People carrying boxes walk past Chocolate Covered candy shop in the Noe Valley district in San Francisco, California November 21, 2011.
People carrying boxes walk past Chocolate Covered candy shop in the Noe Valley district in San Francisco, California November 21, 2011. Reuters

Adam Holm has been looking to sell his three-bedroom Victorian house in San Francisco's Potrero Hill neighborhood all year, but he needs one thing to happen first: gaming-company Zynga's initial public offering.

It seems foolish to put it on the market before when there are a thousand people down the street who are about to make a million dollars, said Holm. His place is within walking distance of Zynga's headquarters, and he expects prices in the neighborhood to rise significantly in the wake of the IPO.

Holm, now working as a carpenter after being laid off as an architect, is taking in roommates, living in the basement and fixing the place up as he awaits what he expects will be his own IPO payday.

The IPO-driven real estate strategy is suddenly a common one in San Francisco as companies including Zynga and the review service Yelp prepare for public offerings. With the rise of secondary share markets that enable some employees of pre-public companies such as Facebook and Twitter to cash out, moreover, even the promise of an IPO is helping to drive residential real estate activity.

San Francisco had already enjoyed a healthier housing market than most places. But the competitive bidding in some city neighborhoods recently has taken real estate professionals by surprise, with prices up more than 15 percent from last year in some areas.

(For an interactive graphic on residential real estate prices in San Francisco, New York and Los Angeles, click here)

BEATING THE RUSH

Fear of a new wave of IPO millionaires has Patrick Streule, a 38-year-old engineering manager, on the hunt now.

This past Sunday he was checking out a $1.1 million property with beamed ceilings and sweeping views in San Francisco's Noe Valley neighborhood -- and evaluating the competition.

The people who started working early on, they have a lot of stock options, fretted Streule. He stood next to lush plants in the Japanese-inspired courtyard of the house as prospective buyers in their 20s and 30s streamed by him.

Streule worries that he's after the same type of house that will appeal to IPO beneficiaries -- a modern, open-plan home in the southern part of town that's convenient to the city's tech hub south of Market Street and also close to the freeways, trains and employee shuttle-bus stops that whisk commuters to Silicon Valley.

In Noe Valley, average prices per square foot for the three months through October are up 5 percent over last year, according to real-estate search company Trulia. In South of Market, known as SOMA, they are up 11 percent. In the eastern Potrero Hill district where Holm is hoping to sell to a Zynga employee, they're up 16 percent.

Realtors say well priced inventory in those neighborhoods has grown tight. Silvia Camen, an agent with Coldwell Banker, said she has about a half-dozen clients who have been looking in Noe Valley for six months; earlier this month, one client offered about $100,000 over the $1.2 million asking price for a Noe Valley home, only to lose out to an all-cash buyer.

The median price of a single-family home in San Francisco County was $745,000 in October, up from $735,000 a year ago, according to the San Francisco Association of Realtors. For homes priced at $700,000 to $1.2 million, the supply on the market fell to two months from around four months a year ago.

San Francisco, where prices averaged $522 a square foot for the three months ended October 31, compared with $616 in 2007, is still more expensive than other big cities, Trulia data shows. Prices in the five boroughs of New York averaged $467 in the same time frame, Trulia says, compared to $525 in 2007, while in Los Angeles County they averaged $252, compared to $412 in 2007.

San Francisco is a bit of an anomaly, said Eric Wood, a mortgage broker who works with clients all over the Bay Area and does not see the same level of competition in areas such as Berkeley, where an average house might garner two offers, compared to four in San Francisco, he said.

TWITTER'S NEW DIGS

San Francisco's southern neighborhoods are benefiting not just from the suddenly rich, but also from start-ups increasingly locating in the city rather than suburban Silicon Valley. Employees who like to live near work will drive up residential prices in nearby neighborhoods, the theory goes.

Twitter, for example, next year is set to move into a building on a dilapidated stretch of Market Street near San Francisco City Hall, about a mile away from the company's current digs. By then, it should have around 1,500 employees, the company has said. Zynga, with 2,500 employees, is on Townsend Street, also in SOMA.

Index Ventures, a large European venture-capital firm, just opened its first U.S. offices and opted for SOMA rather than Silicon Valley; partner Mike Volpi says he enjoys being able to walk to many of his portfolio companies.

Even Silicon Valley companies like Facebook and Google (GOOG.O), eager to compete for young employees who often prefer city life, now have offices in the city and offer private transportation to shuttle city residents to the Valley.

The renewed strength in the local housing market has caught even some who work in real estate by surprise. Stephen Rossi, who heads business-services marketing at Trulia, wanted to move out of his SOMA condo and was planning to rent it out, thinking he couldn't sell if for the roughly $760,000 he paid back in 2009.

But when a neighbor with an identical unit across the hall got multiple offers on his place and sold it in October for $800,000 to an employee at a cloud-based software company, Rossi had second thoughts. Rossi sold his condo two weeks ago to a bidder who had lost out on his neighbor's home, also for $800,000, and had backup bids of his own.

The market was stronger than I thought, said Rossi.