Branching Out... ...Branching In
Skyrocketing land values and the hot real estate market are driving credit union branching strategies toward more lease deals, store fronts and other alternatives to getting into tough new markets, according to facilities experts.
"It's definitely an issue all over the country, especially for smaller credit unions," said Kevin Blair of NewGround, here. "It used to be that branches were located where the SEG was based, where their members worked, those are the roots of the credit union industry. But as credit unions are evolving, now they are migrating toward the retail centers of town, and that's exactly where everyone else wants to be, and the land costs are significantly higher there. It's so outrageous that these days, for an acre to be $1 million or more-without the building-isn't uncommon."
Ralph La Macchia of La Macchia Group, Milwaukee, Wis., agreed. "Credit unions are having to go head to head with banks, convenience stores, gas stations and drugstores," he noted. "These are the top payers for land. And they all want a hard corner if they can get it."
And it's not merely an issue of availability, though that in itself can be an issue, but even if a prime spot is available, it won't come cheap. As a result, credit unions have to be a little more creative.
"We're seeing smaller credit unions looking at midblock sites instead of hard corners," noted Ben La Macchia, a real estate broker who works with the La Macchia Group. "There's been so much development lately that it's hard to find land that hasn't been built on."
Cheap loans abound, so one advantage that credit unions used to have over some of the larger developers, was their access to capital, Ralph La Macchia added.
That's where looking for the diamond in the rough comes into play.
"What you have to do is find an ugly piece of real estate that no one else wants, something that has potential, but for some reason it's scared others off," Ralph La Macchia advised. "You hear horror stories about restaurants-they smell, they're ugly, the grease traps-everyone runs away. But we love restaurants. You have to approach it with your eyes open."
La Macchia related how he worked with one credit union to buy a Burger King restaurant. "Most people just saw an ugly Burger King," he commented. "We saw a well-lit corner right in the middle of the new retail commercial center of town that already had a drive-up that we could expand upon."
And that's where the new, big opportunity for credit unions lies, agreed Bill Bily of DEI, Cincinnati. "It's not necessarily a negative thing," he offered. "It's a great opportunity for credit unions if they can get into what is becoming the new center of the community, these mini-downtown districts."
Many towns are working with large developers to create these new centers of town, and that is one of the catches: credit unions are having to move toward leases, and they're having to work with major developers to get them.
"Many developers are going after financial institutions, but credit unions have to remember the developer is not in it to help you make more money, they're looking to get their development paid for," Ralph La Macchia pointed out. "Credit unions must educate themselves on leases and make sure they are careful about what does and doesn't go into that lease."
DEI's Cynthia Grow concurred. "One CU did very well with this recently. [The CEO] went into one of these big developments, and he negotiated to be the only financial institution in the shopping center," she related. "Then one day he looks across the street and sees a sign put up by a bank that it's building on that site. He went to the developer with his lease contract in hand and said, 'no way.' He kept that bank out of there because he had negotiated that in his lease-and the developer sits on the board of that bank!"
One of the downfalls to storefronts, or even outparcels in large developments, is that a credit union is highly restricted in what it can do, all five of the facilities experts told The Credit Union Journal. Everything from the type of signage, to the color schemes, materials and shape elements are often tightly restricted by the developer, making it tough for a credit union to distinguish itself and build on its identity.
To get around this, CUs must use techniques to draw the eye deep inside the branch, where such restrictions don't apply, Grow advised.
One strategy some credit unions are seeing success with is the hub-and-spoke strategy, Blair noted. "They're building a headquarters with a main branch, and then they're using storefronts as the spokes. It helps keep the land prices out of the equation and dramatically reduces their costs," he offered. "Not only that, but the speed to market is faster. You're looking at opening in eight to 16 weeks versus a year or more to build a stand-alone facility."
But what about that sacred cow: drive-ups?
"We have technology that wasn't available before that allows us to build free-standing islands for a drive-up for a storefront situation," Blair explained. "No longer does a drive-up have to be attached to your building."
As credit unions move into storefronts, however, there are new security issues to consider, as evidenced by a recent series of heists where the thieves were able to gain entrance to the credit union by going through the wall of the neighboring storefront, where the security wasn't as tight.
Because of the time and cost involved withreinforcing existing walls, Bily suggested the real key isn't keeping criminals out-it's being able to catch them once they get in.
"The reality is, they're going to get in. You want security cameras everywhere," he said. "If you can see them, you can catch them."
Look for self-serve kiosks that go way beyond just simple ATM as another way credit unions will branch without a branch, Blair predicted.
No matter how credit unions try to work around it, one thing seems clear: land isn't getting any cheaper.
"You definitely hear some credit unions deciding to pull back because of the prices, the total dollars. Many assume they must have a free-standing site, and then we show them how they can use a storefront. In some of the big cities, owning really isn't an option any more," Blair said. "But there is a race to branch, and it's clear credit unions want in. With a little creativity, they'll find there are still plenty of opportunities."