Empty Bank Branches Add To Supply In Retail Real Estate
19 August 2009 - 6:09AM
Dow Jones News
The ruins of Washington Mutual's aggressive and unorthodox
growth strategy is no more apparent than in the Windy City, where
roughly 75% of the bankrupt bank's branches have gone dark.
It's a stark harbinger of what looms ahead for
recession-battered retail real estate. A growing number of vacant
branches being dumped on the market due to mergers and Chapter 11
filings are poised to push vacancy rates higher and exacerbate weak
property values.
During boom times, WaMu opened about 170 branches in the Chicago
area. The growth spurt underscored the Seattle company's ambition
to be the Wal-Mart of retail banking. WaMu attempted to build a
presence in "Chicagoland" from the ground up by opening brand new
branches to attract customers. It was a nontraditional strategy
given that banks usually purchase an existing bank or branch
network to expand into new regions.
As WaMu struggled, it shuttered about 60 branches in Chicagoland
before it went bankrupt and was acquired by JPMorgan Chase &
Co. (JPM) earlier this year. Subsequently, JPMorgan Chase closed
about 70 more branches in the area, leaving only 40 of the original
WaMu branches open, a company spokesman confirmed. Nationwide,
Chase has closed nearly 400 one-time WaMu branches.
Similar scenarios are seen across the country as troubled
commercial real estate loans, a brutal recession, a housing
downturn and online banking are forcing many national and regional
banks to merge, scale back or go out of business. Bank of America
Corp. (BAC) reportedly hinted in July that it could close 10% of
its roughly 6,000 branch network, though the Charlotte bank has
since distanced itself from those reports.
Recent mergers including PNC Financial Services Group Inc.'s
(PNC) purchase of National City Corp. and Wells Fargo & Co.'s
(WFC) purchase of Wachovia Corp. are likely to result in some
branch closures to due to overlap.
"It's definitely going to have a softening impact in terms of
values," said Patrick Duffy, chairman of Colliers International's
retail services group. He said there is a lot more supply of
freestanding bank branch properties coming on line than there is
demand.
"There's not a lot people starting up banks, expanding or
starting credit unions," noting conversions of bank branches can be
difficult, he said. "If you want to go to an office use it devalues
the property significantly and banks have a somewhat unique
footprint that doesn't work for many retailers."
Retail-sales declines, fueled by steep drops in discretionary
spending, have supported higher vacancy rates and increased
difficulties for landlords.
For banking retail, most vulnerable are branches that were
located in suburban areas and in housing bubble states like in
California and Florida. "Many of the banks were looking at the
projected housing starts and population growth statistics and were
making decisions based on those (factors) and growth markets," said
Scott Burns, a broker with Wilson Commercial Real Estate, which
represents grocery-anchored shopping centers in southern
California.
"The banking industry was one of the first groups that we saw
pullback in late 2007," when the recession took root, he said.
Burns said there are two vacant Citibank and one empty Wachovia
branch in his portfolio. The branches are dark, but the banks are
still paying the rent until the leases expire in about five
years.
"Unless the bank finds a subtenant or unless there's the
higher-paying tenant out there that really wants the space," the
leases remain intact, Burns said. "In this market right now, we're
not seeing the demand. We're not seeing the rent at the same level
it was."
While the number of dark bank branches is growing, the amount is
a relatively small fraction of the nearly 100,000 domestic branches
operating nationwide, as of the end of 2008, according to the
American Bankers Association, citingFederal Deposit Insurance
Corporation data.
Most leases for these property types are signed for 15 to 20
years. Freestanding banks located in dense urban areas, on street
corners and main intersections are considered prime real estate and
usually see high demand. Those in suburban markets and tertiary
markets won't fare as well.
Burns said the biggest challenge is that bank branches are 4,500
to 5,500 square feet and built for single-purpose uses. "They're
not necessarily transferable to other retailers. A lot are square
and box shaped rather than rectangular, which would lend itself to
splitting up for multiple tenants," he said.
-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197;
angela.pruitt@dowjones.com