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Thursday, Jun 30, 2022

Branches

ELIZABETH HAYES

Staff Reporter

When it comes to L.A.-area bank branches, one person’s castoffs can be another person’s treasures.

Banks have been shutting down and selling off hundreds of branches throughout Los Angeles, as they integrate recent acquisitions with their pre-existing operations. And the timing of those property dispositions could not be better, banking and real estate industry sources say.

The former bank branches are being snapped up and converted to video stores, coffee shops, pet-food outlets even car washes.

“We’ve had national retailers fighting for these things. There are some serious bidding wars on some,” said Art West, who works in the real estate dispositions department at Washington Mutual Inc., which has been selling a large number of branches as a result of its acquisitions of Great Western Financial Corp., American Savings Bank and H.F. Ahmanson & Co. “I probably get 10 calls a day from interested parties.”

The 25 branches in Los Angeles County that were closed in the wake of the Great Western and American Savings acquisitions already have been sold, while some 40 Home Savings branches around the county are scheduled to hit the market in May.

West said he already has 35 proposals on his desk from parties interesting in bidding on Home Savings branches, some from speculators and developers who often want to buy several at once.

“There’s a big demand now for deals. Everyone thinks they can buy stuff and add value,” said Michael Heslov, a tenant broker with Soboroff Partners.

In addition to WaMu’s surplus properties, 56 other L.A.-area branches were closed after the merger of California Federal Bank and Glendale Federal Bank last year. In all, the number of branches in L.A. County has declined from more than 1,700 in 1995 to less than 1,600 today, according to Bauer Financial Reports Inc.

Despite all those properties flooding onto the market, West and others agree that disposing of branches is easier today than it was in the early ’90s, at the start of the real estate recession.

Since then, commercial property vacancy rates have fallen and rents have risen. New leases in former bank branches now go for $2-$3 per square foot, monthly, and sell for an average of $150 per square foot, West said.

“A lot of (interested parties) approach us thinking they will get a bargain and it doesn’t happen,” he said.

Still, some prospective buyers who traditionally have been in office space find that owning their own building is sometimes more cost-effective.

“The (cost) ends up not being much different when you buy a building than when you’re on the fourth floor of a medical building,” said Dan Knudson, a vice president at Daum Commercial Real Estate Services.

In addition to video stores, coffee shops and other consumer retail operations, former bank branches also are being converted into real estate brokerage offices, doctor and dentist offices, and even schools.

“There are people who have traditionally been in an office environment, but could benefit from greater exposure,” Knudson said.

One former Bank of America branch in Sherman Oaks is now a draperies store. A former Wells Fargo Bank branch on Wilshire Boulevard houses a Korean Airlines office. A former branch in Redondo Beach is now a Buca di Beppo restaurant. And in one of the more unusual conversions, TV commercial production company Johns+Gorman Films has transformed a former Art Deco-style BofA branch in Hollywood into a soundproofed, earthquake-safe workspace.

Stand-alone buildings at major intersections are desirable to retailers for the same reason they were desirable to banks.

“Typically, bank branches are in the most accessible, visible corner possible to make it easy for customers to access on their way home or to work,” said Mark Tarczynski, a broker at CB Richard Ellis Inc.

Tarczynski has disposed of 44 former Wells Fargo branches, scattered from downtown to the coast, since the bank acquired First Interstate Bancorp in 1996.

Often, the freestanding branches are on the periphery of a shopping center, which appeals to such retailers as video, pet and auto-parts stores, Heslov said. In some cases, the bank did not develop the property anywhere near its maximum building-to-land ratio, which presents a redevelopment opportunity for a new investor or developer.

Former bank branches on the ground floor of office buildings can be tougher to lease for alternate uses. Downtown is particularly heavy with such spaces sporting sublease signs. Brokers say a lot of these sites are hard to lease because there’s just too much competition from other empty spaces downtown.

“There are so many options. Whether you’re a bank or retailer, the choices are numerous,” said Larry Rappoport, a principal at brokerage Lee & Associates.

Former bank branches even freestanding ones can present other challenges as well. First and foremost, there’s the issue of what to do with the vault.

“They’re expensive to retrofit because they have vaults and parking limitations, and if they’re two-story, that’s doesn’t translate well to retail,” Heslov said. “When they hit the market, there’s a feeding frenzy for the good stuff.”

The vault can be a plus for some new users. Rappoport said one branch was taken by an art dealer, for whom the secure environment became an obvious plus. Others have used vaults to store files, pet food and flowers, or even for X-ray and dark rooms and wine cellars.

Occasionally, former branches are snapped up by start-up or offshore banks. But more often than not, vacant branches are less appealing to other banks.

“The likelihood of finding a bank is slim to none because if it’s a desirable location, it’s not the one that’s closing,” Rappoport said. “Most banks are going to close the location that’s inferior to the one they already own.”

Also, with 7,000 to 10,000 square feet of space and high ceilings, many of the closed branches contain more space than many banks need in today’s era of automatic teller machines, electronic banking and grocery-store kiosks.

In addition to branches, banks also have been unloading copious amounts of L.A.-area office space. Washington Mutual recently hired Trammell Crow Co. to market its 43-acre former Home Savings headquarters campus in Irwindale. And even the smaller City National Bank has consolidated its back-office functions, as a result of acquisitions.

How quickly office space is subleased depends on the location and desirability of the submarket where it’s located. Obviously, Century City is an easier proposition than Oxnard.

“There’s some space where people are lined up to take it,” said Rappoport, who has represented City National in its real estate dispositions.

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