BankAmerica Unit Finds Silver Lining to N.Y. Realty Woes
By relocating a few blocks from its present quarters, Bank America Trust of New York is getting a newer building and a preferable address - and also a lower rent bill.
The shift by the subsidiary of BankAmerica Corp., involving 21,000 square feet of office space in New York City, won't make or break the bank. But it illustrates an opportunity for banks to seize a small victory from the jaws of the real estate fiasco.
"What banks need to do is take a more active approach to facilities," said Michael L. Silver, president of Equis, a Chicago firm that advises corporations on managing their space.
Opportunity for Savings
Though it hardly compensates for billions of dollars of sour loans, today's anemic real estate market does give banks a chance to shave millions from operating costs.
Reduced rent is only part of the picture. Advances in technology present an opportunity to move vast portions of a banks' operations to cheaper labor markets outside the urban financial capitals.
Perhaps the biggest gain available when landlords are trying to eke the best possible return from rental payments can come from auditing the operation charges, Mr. Silver said.
The charges, which are supposed to reflect the cost of operating buildings, make up a portion of the overall rental bill that ranges from $4 per foot in the less glamorous markets, to $8 in big cities.
Correcting errors of 60 cents a foot that often turn up in these audits can save millions of dollars a year for banks, which typically lease huge blocks of space, he said.
"We have found in 90% of billed charges a 5% to 10% error in favor of the landlord," he said.
Although not involved in the trust company move, Mr. Silver has advised BankAmerica on real estate and leases as the bank has gobbled up smaller institutions. And he said he regards BankAmerica as one of the best in the industry at wringing the most from its space.
Making the Hard Decisions
Too many banks, he said, are unwilling to make the tough business decisions that are needed to eliminate redundant office space or reduce their payroll.
The move of the trust subsidiary, which involves no reduction in personnel or overall space, could be the first of several by the San Francisco-based bank that would reduce its occupancy costs in the Big Apple.
Even before the announcement of its merger with Security Pacific Corp. - which presents opportunities to consolidate space since both banks have operations in the area - BankAmerica initiated talks with the landlord to reduce the amount of space it uses for its East Coast headquarters in midtown Manhattan. The bank has said it is considering alternative space if nothing can be worked out by the time its current lease expires at yearend 1993.
The bank took a 10-year lease on nearly half the space in an office building near Grand Central Station and now finds it simply doesn't need it all.
The main reason for the trust company move, the spokesman added, was to bring the operations closer to the New York Federal Reserve Bank and put the offices in a building that also had vault space.
While cost was not the driving factor, the spokesman acknowledged that the bank would get "a more attractive lease" than it had before.
That is not surprising. Average effective rents for office space in New York have declined by 21.5%, to $26.19 a foot, in the past six years, an analysis by J.H.& A. Real Estate indicates, suggesting the savings from such a move could be in excess of $120,000 a year.
And indications are that the downtown area has seen a more pronounced drop in rental rate than the city at large.
Effect of Chemical Merger
The Chemical Banking Corp. merger alone will cost the city 70 branches, not to mention 8,000 to 10,000 jobs, said Henry A. Gallin, executive vice president of JH&A.
Partly as a result of the merger, vacancies figure to rise to 19.8%, from the current 18.5%, Mr. Gallin said.
Robert Alexander, broker for E.S. Gordon & Co. who arranged the deal, said BankAmerica is one of many banks currently trying to reduce occupancy costs through moves and reductions of space in the city.
It's a tenant's market, which puts banks in a good position to negotiate reductions with landlords. And in the wake of the ostentatious 1980s, many banks have their back offices in unnecessarily expensive "class-A" space.
"They don't need to pay for that," Mr. Silver said.
Many banks could save money by relocating some back offices to places like Omaha, Neb., and Tampa, Fla., which boast tax laws that reduce labor costs, he said.
The Sale Leaseback Option
One popular move is to transform owned-and-occupied property into earning assets through sale leaseback transactions. But Mr. Silver warned that this is not the panacea some real estate advisers have claimed it to be
A sale leaseback is intended to raise cash that can be loaned out at a higher yield than the cost to the bank of leasing space in the building.
Sometimes it works, said Mr., Silver, but sometimes the demand for a steady, long-term yield on the part of the investor who buys the property locks the bank into an unfavorable lease. "It's robbing Peter to pay Paul," the consultant said.