realonomics

As the current foreclosure epidemic spreads, REALonomics thinks of it as the global warming of the mortgage sector? In other words, for more than a decade we (RE industry) have failed to properly manage the two related systems of mortgage and real estate home ownership, recklessly allowing a degeneration of their delicate eco systems. Increased inventories, slower absorption, higher interest rates and climbing prices further disrupt the delicate balance.

We are now dealing with a punctured ozone, polluted sky and water. It’s opportunity time but we will have to scramble to clean up our self-induced mess. The REALonomics sub-prime poll seems to clearly indicate what our subscribers and users think the impact will be on the industry.

Once the eco system is disrupted, it’s difficult to clean the swamp, ridding it of the toxic waste that has seeped deeply into terra firma. What follows is an example of how one company plans to engage in the clean up of a disrupted eco system.

Manage Overhead, Manage Profits. Citigroup Inc., one of the nation’s largest financial institution, made an announcement April 11, 2007 that 17,000 jobs (5% of the work force) will be eliminated in order to improve profitability. Draining bloated swamp is the first step in economic clean-up.

Elimination of Bricks and Mortar. In addition, the Citigroup announcement included a statement about its plans to include “shrinking the size of corporate centers” and relocate approximately 9,500 jobs to alternative, lower-cost locations.

Robert Druskin, Citigroup, Inc.’s COO, is the insider who is credited with developing the restructuring plan over the past three months. Druskin, who reportedly told Wall Street analysts to expect Citigroup’s employment numbers to actually grow due to acquisitions and overseas expansion plans. Druskin said, “…that rate of growth will be at a significantly diminished rate.”

REALonomics has gleaned three noteworthy economic principles from the Citigroup adjustments.

1. Technology can (should) reduce manual labor, less bodies, more bytes;
2. Expansion can occur via M&A during downturns, absorb cash flow;
3. Companies can get big by being small everywhere, go horizontal

Owners of real estate companies can mirror the Citigroup actions by creating business models in the current climate that diminish manual systems, replacing them with automated, consumer friendly technologies such as paperless tools.

Secondly, real estate companies have the opportunity to expand through strategic mergers and acquisition in new markets. Many broker/owners are ready to be acquired or merged.

Finally, rather than seeking to improve current market positions, owners should focus some of their business modeling on expansion into new markets without overhead, using networks like e-Partner to grow horizontally.

Clearly, Citigroup is managing the delicate eco system through smart moves that capitalize on the existing market conditions.

Let the clean up continue!

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