I: THE PENTHOUSE VIEW
On a recent Friday morning, at the end of a week in which the dollar has continued to sink, stocks have fallen deeper into negative territory, and a widely watched measure of leading economic indicators has slipped, I find myself south of Market, headed clear in the other direction: straight up, higher and higher, into a realm where concerns over whether we’re actually in a recession seem too mundane to matter.

I am riding the elevator at One Rincon Hill, the 64-story residential development located on the former site of the Bank of America clock tower, eager to soak in a panorama of the city and try to make sense of a gnawing question: If the economy is tanking so badly, how come all of these seven-figure condos are being snapped up so quickly?

Ann Dykstra, the building’s sales manager, confides that she’s been wondering the same thing. “I get up and read the paper and think, ‘Oh my goodness.’ But then I get to work”—and, well, the last of the contracts for the all-but-sold-out building just keep rolling in: $1.3 million for a 1,300-square-foot, two-bedroom spread on the 16th floor, $2.2 million for a three-bedroom, three-bath pad on the 29th. (The condo fees, on top of those prices, average about $850 per month.)

When the sales center opened at One Rincon in the summer of 2006, 90 percent of the 376 units were bought up in just 10 days. Since then, a dozen or so have come back on the market—but every time, Dykstra says, they’ve resold for more than they fetched before. “It’s just remarkable. We’re raising prices, not lowering them.” Of the last 15 people to make a purchase, she points out, about a third paid cash.

Last fall, Jim Meehan scored a two-bedroom condo on the 59th floor, over­looking AT&T Park, after the original purchaser backed out. The Google software programmer, who plunked down “way upwards of $1 million” for his unit, realizes that he paid more than the previous owner. “But what’s the point of fighting about it?” he asks. “You expect the price to go up.”

Nor does Dykstra anticipate the situation changing much when the 292 condos in the 52-story second tower, scheduled for completion in 2010, go up for sale. They’re bound to be more expensive still—perhaps by as much as 20 percent, she says.

Dykstra and I arrive at an empty condo on the 27th floor, so I can see for myself

how residents at this rarefied level are going to live. We yank off our shoes, so as not to scuff the dark-stained oak floors inside. Just 837 square feet, this unit is among the smaller ones in the property—but like all the others, it comes complete with Bosch and Sub-Zero appliances, custom Italian cabinetry, and access to other top-of-the-line amenities, such as valet parking, concierge service, a swimming pool, a spa, and a fitness center.

Dykstra is confident that she’ll be able to get more than $1 million for the place, no problem. It’s one of the few remaining units for sale, and it has a lofty enough perch to offer a stunning vista of the San Francisco skyline. “This is a view,” Dykstra says, “that people seem willing to pay anything for.”

And because they can, they are.

II: 50,000 MULTIMILLIONAIRES AND COUNTING
When it comes to wealth, the Bay Area has long been characterized by bouts of boom and bust: Folks make a mint overnight, only to see it vanish just as rapidly. This was the story with semiconductors in the 1960s. For many, the same dramatic rise and fall was repeated during the ’70s and ’80s in computer hardware. Then there was what Internet pioneer Halsey Minor, cofounder of CNET Networks, has called “the mother of all cycles”—the dot-com explosion of the late ’90s and the catastrophic crash of 2001.

But what the scene from the 27th floor at One Rincon suggests is that this time, an unprecedented number of the Bay Area’s wealthy may escape the usual roller-coaster ride. These people are rich now, and they’ll be rich when the latest economic downturn has run its course. In fact, many of them may take advantage of this slack period to become even more prosperous, as they gobble up equities and other assets on the cheap.

To be sure, plenty of fortunes will disappear in a puff of smoke, just as they always have; that’s the nature of the area. Yet what seems to have happened since the dot-com crash is that those who have made it big now have a much less tenuous hold on their money. “There was a tech boom. There was a tech crash. But fundamentally…the wealth here has steadily grown, year in and year out,” says Deborah Shore, who runs Wach­ovia’s western wealth-management division out of

San Francisco. Adds Warren Hellman, one of San Francisco’s best-known financiers: There’s now “a base of wealth with a certain stability” that was absent before.

The sheer size of that base is staggering. One research outfit, TNS Financial Services, estimates that more than 265,000 households in the Bay Area—or greater than 10 percent—now boast a net worth of $1 million or more. (This doesn’t include home values.) A full 1 percent, the company figures, enjoy a net worth of $5 million or more. Another research firm, Claritas, counts more than 50,000 households in the region with $2 million or more in liquid assets—that is, money in checking and savings accounts, stocks, and other investments that are easily redeemable. (Homes and pensions aren’t included.)

That amounts to about 2 percent of all households here having a couple mil at their disposal—a statistic that makes for a greater density of wealth than exists in New York, Los Angeles, Chicago, Philadelphia, Dallas, Boston, Atlanta, Houston, or Seattle. (By this yardstick, only the Washington, D.C., area trumps San Francisco and its surroundings.)

Climb up the ladder, and the trend is even more pronounced. Forbes lists 47 Bay Area residents among the world’s 1,125 billionaires. The roster includes examples of new money, like Google’s Sergey Brin and Larry Page; old money, such as Oracle’s Larry Ellison; and really old money, like William Randolph Hearst III. But even more striking is the magazine’s separate catalog of “billionaire cities” around the globe. There, San Francisco ranks eighth; 19 of its residents have an average net worth of $3.1 billion apiece. What’s more, look at every other city on the list: Moscow, New York, London, Istanbul, Hong Kong, Los Angeles, Mumbai, Dallas, and Tokyo. They’re all larger—in most cases, much, much larger. For instance, Los Angeles, with 24 billionaires, has a population five times greater than San Francisco’s.

III: NEW RIVERS OF MONEY
That all these people, whether millionaires or billionaires, appear better positioned than ever to hang on to their riches reflects several things. Perhaps most important, the Bay Area sits at the confluence of three widely acknowledged trends that have created—and will continue to create—a colossal amount of wealth in the 21st cen­tury. Even if one of these engines falters, the other two can continue to churn.

For starters, there’s globalization. Picture, for example, the scores of U.S.-educated Chi­nese

nationals who return to their native country and, in the words of a study by the Bay Area Economic Forum, wind up shut­tling between the local region and greater China “to build and run companies…creating wealth for founders and investors…on both sides of the Pacific.”

Next up is the proliferation of high-octane financial instruments. One database I scoured indicates that the Bay Area is now home to about 75 active private-equity firms and some 400 hedge funds—tributaries of what Robert Frank, author of the best-selling book Richistan, describes as a “river of money” that flows from country to country and “has supercharged the process of getting rich.” McKinsey & Co. says that financial services account for 1 of every 14 private-sector jobs in San Francisco—one of the highest concentrations of any city in the country.

The third factor is technology. Late last year, Google alone was reported, over its history, to have handed out stock grants and options worth more than $5 million to each of 1,000 different employees (though the Internet behemoth’s share price has declined since then). And the odds are awfully good that this region will spawn the next Google. The Bay Area Council Economic Institute recently found that in 2006, local companies attracted $9.5 billion in venture capital—an astounding $1,370 per resident. In second place was Singapore, at just $180 per capita. The figure for New York: $107.

Increasingly, this VC money is smart money—or at least smarter money. Investment firms are insist­ing on solid business plans, not the half-baked schemes they would have thrown millions at previously. This raises the odds that they’re going to back a winner. In addition, within the high-tech arena itself, dot-com mania is giving way to a healthier mix of investments in biotechnology, green technology, nanotechnology, and other subsectors, reducing the chances that the bottom can fall out at the same time for so many people, as it did earlier in this decade.

Home prices aren’t going to crater for the really rich, either. That’s because, even amid the mortgage meltdown, a sufficient amount of demand is still chasing

a very finite supply of high-end housing. In the fourth quarter of 2007, according to DataQuick Information Systems, 17 of the 20 most expensive zip codes in the region saw a year-over-year increase in their median home price.

Add to all this a full generation or two of the would-be well-to-do: engineers and MBAs, fresh out of Stanford and Berkeley, who were exposed at a young age to a culture of entrepreneurship and the incredible riches that can go along with it—and who are now determined (for better or worse) to grab the golden ring themselves. Toss in the Bay Area’s relentless fervor for innovation, and you can start to see how the region’s notorious penchant for boom and bust is giving way to something else: a spectacu­larly large and permanent “overclass.”

IV: NO MORE KOOL-AID
Talk to Bay Area financial advisers, and they’ll tell you that the wealthy have become smarter about how they invest their dough. People, they say, are much quicker to cash out these days if their company goes public. No longer do they leave $300 million on the table in hopes of seeing it soar to $600 million—only to watch it shrivel to $15 million or, God forbid, all the way to zero.

Some entrepreneurs are even pressing to take a significant chunk of the financing that they raise and put it in their own pockets, not into their companies—something unheard-of in the VC universe six or seven years ago.

People “learned from the bubble,” says Jane Williams, the chief executive of Sand Hill Advisors, a wealth-management firm in Palo Alto, where I hung out for a couple of days to better understand the current psychology of the rich. Jim McCaffrey, Sand Hill’s president, puts it like this: “Unless you’re really kind of numb, you’re going to do something different” the second time around.

Take Steve Larsen, the cofounder and chief executive officer of Krugle, a Menlo Park startup that provides a search engine for software developers. He’s hugely enthusiastic about the company, which was launched in 2006, and thinks it has the potential to do very well, both technologically and financially. Still, he’s the first to concede that “you need to temper your belief and enthusiasm” by making the right investment decisions.

Larsen earned this insight the hard way. In the late ’90s, he was a founding executive at Net Perceptions, whose software enabled e-commerce companies to learn about individual customer preferences and make personalized product recommendations. At one point, when Net Perceptions’ stock reached $34 per share, Larsen exercised

a bunch of options. But he didn’t wind up liquidating the shares and diversifying his holdings, partly out of loyalty to the company and his colleagues (“You don’t want to send the wrong signal to the market”), and partly because he believed that the stock would keep going up and up and up. For a while, it did—that is, until it didn’t. By the time Larsen had unloaded his stake, Net Perceptions stock had tumbled to just $1 or $2 a share. For “too long,” he says, “we were drinking our own Kool-Aid.”

Even so, Larsen wound up with a windfall of “a couple million” dollars, which could have salved his wounds somewhat. “And then,” he recalls, “I got a multimillion-dollar tax bill.” The IRS had valued the stock at the original exercise price of $34, blindsiding Larsen and leaving him in the hole. “That happened to a lot of people,” he says. Thankfully, he had already made some decent money at Citysearch, another company he’d helped lead.

More cautious now, Larsen has resolved that if Krugle goes public one day, he’s not going to cling to as much of it as he once might have. “I would diversify a little bit more than I’ve done in the past,” he says.

Actually, he’s already diversified. Larsen is an investor in EB Exchange Funds, a San Francisco firm that emblematizes the “let’s not do that again” philosophy. EB Exchange enables select entrepreneurs to pool their pre-IPO stock, then share in the proceeds from all of the companies’ public offerings, mergers, and acquisitions—while also spreading the risk of possible failure. It was started in 1999 by Larry Albukerk, who founded a venture capital–backed company twice in his own career; based on that experience, he knows all too well the potential folly of having “all your eggs in one basket.” Bent on remedying that, he set up his first fund with 11 participating companies and dubbed it Eleven Baskets LP.

Albukerk says that not everybody gets the

concept behind EB Exchange. Entre­pre­neurs in their 20s still tend to feel invincible, just like in the old days. “It’s the young guys who say, ‘Why do I want to diversify? I’m going to the moon,’” Albukerk explains. But those who are more seasoned instantly see the wisdom in what he has assembled. “Ours is really a product,” says David Lipa, an EB Exchange vice president, “built on the misfortune that so many had during the bust.”

V: ANYTHING BUT BORING
For all that has changed since the bust, much about the Bay Area’s entrepreneurial culture has stayed the same: the unremitting focus on what’s next, and the notion that failure is expected—even rewarded (better to go for it and blow it than not to try at all).

But perhaps the region’s greatest edge stems from an odd tendency among the rich here: They’re apt to keep on striving, even after they’ve pocketed their millions. One wealth counselor, who has clients on both coasts, says the difference is glaring. In New York, there’s a lot of “leisure wealth,” or dilettante wealth. But out here, it’s a bunch of “serial entrepreneurs. People just don’t relax,” she says.

In a small conference room at Sand Hill Advisors, I met one of these restless souls. Clint Ostrander, who had come in to review his portfolio, is a classic Valley guy, almost to the point of cliché. (If you recognize the last name, it’s because his son, T.C., played quarterback at Stanford last season.) He started as an entrepreneur and is now an angel investor, sifting through about 15 business plans a year—in biotech, medical devices, real-estate development, national security, and more.

In all, about a quarter of Ostrander’s money is wrapped up in these deals. The risk is high: Three of the companies he had invested in went belly-up last year. But the payoff can also be fantastic. Overall, Ostrander says, the annual return on his private-equity portfolio has averaged 20 percent or more since he started it in 2001, thanks mainly to a real-estate investment trust that has performed particularly well.

Ostrander’s early business ventures reflect the same gutsiness. The 60-year-old began his career as a Stanford medical researcher, detecting disease by monitoring the gases found in the breath of premature infants. In the early ’80s, he struck out on his own, looking for a way to commercialize his know-how. While juggling his day job as a biotech executive, Ostrander formed Trace Analytical. From his 10-by-12-foot garage—where else?—he began assembling gas-monitoring equipment with a couple of contract employees. Over time, he found his key customers: computer-chip makers who were anxious to uncover molecular contaminants in the high-purity gases used in fabricating silicon wafers.

In 1997,

Ostrander sold Trace Analytical to an Italian multinational for more than $10 million. He stayed on under contract for four years, then cut his ties completely. That left him, he says, with “not a ridiculous amount of money, but comfort money.”

For a while, he invested in stocks, but that was too passive and boring. “Playing golf forever isn’t actually that much fun,” he says. “At the end of the year, you look back and think, ‘What have I done?’” When the market swooned in 2000, Ostrander also found that he was at the mercy of the bears. “I saw about 25 percent of my portfolio vaporize,” he says.

Yet even when the market was going up, following stocks was nerve-racking. This was especially true for someone like Ostrander—and I suspect it’s the same for many in the Valley—who is so technologically inclined. “I don’t understand emotionally driven things,” he says. By being an angel, he adds, “I’ve started having fun again”—and, only semi-coincidentally, getting richer along the way.

VI: “SHOW ME THE UPSIDE!”
One evening after work, David Lipa and I got together in San Francisco’s financial district for a few beers.

I wanted to better understand the new investment world that the 23-year-old EB Exchange vice president is part of. This burgeoning group, historian Kevin Starr had told me, “wants San Francisco to be a big-time city because they see themselves as big-time, as wealth creators, as masters of the universe.”

The discussion, though, quickly turned in a different direction. Between swigs, David unloaded, painting a picture of narcissism and hedonism that, he says, is easily masked by the Bay Area’s geeky persona. “People are like, ‘My intelligence is more important than my bank account. I care about the environment.

Look, I drive a Prius.’” But in actuality, he says, “this place is as acrimonious as anywhere else; family structure is just as decayed as anywhere else.”

Without a doubt, money can be corrosive. There’s a real challenge in “raising children with middle-class values in an upper-class lifestyle,” says Kristi Kuechler, senior managing director at the Institute for Private Investors, an educational and networking group for the wealthy. “At what point do you not fly first class or on your private jet? How do you make them do chores?” During David’s teen years on the peninsula, at the peak of the dot-com era, such inno­cuous questions were the least of it. Sickness and self-gratification, he says, swirled around him: “rock-star lines of cocaine”; all-nighters stoked by Adderall; anorexia and bulimia among the girls; rampant misogyny among the boys. Once, he says, he turned down $5,000 to take the SAT for a second-rate student whose parents were willing to do practically anything to get him a good score.

Richard Walker, a geography professor and the chairman of UC Berkeley’s California Studies Center, isn’t surprised by any of this. A certain number of people have always gotten rich in Silicon Valley, he says. But in the 1990s, a transformation occurred: “A nerd paradise blossomed into an unbelievable volcano of money.” Where the technological wizardry used to be what everyone concentrated on, “it became more about wheeling and dealing.”

After David and his buddies graduated from the best colleges—he’s a Stanford alum—most of them went to work at either big-name financial houses or white-shoe law firms. But within a few years, they all quit when it dawned on them that they’d have to work their tails off for the next decade or more—and then what? Maybe they’d be bringing home $1 million annually?

“We all said, ‘Ha! Show me the upside!’” David recalls. And so they became entre­preneurs. “There’s a sense among us,” he says, “that if you haven’t taken a leap of some kind, you’re not the real deal. You don’t really belong here.”

Even when David isn’t making money, he’s writing about it. The novel he just finished—his first—is set in the opulent universe of his childhood. Called Limited Partnership, it opens with a passage about how the protagonist’s father and his colleague “got new money” by buying up land:

Soon they got much more of it investing in the companies that bought the land—Oracle, Google, and Intel among them. With electric eyes they stuffed gold into the most lucrative balance sheets of a thousand years; they earned 1000x returns; they donned jeans and black polo shirts; they jogged marathons in the hills; they ate organic, grass-fed plums; they became venture capitalists.

David takes his writing seriously, and he hopes to be published one day. But he has no intention of becoming a starving artist to get there. Not even close. “The dream,”

he says, “is to be in the billionaires’ club. That’s what everyone dreams of.”

VII: IT’S IN THEIR BLOOD
Actually, for some, the goal is a bit more modest, though no less passionately desired.

The Bay Area is filled with people like David’s 40-year-old techie brother, Bill, and his 42-year-old wife, Gia, who made a million or so, bought a house, and are still striving to hit it big. I joined the couple for dinner at the Village Pub in Woodside. The pan-roasted chicken with Meyer lemons was terrific. But the best dish came from Gia, who talked openly about what people in Silicon Valley consider real success.

“You’re still a working grunt until you’ve got about $10 million,” says Gia, who has worked for several Valley companies and has channeled her fascination with wealth and culture into a blog called The Digerati Life. “That’s the magic number. You don’t really relax until you get to that point.” An eight-figure net worth may sound like a lot, but as Gia talks about what it would mean in practical terms—a $3 million house in Atherton, private schools for the kids at $25,000 or more a pop, a couple hundred thousand bucks to cover general expenses and not have to work—it begins to sound downright reasonable. (See Where It All Goes.)

Bill and Gia met as young programmers at Oracle, but they didn’t stay there long. Bill left to launch an online gaming company called Outland with two buddies, and for a while during the dot-com boom, it looked as if it would provide the Lipas with a life-altering sum of cash. “Every single one of us thought we were going to be multimillionaires,” Gia says. “We all thought we had it made.” But the IPO never happened, and the corporate acquisition that did materialize delivered only a fraction of the riches the Lipas had once expected. Gia’s own foray into a dot-com startup also went nowhere. Eventually, she and Bill both took regular 9-to-5 tech jobs—and tried to live the salaried life. He was with Electronic Arts; she worked in IT at Wells Fargo. But in 2006, Bill announced that he was ready to start another new company, a product research site called BestInClass.com.

Gia was furious at first. They had two children now, they were making decent money, and the stability seemed important. But Bill persuaded her that the timing was right, partly because all the free software that’s

available online now makes running a startup much cheaper than it was in the ’90s. Besides, Gia says, “he wouldn’t take no for an answer.” A few months ago, Gia quit her Wells Fargo job and went back to freelance consulting while they, once again, risk a lot for the big score.

Why do it? What’s clear in talking with Gia and Bill is that money isn’t their primary motivation. Mostly, they are moved by the chance to do their own thing, outside the strictures of a big corporation, and to create something new. “It’s in our blood,” Gia says.

She speaks for a lot of Bay Area people, yet she is also aware of the complications that entrepreneurship can engender. Go through what experts call a “liquidity event” (what most of us would call winning the lottery)—a public stock offering or a cor­porate acquisition that makes someone a gazillionaire—and, voilà, everyone looks at you differently: spouses, parents, in-laws, siblings. If your brother’s car breaks down for the umpteenth time, do you simply replace it because you have the means? Or will that come across as pompous and patronizing?

Even friendships can become fraught. “I had people I worked with side-by-side, and they became ultrawealthy, and all of a sudden, I don’t see them,” says Gia. “My friends are not necessarily my friends anymore.” She tells of one high school class­mate in particular, with whom she was close. Then came the friend’s husband’s IPO, and Gia found herself taking a backseat—to a stable of horses at the equestrian center.

Ultimately, though, she isn’t too hard on anyone. “We’re comfortable, and we feel blessed with what we have,” Gia says, mentioning their house in the hills of Redwood City.

“This time around, we don’t want to delude ourselves,” she adds. “We’re a little more hesitant about letting our emotions get ahead of us. But we still believe.” If BestInClass.com were to wind up making Bill and Gia wealthy—truly wealthy—“that would be the most thrilling thing in the world.”

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A former reporter and editor at the Wall Street Journal and Los Angeles Times, Rick Wartzman is director of the Drucker Institute at Claremont Graduate University and an Irvine senior fellow at the New America Foundation.

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