted by marcos on May. 07, 2014 @ 10:03 am
Posted by Guest on May. 07, 2014 @ 10:32 am

Counter and pro cyclical economics are not planning, they are not prospective, they are reactive, retrospective responses to economic conditions.

Market rate housing up zoning is planning by bureaucrat and the voters are increasingly inclined to shut that shit down.

Posted by marcos on May. 07, 2014 @ 11:09 am

bureaucrats who think they are smart is not a sound idea.

Posted by Guest on May. 07, 2014 @ 11:21 am

Government should insulate existing residents from the vicissitudes of the market.

Posted by marcos on May. 07, 2014 @ 12:18 pm

"Government should insulate existing residents from the vicissitudes of the market."

Good - we can start by capping the amount of money you can make on a real estate investment.

Why should some future purchaser of your condo get ripped off, just because you were lucky enough to buy when the market was low?

Posted by Guest on May. 07, 2014 @ 3:06 pm
Posted by Guest on May. 07, 2014 @ 10:10 am

Agnos says he'll sleep better knowing a bunch of bureaucrats aren't deciding what happens in San Francisco, but he failed to list the drugs I need to ingest so as not to question that level of hypocrisy. Any suggestions, Guys?

Posted by Guest on May. 07, 2014 @ 3:32 pm

Yes. Use the boom to build the thing we need most: More Housing!

Posted by Guest on May. 07, 2014 @ 10:08 am

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