This is a great time to buy land. Here are five tips to guide you 

  

The real estate industry is struggling, and the cost of property is falling. If expanding your branch network is a priority now, or in the near future, this is a great time to buy land, even if your organization plans to “land bank” it for a period of time.

The market is ripe for you to sweep in and get a great bargain on a prime piece of real estate, but it’s important to make informed and intelligent decisions about your site selection and acquisition. There are strategies bankers can use to purchase a premium space for their organization. Don’t just look for the best deal, but also take into consideration the future and your goals for growth. Think strategically for long-term success.

1. Find the right broker. The crucial factor in getting a good deal on land is finding a good commercial broker that can flush out potential sites or sales and bring them to you. When evaluating a broker, the primary consideration is that they are focused on commercial property-focused and, preferably, deal in retail properties. Nationally-recognized companies like CB Richard Ellis or Century 21 commercial firms usually have good portfolios of properties, or at least the local contacts to obtain a listing of quality sites.

The meeting with a selected broker should focus on outlining the approximate property size and market location that you are looking for. Sites located in prime retailing areas need to be accessible from the primary street and also provide for frontage to allow for flexible highway access and configuration of drive-through lane traffic flow. The broker should also understand any minimum site sizing that you feel may hinder site development (e.g. stacking, parking, and customer convenience). The broker should provide a plot plan of the proposed site; survey or legal description, if available; any prior title reports on the site; and photos of the site. The latter should be taken from across the street, both on-coming directions, from the rear of the site, and the down the side street in both directions. This is all so you can see what businesses are near you. 

2. Establish a target price. The cost of real estate, especially raw land, is down. Developers and land investors are holding excess inventories and would like to sell some lots or properties to reduce their inventories. A good offer would probably garner a favorable response. If you find a deal and you have the capital, buy it, even if you are going to “land bank” it and sit on it for a year or two.

Land is unique, in that it seldom depreciates and doesn’t change over the years. When land-banking a property, one has to understand that there will be maintenance requirements for the property (mowing and weeding, building upkeep) that will transfer to you as the owner. Land-banking allows you flexibility in when you can develop the property and in some cases, sell it, should a better offer come along.

3. Research storefront opportunities. Look for companies that are cutting back on storefront opportunities (e.g. Starbucks) and see if you can get the names of the lessors or developers to possibly buy the “end caps” that they were going after. Most Starbucks or fast-food franchises have such locations on the ends of strip centers that would be perfect for a bank drive-through lane. Also, storefronts make great spoke branches, and get you in the market quicker, with good visibility and coverage, than by moving in with a larger “hub” branch.

Storefronts represent interior space and the bank owns the space inside the walls. Take time when negotiating the lease to look at exclusivity (e.g. only your use in the center); common area maintenance charges (CAMs), that are usually a percentage of the rented space in the center; specified parking spaces; and what exterior signage allowed. These are negotiation points that need to be discussed as part of the location deal.

Another minor point is to evaluate the center itself, related to other uses. For example, if there is a fast food or traffic-generating business in the center, that can be advantageous. But it can also be a negative, because there may be inordinate amounts of traffic at peak times. Such traffic could affect your customer’s ability to access your branch. Again, a broker should be able to look at potential traffic counts in the center.

4. Inspect the financial market itself. Examine larger financial institutions and their portfolios and find out if they are cutting back in certain regions or areas of the states where they might be selling or leasing branches. This could be a great opportunity to get in the market quickly with a building that is already designed for financial services.

But don’t just go shopping for bank branches. First, study and understand how such locations fit into the bigger picture of where you want your institution to be in the future, and the customers you want to serve from those locations. If your organization has already done a background analysis, and has determined the location fits the desired profile, then acquiring a financial institution does provide an opportunity to save time and money.

However, be cautious of the lingering negative perception of the previous owner. The stigma of the former financial provider may affect the public’s desire to go back and do business there. If the space became available because of a merger, it is often because it was a poorly performing branch. Do some research and find out what the public’s perception is of the location.

5. Expand, but also go back to existing branches. In addition to the land opportunities available in today’s market, there also lies an opportunity to update and enhance your legacy branches. The investment you might make in a new site could otherwise be used to make a significant impact in eight to ten existing locations, making cosmetic upgrades and installing innovations and “retail experience” applications.

It’s important to address your existing branches within your expansion plan. Every time you open a new facility, it further alienates the brand and culture alignment of your legacy branches. Old branches look worse, and in some cases, the new outlets undermine the effectiveness of your branch network.

A branch network should share a cohesive retail delivery strategy. Although your branches do not need to be identical at every location, they should have a consistent focus on certain elements of your retail approach, in addition to conveying your organization’s vision and brand identity.

The branch remains the most effective channel to acquiring, retaining and deepening the customer relationship. The time is right for you to make a significant land acquisition to build upon your financial growth and expand your branch network, but don’t just look for the cheapest location or solution; buy the most strategic one. BJ

[This article was posted on February 10, 2009, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2009 by the American Bankers Association.]

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