JANESVILLE, Wis. — As fast-food restaurants, with their choice corner locations and drive-up windows, close due to the economy, they seem a perfect fit for a CU looking to expand its branch network, but there are other factors to consider.
"It is imperative that a complete and thorough market research analysis be conducted to determine where existing members live, work and shop, and to determine where potential members are relative to the potential branch sites," said Bob Carmichael, CEO of Blackhawk Community Credit Union here. "Evaluation of the area with respect to traffic patterns, existing and future business development and a variety of member metrics are necessary to complete the analysis."
Due diligence goes far beyond looking at traffic counts and membership density, so it is important to consult with professionals early on, contended Tom Lombardo, national sales director for St. Louis-based builder Clayco.
"Just because you have a high traffic count and it's a great location doesn't mean it's convenient for your members," he explained. "It's not unusual for a CEO to see a sign up on a location and say 'oh man this would be great but come to find out that it may not have enough parking or when you add your ATM lanes you don't have enough room.'"
"We see a lot of sites that have good visibility that you just can't get to," added financial projects director Tom Mooney.
Blackhawk knows all about the ups and downs to converting a fast-food restaurant over to a CU branch, as the $307-million CU purchased a Steak 'N' Shake and, with the help of Madison, Wis.-based contractor La Macchia Group, turned that building into a flagship location in about four months. Though real estate prices, both residential and commercial, have fallen considerably since Blackhawk bought the fast food restaurant several years ago, finding a suitable location for a new branch can still be tough in today's economy.
"At that time, vacant land was expensive, particularly on main arteries and within the area identified as potential branch locations," Carmichael explained. "Purchasing an existing building was more attractive. By purchasing the existing restaurant, we saved approximately $500,000, including the cost of raising the old building."
Time also plays a major role in the decision as some credit unions are using the recession as an opportunity to go on the offensive in their markets. Even if only a building's skeleton can be used, the initial site work and utilities are all in place when doing a conversion and that cuts out a significant amount of labor.
"We wanted to move relatively quickly on it, and the cost is significantly different if you're able to keep the grounds somewhat the same," noted Envision Credit Union SVP-member services Holly Maddox. The credit union recently purchased a KFC for $1.8 million and plans to quickly convert the structure to a new branch. "Our goal is to try and have something up and running in early 2010. We're going to keep the frame of it, but it will be pretty much gutted."
Though finding an appropriate structure may be tough, larger buildings that could host a new headquarters are usually more cost-effective than smaller structures that need extensive re-fitting. Mooney pointed to a project for Texas Bay Area CU where Clayco converted a 24,000 square foot check-processing center into a new main office for significantly less money than building from the ground up.
"If it was well built to begin with, and well-maintained you have a greater chance to save a few bucks," Lombardo added.
Credit unions that are willing to sacrifice time to find a lower purchase price would be well served to look for fast food joints and other buildings that have been around for some time. Finding an older Burger King or McDonalds could be a perfect candidate at a low up-front price with limited competition, though those buildings usually have to be razed and the new branch built from scratch.
"If they are smelly and moldy and not maintained well, they are a fantastic opportunity because they scare away people who have money," La Macchia Group president Ralph La Macchia said. "[But] it is usually cheaper to tear them down if they are old and smelly."
Still, given that the site layout is likely perfect for a drive-thru branch and the utilities are in place, picking up an aged fast food joint can make good fiscal sense. And those sites can even have some overlooked bonuses.
"They usually have enormous [street] signs which, if you're lucky, you can keep and use," La Macchia pointed out.
But even the builder agreed that CUs should not just go out and buy an old building simply because the price is right; executives must stick with their location analysis and market research and not let a "good deal" lure them away from solid business practices.
"If you're letting real estate prices determine where you are putting your branches, that may not be the best idea," said La Macchia.
