Pruning Branches

Pruning Branches

commercial real estate by Dave Szymanski | Tampa Bay Editor

After years of hectic buying, some banks now are selling land and branches they no longer need.

About eight years ago, gas stations and convenience stores were buying up prime real estate on the Gulf Coast. Looking to get a competitive edge, Shell Oil and other companies snapped up busy corners and high-traffic parcels.

About six years ago, it was fast food restaurants and drug stores. Location translated to market share.

And about four years ago, this buying pattern happened in banking. More locations often meant more customers, more deposits and loans, more market share.

"By tying up property, banks could get the locations they wanted," says Tom Karpenske, broker with CB Richard Ellis in Tampa. "Florida has been a hugely aggressive bank growth market."

Those branches came at a cost of about $1 million to $1.5 million for an acre of land and another million for the branch to be built. Yet, banks were willing to pay it. And developers loved when banks stepped up because they often got a premium for their land.

"While Chili's would offer $1.1 million, the bank would offer $2 million," says Charlie Alloway, broker with CB Richard Ellis in Tampa. "They had a tendency to pay more for the sites they wanted."

But now, as the economy has cooled, and the subprime mortgage and general credit crises rips through industries, many of those banks are looking to sell some of that real estate. Some of it is raw land. Some of it is branches the banks no longer use.

Land banking

Despite the softer economy, the banks reaction is good for the industry because it's a logical adjustment to the market, Karpenske says.

"The banks wanted to have locations where people work and live," Karpenske says. "Now, the point is, there is lot of land banking going on. They have properties to keep them in the pipeline. Those are in New Tampa, north of Carrollwood, south of Brandon and from New Port Richey to Sarasota.

"Now, they are finding it's time to get rid of some of this," he adds. "I think it's just good business at this point. Anybody in the real estate industry is recognizing that now. Now it's time to re-evaluate and make sure resources are spent wisely."

Karpenske said the trend goes beyond Florida and is happening nationally. Despite the selling of some property, there still will be opportunities to open new branches in emerging neighborhoods, he says.

"People want to go banking where they work, and some place where they live," Karpenske says. "South Hillsborough is going to be huge for banks."

But as the level of land buying kept climbing the subprime mortgage crisis crashed the party, changing the dynamics.

"They were all taking write-offs," Alloway says. The (expansion) funds are now going elsewhere. Most put the brakes on. Some of the sites haven't been constructed yet. They also bought other banks. Sometimes, some locations work for you, some do not. It's a combination of factors."

Price is also a factor.

"Because banks have paid top dollar, we have situations where the acquisition price is higher than what they could sell it for," Alloway says.

Alloway attributes the selling trend to overbuilding, the subprime mortgage issue and the price of the real estate inventory sometimes being higher than the market value.

Other than community banks, nearly all retail banks are affected, Alloway says.

"It's fair to say you could find a deposition site with everybody," he says.

Bank merger activity has slowed, but one of the more recent ones, Regions and AmSouth, means that fewer branches will be needed, Alloway says.

Technology's role

The Bank of Tampa has been insulated from this trend because it never went on a buying spree. It has one property in eastern Hillsborough County besides its existing branches.

But it has adopted a new technology that may limit new bank construction in the future. The technology is electronic check scanning, or "remote deposit capture" in bank vernacular.

For around $70, the Bank of Tampa provides a customer with a check-scanner. The machine allows the customer to scan a check without coming into the bank. It is automatically deposited at the bank. It then creates a digitized deposit slip.

The bank started offering the scanners in August. It has 94 clients with them.

The bank recently did a survey of activity on five random days. It found 41% of "items presented" (one check equals one item) during the five days were transmitted with the check scanners.

The bank doesn't offer the service to retail clients. It recently offered it to five commercial clients across the bridge in Pinellas County. Some of the people most rapidly accepting it are doctors and lawyers, especially sole practitioners with limited staff.

"This is very powerful and allows us to extend our geographic reach," says Henry Gonzalez, executive vice president with the Bank of Tampa.

Gonzalez says the slowdown in building branches at the retail banks makes sense.

"For some of the big banks, deposits have dried up," he says "If everyone's deposits are down, it doesn't make sense to gather more."

REVIEW SUMMARY

Industries: Banking and commercial real estate

Key: Get the right amount of real estate to keep growing market share.