[REN #337] Repurposing Vacant Bank Buildings in Chicago

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Picture of boxes for for Real Estate News for Investors Podcast Episode #337

Need a high-visibility commercial building with an imposing presence and a drive-thru, all at a competitive price? Your local bank may have the answer for you, and it’s not a business loan. As more and more customers do their banking online, physical bank buildings are emptying out their retail spaces and real estate investors are moving in.

According to Crain’s Chicago, the number of physical bank locations in the Chicago area fell 11% between 2010 and 2016. Bank buildings, which fall into the category of “retail space,” are falling vacant along with other more traditional retailers like clothing stores and electronics vendors.

CBRE noted that Chicago-area vacancies in all retail space are hovering around 10%, up from a pre-recession low of 7.2%.

Commercial real estate services company Jones Lang LaSalle says this trend isn’t going anywhere, either. In fact, JLL predicted that there would be a 20% reduction in the number of U.S. bank branches over the next five years alone. The prediction may have something to do with Wells Fargo’s recently-announced plans to close 450 bank branches (that’s almost one in 10) by the end of 2018. The closures will reduce operating expenses by about $170 million but dramatically up the number of vacant former bank buildings available for repurposing.

So what does this mean for real estate investors?

Well, it means there could be some pretty big opportunities coming your way if you have a taste for commercial real estate in your portfolio or even if you just like flipping or wholesaling on a bigger scale than residential properties allow.

“Banks as a whole were pretty particular about their locations, so I don’t think you’re going to find many banks in terrible locations,” commercial real estate broker Jon Gordon told National Real Estate Investor recently. The spaces are particularly attractive to restauranteurs because in many cases they are already equipped with drive-thru services, they’re in high-traffic locations, and offer anywhere from 900 to 30,000 square feet of space.

The most in-demand type of former bank space is presently one with about 5,000 square feet and a drive-thru. Deals to buy bank branches in the U.S. have totaled more than $2.3 billion in value according to JLL. Everyone from restaurants to dry cleaners to law firms and medical practices are getting in on the action. Of course, some investors are opting to buy the bank for the location, then knock it down and build something else. And, there are some banks that are selling part of their buildings so they can keep a presence in a prime location, but the new owner can find tenants for unused space.

It’s important to have a clear plan for generating returns if you want to get into the bank-buying business, because these deals are not small. Nor are they for the faint of heart.

Bank buildings are often luxurious affairs in great locations, so you are likely talking about millions of dollars to make the purchase unless your plan is simply to get the site under contract and then try to wholesale the contract to another party. Even that strategy requires advance planning because you must already have that other party in mind so you can determine if your contract will be of interest to them.

Wondering who might be interested in a bank property? Well, the former Bank of Manhattan Trust is now a really lovely Duane Reade drugstore, complete with a historical wall depicting “banks of the past.”

The regal Michigan National Bank Lobby now hosts wedding receptions and other special events as a special venue option for the CityFlatsHotel. New York’s former Greenwich Savings Bank building, built in 1924, is also now a social and events venue.

The former Colorado National Bank Building, which boasts three-story atrium with white marble colonnades, is now a hotel that offers a tour featuring restored bank architecture and what the hotel describes as “modern hotel amenities” in a 1915 bank building.

Of course, there are also plenty of smaller bank buildings out there that have been converted to everything from Dunkin’ Donuts to art galleries, so your options definitely run the gamut. Just be sure that you either have a good feel for how much a change in purpose is going to cost when you invest in that bank building, or you know there is a market for that building thanks to location, historic significance, retail and restaurant trends, or all three.

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