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Doug Smith | Sale could mean more vacancies, lower rent

Citigroup's purchase of the bulk of Wachovia could contribute to an increase in office vacancies in the center city and cause rental rates to decline as new and existing buildings compete for tenants.

The acquisition also has people talking about what will happen to Wachovia's $900 million uptown construction project.

Much of what occurs next will depend on how many of Wachovia's 20,000 Charlotte employees and how much of the bank's operations the New York-based bank decides to keep in the city, real estate experts say.

“What Citigroup is getting real cheap is a bunch of retail branches in the Southeast,” said real estate broker David Dorsch of Colliers Pinkard. “In a growing part of the country, it might make sense for them to leave a lot of stuff in Charlotte.”

Charlotte officials make the argument that it is cheaper to do business here than in large metropolitan areas such as New York. Real estate brokers point out that it is expensive to move operations.

Citigroup hasn't elaborated on how it will combine the banks, but based on past consolidations, local brokers say, Charlotte likely would lose many Wachovia jobs.

“Wachovia is keeping Wachovia Securities and Evergreen Asset Management, so it is hard to tell what the net effect is going to be,” said real estate analyst Melanie Sizemore of Carolinas Real Data.

Wachovia officials said Wachovia Corp. will remain a public company based in Charlotte with two main operating subsidiaries: Wachovia Securities and Evergreen Asset Management.

Wachovia Securities will continue to be headquartered in St. Louis, Mo., officials said.

Some brokers say it's safe to assume more space will come on the market as Citigroup consolidates operations and several new office towers are completed uptown.

“Losing the headquarters presumably will have some kind of impact,” said real estate analyst Frank Warren of Warren & Associates. “Clearly there will be some excess space that will have to be absorbed in the market.”

Real estate broker John Culbertson of Cardinal Real Estate Partners said the biggest impact could be on older, so-called Class B buildings.

If more than 3 million square feet of new Class A space comes on the market as anticipated over the next couple of years, he said, developers likely will drop rental rates to fill vacant space. That likely would lure tenants from older buildings.

The uptown vacancy rate has hovered around 2 percent in recent months. Even before Monday's announcement of the Wachovia sale, Dorsch's firm was projecting an increase to 8 percent by 2010 as Wachovia and Bank of America vacate more than 750,000 square feet of leased space to occupy their new buildings.

Wachovia occupies nearly 2.8 million square feet in eight uptown buildings and had planned to take up to half the office space in its 48-story, 1.7 million-square-foot building under construction at Tryon and Stonewall streets.

Dorsch said Wachovia officials decided to give back some of that space even before the merger talks began.

Speculation swirled Monday that construction might halt on the tower and the cultural facilities in what the bank calls its cultural campus.

But Wachovia spokesperson Carrie Ruddy said the bank remains excited about the campus and its benefits.

“It is far too early to speculate on what impact– if any – today's announcement will have on the project,” she said.

Deputy city manager Ron Kimble said the city expects the complex to be completed. In an arrangement between the bank and city and county governments, Wachovia is constructing four arts facilities – two museums, a theater and a cultural center.

Kimble said a 2006 agreement includes protections for the city if Wachovia were sold and incentives for the bank or a successor institution to finish the project. Once completed, the city would buy the four facilities at an agreed price of $126.9 million.

“We remain very hopeful and confident that these facilities are going to be completed,” said Kimble. “We have no reason to think otherwise even in light of this acquisition.”

Staff writer Richard Maschal contributed.

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