Economic Update – Citigroup Renovations Inspire Grumbles

It’s a mark of the times that a corporate real estate property management story is headline news, namely the report that Citigroup Inc. plans to spent about $10 million for executive office renovations. In ordinary times, that would be as newsworthy as the paving of a side street in lower Manhattan, but the backlash over corporate excess has put such expenditures by bailout beneficiaries under a high-powered microscope.Citigroup was quick to issue a statement about the renovations: “Senior executives in our corporate headquarters are moving from two floors to smaller, simpler offices on a single floor,” it said. “Based on estimates made when the project was initiated, we expect to generate savings in the next few years well in excess of the project costs.”Bloomberg has reported that the plans include one Sub Zero brand refrigerator and icemaker, “premium grade” millwork and open areas with “soft seating.” If Citigroup isn’t careful, it could face a 90 percent federal tax on the contents of the refrigerator.Overall, the bank plans to vacate about 10 million square feet of its office space around the world as it sheds 52,000 jobs. To put that in context, that’s not quite three Sears Towers’ worth of space, and enough people to fill Wrigley Field with about 10,000 left over.Despite same-store sales that increased 4.4 percent in the fourth quarter of 2008, compared with a 0.9 percent decline during the same quarter in 2007. Blockbuster Inc. nevertheless has reported a $362.7 million loss, or $1.89 a share, due to a $435 million non-cash charge reflecting a decline in the value of its assets. The video chain also said that three of its major creditors had agreed to extend its revolving credit facility through the third quarter of 2010, or about a years’ extension.On Wednesday, MDA DataQuick reported that the median home price in the San Francisco Bay Area, long the poster child for irrationally exuberant increases in shelter prices, now stands at $295,000, down 46 percent from a year ago. MDA DataQuick, a part of Richmond, British Columbia-based MacDonald, Dettwiler and Associates Ltd., noted that the steepest drop in the region was in Contra Costa County, northeast of San Francisco, where the median is down 52 percent to $216,500. Foreclosure is a major factor in driving down prices in Contra Costa County and in the rest of the Bay area, for that matter. More that 65 percent of all existing houses sold in the Contra Costa County in February had been in foreclosure sometime during the previous year.The equity markets seem to have reacted with a little trepidation about the Federal Reserve going all Rambo on the economy (to paraphrase economist Richard Hoey, chief economist at Bank of New York Mellon Corp.) by buying $300 billion in Treasuries and doubling mortgage-debt purchases to $1.45 trillion. The Dow Jones Industrial Average was down 85.78 points, or 1.15 percent, while the S&P 500 lost 1.3 percent and the Nasdaq was down 0.52 percent.