Sometimes a big bank branch can be too much of a good thing-as in literally too large for a bank's needs.

A new approach to offloading unwanted space involves turning excess square footage into condominiums-not the residential kind, but commercial.

"Sometimes banks pay more for a site, but they don't need the whole space," says Steve Qualkinbush, the president of New Channels Realty in Chicago, which develops branches for banks. "This is much more efficient. They are making the most out of a real estate facility by right-sizing it."

Unlike leasing space in a large office building or strip mall, the bank owns the property. Its branch anchors the site with the most prominent storefront and signage. The remaining attached retail space, which would have its own signage and storefronts, is sold to other businesses.

The bank would head up a condominium association. This structure spreads the risk involved with the property's management and upkeep, rather than putting it entirely on the bank, as would happen if it leased the space to tenants.

A community bank in Chicago, which declined to be named, is experimenting with the concept. It has contracted to buy two branches that New Channels Realty is building as part of several condominium-style properties. They're scheduled to be finished late spring and will include drive-through lanes.

In this case, the bank is only buying space it will occupy-2,500 square feet-and New Channels Realty will own the remaining retail space, which consists of four other units of roughly 1,500 square feet each. Qualkinbush will lease the space to companies that are complementary to the bank, like an attorney, real estate agent or some other business a bank customer might also want to visit when they stop by the branch.

John Hyche, a founder and partner at Level 5 LLC in Atlanta, who has consulted with a few banks and credit unions considering this model, says that rules for the condominium association should outline the types of tenants that would be acceptable.

"You need to think about that when you are developing the covenants and restrictions," he says. "They would want to be hands-on as the whole project develops-before bricks and mortar, when it is being conceptualized. You need to make sure you have guarded yourself against unwanted neighbors." These might include a strip club or a nail salon whose chemical fumes could become an issue.

Sharing space in general isn't going to bring automatic success, though. It didn't work out for PlainsCapital Bank, the $4.9 billion-asset subsidiary of PlainsCapital Corp. in Dallas. In 2006, it opened a branch with a Starbucks inside, across the street from Texas Technical University in Lubbock, Tex.

The bank expected coffee-drinking students would open accounts, but the plan didn't go as expected, says John Owens, the West Texas regional chairman of the bank. "We couldn't figure out a way to make it profitable, and we tried every cotton-picking thing I know," he says.

However, it's not clear what factors led to the branch's failure. It was an automated branch with self-service machines, and it was located on a side of campus with little foot traffic-both of which could've been to blame.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.