Several companies have recently announced they are moving their headquarters away from the Silicon Valley area. Oracle (NYSE: ORCL) and Hewlett-Packard (NYSE: HPE) have already relocated, Tesla‘s (NASDAQ: TSLA) CEO recently announced that he moved to Texas, and it’s fair to say that there could be more to come.
In this Dec. 14 Fool Live clip from our Industry Focus: Financials show, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss some stocks to avoid and some that could be big winners.
Matthew Frankel: When it comes to real estate, if you look at just office real estate, I would avoid any companies that have outside exposure to California. Boston Properties (NYSE:BXP) is one. Despite its name, it has a lot of San Francisco properties. Ticker symbol BXT. That’s actually the biggest office REIT in the market. But I would look at some of the more localized ones. I know I talk about Empire State Realty (NYSE:ESRT) more than anyone wants to hear me talk about it. [laughs] Ticker symbol on that one is ESRT. They are localized to New York. So if you think that people are still going to want to live and work in New York City, that’s one to look at — a big hold in your mind. I’ll give you two more interesting places that I really like on these exits from California. One is Howard Hughes Corporation (NYSE:HHC).
Jason Moser: Yeah, absolutely.
Frankel: They are a master plan community developer with a particular concentration in Texas. Their flagship master plan community is The Woodlands, in the Houston area. They have a couple of more in the Houston area. They were very beaten down during the COVID pandemic. They also have a big presence in Las Vegas, which is a terrible place to be right now in terms of owning properties. But they’re also very leveraged to the oil industry because of their location in Texas. One of their biggest office tenants is Occidental Petroleum (NYSE: OXY), for example. The oil fears have really beat down property values there. But if now that’s going to become a tech capital, there’s a whole new opportunity to build out their Texas business. A lot of their Texas communities are nowhere near being fully built out yet. So that could be a major catalyst for Howard Hughes going forward if Texas in particular stays a popular destination.
The other one from a residential point of view, talking about the work-from-home trend, Mid-America Apartments (NYSE:MAA). That one is MAA. I think their official name is now MAA, not Mid-America Apartments anymore, but whatever. They specialize in Sun Belt apartment communities. These are cheaper areas, low cost of living for people, if they can work from home and can work somewhere cheaper, usually like markets like Charlotte, Atlanta. They’re cities that people who want city life but want lower cost of living can go. Mid-America Apartments is a really interesting name in that space. So I think just to reiterate, a very California-specific problem. I don’t think if you’re invested in, say, the New York City area or the Boston area or the D.C. area, that you’re going to see these. The Motley Fool is based in the D.C. area. I don’t think they have any plans to go to Texas. [laughs]
Moser: Not specifically. We’re not picking up the headquarters and moving into Texas.
Frankel: Right. It is a tech industry-in-California problem, is the point. So the remote work trend is real. There are going to be a lot of people who work remotely after the pandemic who didn’t work remotely before, which is why I think it can be a real catalyst to apartment communities based in those lower-cost cities. Howard Hughes, big Texas developer, really the only publicly traded company of its kind in terms of being a master plan community builder. Thinking of them as a real-life version of the video game SimCity. They sell some residential land to developers. Those developers put houses there. That adds demand for commercial assets like office buildings, which they build and collect rent on. Those commercial assets make the land around it more valuable, which they’ll sell to builders at higher costs. It’s like a cycle that repeats. It’s a really interesting business model. I highly encourage you to check out the company if you’ve never heard of them. Those are my ways to play the California exit. I don’t think we’ve seen the last of these big companies leaving silicon valley.