Here’s a not-so-silent alarm regarding bank branch leases: use those comps at your peril!
Detailed information about bank branch leases (literally hundreds of them) can be found online with keywords such as 3net bank, triple net bank branch, bank ground lease, etc. But you might not want to use them unless you are doing a highly specialized comparison. Here’s why:
Most of the comps reflect ground leases, where the building reverts to the owner of the site upon expiration of the lease. The Lessee/Tenant (NOT the Lessor/Landlord) constructs and depreciates the improvements.
Also, buyers of these ground leased properties are attracted by generally lower total acquisition prices compared to developments that include improvements, as well as the hope of low default rates compared to other net leased properties. Most of these bank ground leases contain significant rent bumps at renewal.
Even the fee simple leases of banks available from broker sources can be confusing. There are a number of these properties (site and building) currently on the market after the recession. Yet, too few are leasing for reuse as banks at rates consistently above alternate use rental rates such as for retail or office. That is to say, the fee simple rents achievable for recycled bank properties don’t usually compensate for the extra cost necessary to develop these facilities. This is good for the banks that acquire these vacant properties at alternative use prices, but they often are purchasing… not leasing.
What should you look for? Acquisitions of closed bank properties (site and building) that are then leased for use as banks by other banks expanding their market presence.
These will not have the ground lease limitation, and the draw of increased market presence should remove some of the fire sale mentality from this sector. As you discover sales such as these, please send them to us! We’re compiling data to support inclusion of a bank model in IncomeWorks.