When a business leaves a well-located retail property on Long Island, it usually doesn’t take long before another business comes to take its place.
However, the same can’t be said when bank branches close.
Often, the freestanding buildings that were specifically constructed to house a bank branch remain vacant for a while and it could be years before those properties become home to a different commercial tenant.
KENNETH SCHUCKMAN: ‘You have investors who bought these bank branches and now they’re left with a vacant branch.’
There are myriad challenges when it comes to repurposing former bank branches, not the least of which are local zoning requirements, cumbersome vaults, building size and traffic management.
Because most bank branches are designed with drive-thru windows, they have been targets for quick-service restaurants (QSRs) that seek drive-thru-ready locations. But the number of vehicles that can fit in the stacking lanes of a bank property is usually much fewer than needed for restaurant use.
“A Starbucks requires a 10- or 12-car stack, where a lot of these bank branches have from three to five. So, for a conversion to a QSR, it almost makes it impossible to get approved, you might as well not even have a drive-thru,” says Kenneth Schuckman, principal of Schuckman Realty, which has brokered dozens of leases and sales of former bank branches. He added that limited parking also presents an obstacle for some uses.
A Starbucks has been proposed for the vacant former HSBC Bank branch on East Main Street in Bay Shore. Photo by Judy Walker
“Some of the branches, like one in Hewlett, has parking for just 12 cars with a 3,500-square-foot building with a full basement,” Schuckman said. “How can you put a restaurant there? You don’t have enough parking.”
And then, especially with older bank branches, redevelopment plans need to contend with imposing vaults.
“The vault is a significant obstacle. We did one years ago that had a massive vault and the bricks around the vault were coated with asbestos,” Schuckman said. “If you have a branch with a vault, you’re talking about 18 to 24 inches of concrete and steel. It’s a six-figure job to remove it.”
JOE DEAL: ‘While it looks easy to just plug and play a certain use into the bank, a lot of times it’s not as easy.’
Joe Deal, principal at Bohler Engineering, said that while vaults can be an issue when banks get repurposed, new tenants usually try to work around them.
“When there’s a vault, often they just take the front door off of it and they’ll leave the vault and use it as a storage room,” said Deal, whose firm has worked on redeveloping more than a dozen former Long Island bank branches over the last decade. “If you want to take the whole thing out it can get expensive.”
Deal also acknowledges that the drive-thru lanes at former bank properties often need to be redesigned to accommodate new tenants.
“A lot of the banks that have closed were older banks with larger footprints and they have shorter stacking on the drive-thru, where today’s code requires a longer stacking, so we have to re-engineer the site plan to fit more cars in the queue,” Deal said, adding that redeveloping a former bank branch to a restaurant can require extensive work on the property’s sanitary infrastructure.
“When you have a non-food use, you can use a standard septic system with no grease trap, but if you’re going to switch over to a food use, you need a larger enhanced septic system and grease traps,” he said. “Now you’re digging up the site to do all that, so its additional dollars involved.”
And then there is the dreaded approvals process, which in many instances, adds time and money for businesses seeking to change uses on a former bank property. Deal points out that banking is a less-intensive use than most types of eateries.
“Banks are only open X-amount of hours, they’re not open late, they’re not making food and they don’t have a very high intensity drive-thru as compared to a QSR, where you could have peak times in the morning, lunch and dinner,” Deal said. “And with the zoning that’s set up on Long Island, it’s a lot more difficult to get a QSR approved than a bank, because usually you need a special permit for the food use or the drive-thrus.”
Consequently, in some cases, the proposed redevelopment of a bank property becomes too heavy a lift for many prospective tenants.
“While it looks easy to just plug and play a certain use into the bank, a lot of times it’s not as easy and the approval process is going to take a little bit longer,” Deal said. “We’ve had prospective tenants walk away because they thought they were just going to go in there with an interior alteration permit, but instead it turned into a full site plan application, going for a special permit, going for zoning and bringing the site up to today’s standards.”
And though closed bank branches can remain vacant for years, there have been many conversions from bank branches to other businesses here, with QSRs, urgent care clinics and veterinary clinics being the primary second acts. A long-vacant former Capital One Bank branch in Fort Salonga recently reopened as a 7-Eleven and another in Greenlawn is becoming a Starbucks. In Smithtown, a former Capital One branch on East Main Street will soon be the new home of a Medrite urgent care center, the company’s first on Long Island.
FROM SAVINGS TO SLURPEES: This former Capital One Bank branch in Fort Salonga was vacant for several years before its recent convenience-store transformation. Photo by David Winzelberg
All of the major banks have closed branches on Long Island, as consolidation and an increase in online banking over the last 10 or 15 years has been changing the retail banking landscape.
John McGinley, head of real estate for Chase, which has both closed and opened branches here in the last few years, says there are several factors that come into play when it involves branch contraction or expansion.
“There’s no absolute recipe for it and we consider a lot of factors,” McGinley told LIBN. “There is the proximity to our other locations, and we look at the activity at the branch, both the volume and the type. We’ve also got external factors like real estate-related positions, like if a lease is up for renewal.”
While a majority of the bank properties on Long Island are now owned by real estate investors or investment firms, Chase has about 130 branches in Nassau and Suffolk counties, half of which it owns and the other half it leases.
Banks that lease their branches here could be paying gross rent that ranges from $250,000 to $500,000 or more a year. And because most sign initial long-term leases of up to 20 years, the financial liability of a vacant branch is substantial, prompting many to seek sub-tenants.
Industry sources say deposits exceeding $100 million is a mark of a successful bank branch on Long Island, however, it’s not the only measure when it comes to decisions about closing or maintaining branch operations.
“We always consider market and community in terms of how we’ll serve that community going forward,” McGinley said. “We also factor in how a community uses that branch and the activity, so it’s a multi-pronged thing, but I think it’s really about understanding where the banking business is going and understanding the strong existence of the bank presence to our customers and just balancing between those two.”
McGinley says banks are more flexible with their real estate than they ever have been, though it’s their customers who often determine branch strategy.
“We err on the side of staying in the community and serving it and keeping locations open if those variables don’t feel like they are appropriately satisfied,” he said. “I think that digital has become an option that folks have and use. But our data would show you that a majority of customers value the branch and consider themselves either multi-channel or branch centric. From an advice standpoint in helping people do more with their money and reach their goals, being on a corner or in a neighborhood is still paramount to us.”
Meanwhile, when considering a bank property as a real estate investment, Schuckman advises caution.
“In my opinion, the future of the retail banking business is extraordinarily grim, because some banks are closing a bunch of branches and building one big branch and just having ATMs around it,” the broker said. Schuckman added he’s been surprised that the prices on bank branch properties haven’t gone down, though he credits that to a still-active market for 1031 exchanges that allows real estate investors to avoid paying capital gains via property re-investment.
“I think the problem I foresee is that a lot of people used 1031s to buy a 5-percent cap or even lower, because they felt a bank sells money and it will never go out of business. You have investors who bought these bank branches and now they’re left with a vacant branch,” Schuckman said. “My recommendation for anyone who owns a freestanding bank branch is to give us a call.”
DWINZELBERG@LIBN.COM
