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How Mark Zuckerberg's New Home Could Affect Facebook's Valuation

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KEEPIN' IT REAL ESTATE
DailyFeed
The San Jose Mercury News is reporting that Facebook CEO Mark Zuckerberg has purchased his first home, a "large house in Palo Alto that is a 10-minute drive from what will soon be Facebook's new corporate campus in Menlo Park."

Reporters Mike Swift and Pete Carey write:

While the subject of the Hollywood hit "The Social Network" isn't expected to move in for several months, his new home in a leafy and affluent Palo Alto neighborhood has more than 5,000 square feet, with a saltwater pool, a music alcove and five bedrooms for when friends and family of the Facebook founder come to visit.

Sources close to Facebook confirmed that Zuckerberg bought a house in Palo Alto, but declined to say which one. The real estate transaction did not close under Zuckerberg's name. However, public records requests revealed a trail of clues leading to a property purchased for $7 million. This newspaper is not printing the address because of concerns for the privacy of the sellers, who still live there, and Zuckerberg.

But the RealEstalker has no qualms about providing a bit more information about Zuckerberg's new digs:

The turn-of-the-century residence, set well back from the street behind walls and privacy hedges, was originally built in 1903 and remodeled and expanded over the years.

A wide rocking chair porch leads to and impress-the-guests entrance hall and reception area, a formal living with fireplace, banquet hall sized dining room, wood-paneled family room with built-in cabinetry and a large center-island kitchen that opens into a glassed-in sun porch. The master bedroom includes a bathroom with twin Carrera marble topped vanities, separate soaking tub and shower and heated floors for tootsie warming on those chilly and damp NorCal mornings.



Jessica Guynn of the Los Angeles Times thinks that, "even with this big purchase, Zuckerberg is still living below his means." Which is good news for current Facebook investors and future shareholders, if a Facebook IPO ever actually comes to fruition.

Why?

In 2007, Cornell professor Crocker Liu (then at Arizona State) and New York University professor David Yermack released a study called "Where are the shareholders’ mansions?" which found that “Future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates.”



"We find that CEOs who acquire extremely large properties exhibit inferior ex post stock performance, a result consistent with large mansions and estates being proxies for CEO entrenchment," they wrote. Further, "CEOs in the largest homes underperform their counterparts in the rest of the sample, with the difference in performance lying in the range of -7% to -9%, depending on the performance metric chosen."

Does their thesis hold up? Seems to.

Here’s Apple’s performance over the past two years:



Not too shabby.

And here’s Apple CEO Steve Jobs’ house, on Waverley Street in Palo Alto -- not far from Zuckerberg's new pad:



Very nice, but still well within the means of a man worth $8.3 billion.

How about Berkshire Hathaway (BRK-A) founder Warren Buffett, who lives in the same Omaha house he bought in 1958 for $31,500?

Here's the house:



And here's what Berkshire's done for the past 24 months:



On the other side of the square-footage/stock performance ratio?

Let’s take a look at the Blackstone Group.

CEO Steve Schwarzman and his wife live in a $30 million, 35-room, 20,000 square-foot Park Avenue triplex with a gym, steam room, sauna, billiards room, screening room and servants’ quarters that include their own dining room, three bedrooms and two baths.

And here’s what Blackstone’s done since its IPO in June, 2007:



Not overly impressive.

Of course, a stock can go sideways if the people at the top live on opposite ends of the spectrum.



While Bill Gates resides comfortably in a $140 million, 66,000 square foot property, Microsoft CEO Steve Ballmer lives in a more modest 4,100 square foot home valued at about $8 million.

Though Ballmer still seems to be a bit anxious about something. Could it be the mortgage?

POSITION:  No positions in stocks mentioned.

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