Article by Sharon Simonson
Texas Instruments Inc. of Dallas will sell its 242,000-square-foot building and 18 acres in Santa Cruz as part of its decision to close the semiconductor manufacturing plant it got in 1996 when it purchased Silicon Systems Inc. from its Japanese parent.
Texas Instruments spokesman Matt McKinney says the company will market the property itself and to try to sell as much of the manufacturing equipment inside to whoever buys the property.
"We're not trying to sell it like a typical real estate deal. All of the equipment and so forth is going to be under consideration," he says.
A company news release notes that most semiconductors made at the plant are used to make computer hard-disk drives. About 600 people work at the plant, which is to be closed in phases through the end of the year.
Odds are high that a buyer will not be a local operation but will be a company that wants to continue using the building for chip manufacturing, says Matthew Shelton, a commercial real estate broker for J.R. Parrish in Santa Cruz.
"This building is so tenant-specific, so much of its value is in its chip-fab processing equipment, that I don't see it" being put to other use unless Texas Instruments becomes desperate, he says.
As a semiconductor manufacturing plant, the building has a sales value of something like $300 per square foot, he estimates. A purchaser wanting to convert it to office or research and development use would have to invest $50 or more per square foot in addition to the purchase price, meaning that Texas Instruments probably would have to take a hit on the sale, he says. In addition, the plant's location isn't terribly convenient to San Jose or to Santa Cruz.
Study aims to link stock, real estate values
So what's the relationship between stock values and real estate values, anyway? It may have changed in the last decade or so, as equity ownership has expanded beyond the upper classes.
"In the past, stock ownership was concentrated among a small percentage of wealthy households, so volatility in equities had a direct impact only on these households. Stock ownership is far broader today," notes Chris Redfearn, an assistant professor at the Marshall School of Business at the University of Southern California Mr. Redfearn specializes in real estate.
Now, he and other economists are watching to see if the recent declines in equity markets will reveal new links between housing prices and stock values caused by that greater stock ownership.
A September study by two economists at the Federal Reserve Bank of San Francisco seems illustrative. In it, John Krainer and Fred Furlong reported what they felt was a pretty firm tie between the rapidly rising stock prices of Bay Area-based companies with their option-rich employees and escalating housing prices in the region. Constraints on new housing supply also play a significant role, they say.
They found that tech jobs nationally were concentrated in California, especially in the Bay Area and especially in Santa Clara County, which had the state's largest concentration of high-tech jobs at 28 percent of all nonfarm payroll jobs.
In the five years before the study appeared, the market capitalization of Bay Area high-tech companies grew 470 percent, they found. Meanwhile, the median house price in Santa Clara County rose 70 percent to $554,550 just from January 1998 to September 2000.
"A 10 percent increase in the market valuation of local high-tech firms leads to about a 1 percent to 2 percent increase in house prices over two years," they conclude.
With the Nasdaq's and Dow's recent plummet, a contraction seems certain in the market capitalizations of Bay Area high-tech companies. The question is whether housing and perhaps commercial real estate prices will follow.
"The next couple of years are hard to forecast," Mr. Redfearn says. "We're going through a period of adjustment. Many of the characteristics that made Silicon Valley unique are still in place, but until the market sorts out what the fundamentals are, how the market will value them is anyone's guess.
"I don't anticipate the real estate market, residential or commercial, going into steep decline. But Silicon Valley went from being a slow suburb to being one of the top real estate markets in the country. In the same way that the Nasdaq's recent rise wasn't sustainable, neither was that."
Copyright 2001 American City Business Journals Inc.