Did you know that there are now nearly 100,000 bank branches in the United States? They proliferated in the late 1990s and early 2000s as drug stores and fast food outlets. All the banks were fighting for market share with comfort as the watchword. Will all the locations still exist after we get through this bank restructuring mess? The short answer is yes. However, many will see new occupants. Let’s look at some facts.
First the bad news. The credit crunch has triggered a series of forced mergers that have led to overlaps in many banking networks. We have seen JP Morgan buy Washington Mutual and Wells Fargo buy Wachovia. In 2008, 40 banks failed, according to the FDIC. In most cases these were small regional banks. Overall, about 170 banks are on the FDIC’s watch list and in a ‘typical’ year about 10 percent of the banks on this watch list fail.
Now the good news. So you ask yourself, why would I think that buying a property with a bank as my tenant is a good investment? A number of reasons. First of all, the acquiring bank can simply change the name at the gate and continue doing business as usual and you as the owner now have a new tenant and a stronger lease guarantor than before. Second, if the new bank doesn’t need the building, you’ll still receive the rent because the new bank has most likely acquired all of the old bank’s assets and liabilities, so it’s fine there. Third, there are a lot of community banks and credit unions that are doing very well. They are always looking to improve their typically low cost locations and bank branch locations are ideal. Fourth, when a new credit tenant is found for a closed location, the current tenant will be happy to discuss buying out the remaining term and lease obligations with you. As is often the case, the tenant will offer around 50% of future rental obligations, if not more. That’s money in your pocket, now! Apply that to your mortgage and see what your initial investment return is. You would be stunned.
Most bank branch leases are triple net, that is, the tenant pays all the costs of their occupancy: real estate taxes, building insurance, maintenance of common areas such as mowing the lawn, removing snow, painting and the rest. . Therefore, there is little to no management responsibility for the owner in terms of knowledge or time. For the professional business person, this is the hurdle they must always overcome when purchasing real estate on a simple payment basis. So look for bank branches – you too can be a bank owner.