National portfolio sale of 144 bank branches underscores opportunity for retail adaptive reuses
By Ashley Fahey
Tampa Bay Business Journal
Published: Oct 27, 2022

The Covid-19 pandemic may have prompted a record number of bank-branch closures across the U.S., but the trend toward fewer overall branches was already occurring.

In fact, nationally, the number of full-service bank branches, as of 2021, had decreased 17% since 2009. The widespread closures of bank branches have created challenges, including for entrepreneurs that need to access capital, as a reporting project by the Milwaukee Business Journal recently found.

The rate of bank-branch closures has slowed this year, though, an analysis by S&P Global Market Intelligence recently found. Banks have closed 3,619 branches and opened 1,044 between September 2021 and August 2022 whereas, between September 2020 and September 2021, the industry closed 4,700 branches and opened 1,131 branches, according to S&P Global.

The closure of bank branches has created unique opportunity for commercial real estate investors and retail tenants. Although it varies by property, branches are typically freestanding, occupy highly visible outparcels, are part of high-traffic shopping centers and contain a drive-thru, an increasingly desirable feature for retail real estate in the wake of the pandemic.

Lemonade, the surplus retail property acquisition arm of Washington, D.C.-based Madison Marquette Property Investments LLC, recently closed on the acquisition of 144 bank branches in Florida, Georgia, Alabama, Tennessee, South Carolina, North Carolina, Virginia and Maryland. The real estate firm said the deal involved a single seller but declined to name the entity.

A search of the properties included in the portfolio sale found they were former BB&T and SunTrust branches that closed after a 2019 merger of the banks, which created Charlotte, North Carolina-based Truist Financial Corp. (NYSE: TFC).

The deal totaled nine figures but a specific amount was not disclosed by Josh Anderson, a principal at Madison Marquette who leads its excess corporate assets investment program, when asked. A former SunTrust branch at 345 W. John St. in Matthews, North Carolina, included in the transaction sold for $750,000, according to real estate records.

Consolidations like the BB&T-SunTrust deal have been cited as a major reason for branch closures, although certainly not the only one. Growth in digital banking has also been pointed to as a reason for bank branch closures.

A Truist spokesperson said late last week the bank has closed 822 branches related to the BB&T and SunTrust merger. A bank executive was not made available by deadline to speak about the bank's real estate disposition strategy.

Lemonade's acquisition of the branches was the biggest portfolio deal closed so far by the program, Anderson said. A portfolio sale of so many branches is somewhat unique.

"Historically, when corporations close a store, they’ll typically dispose of them one at a time ... and the buyer is a local developer, has the use figured out and gets it done," he said. "In this case, the seller took an approach that we think is interesting — let’s sell it as a portfolio and move it off our books quickly, get rid of the maintenance burden and turn it over to an investor."

The company bought all branches included in the portfolio, with plans to repurpose about 90 of the branches into new uses and the remaining 50 or so to be sold outright.

For the locations the company plans to convert, Anderson said potential new uses could include another bank or a credit union, quick- and full-service restaurants, and medical or automotive uses.

Changing landscape

Consolidation and digital banking may be prompting branch closures but banks continue to open new branches — occasionally to replace old ones.

Many of the branches being closed, then sold, today have outdated footprints and layouts, which frequently means an investor looking to purchase one or more branches is doing so to raze it and rebuild, said Brendan Reedy, senior vice president of the retail advisory group at CBRE Group Inc. (NYSE: CBRE). Reedy spoke generally about bank branch real estate, not specific to any deal.

Bank branches historically have been between 4,000 and 6,000 square feet, but many are opting today for less than 3,000 square feet in new locations, the Philadelphia Business Journal reported last year.

"Banks are typically in the best real estate in a given shopping center or plaza," Reedy said. "You’re seeing pretty strong demand from pretty much every category of retail or restaurant that leases space in that size range or format."

With bank branches typically including a drive-thru, having the zoning in place to allow a drive-thru is also attractive to many real estate groups, he added.

Reedy said he's seeing a lot of demand from medical users in particular to buy or lease space where a shuttered bank branch is located. Prompted by the Covid-19 pandemic, when it become more common for people to take tests in their cars, people today are looking for that convenience for other medical and diagnostic needs, he said.

Restaurants, too, are finding the drive-thru more valuable today than ever before. Nationally, orders at drive-thrus grew by 20% between February 2020 and February 2022, market research company The NPD Group Inc. found. The 117% growth of digital ordering in that same time period was a big contributor to both drive-thru and delivery growth, according to NPD.

Cannabis dispensaries are also frequently interested in occupying former bank branches, both Reedy and Anderson said, especially because of the vaults inside those buildings.

Anderson said Lemonade isn't under contract on any other transactions but is underwriting other corporate-owned real estate deals, and believes more retail companies may decide to offload their real estate holdings in bulk as they change their strategies.

Pharmacy closures, for similar reasons as bank branches, may become more commonplace, he said. One example: Woonsocket, Rhode Island-based CVS Health Corp. said late last year it would close about 900 stores in three years, in response to more customer demand shifting online.

With more churn in the retail sector than there was five to 10 years, companies have more real estate to deal with, prompting them to consider bulk exits more seriously, Anderson said.

"I think (chief financial officers), in particular at corporations, that are looking at real estate as not being core to their business can see a lot of value in a bulk disposition," he continued.