Move over Chase and Wachovia — it’s the little guys’ turn. They may not be high profile, marquee names, but the time is ripe for small and mid-sized regional banks, such as Atlantic Bank and Astoria Federal Savings Bank, to enter and expand in the Manhattan market.
The unraveling of the financial services sector and consolidation in the banking sector means mega-banks, most notably Chase, will start unloading retail branches in the city, brokers said.
Although many retail real estate deals are on hold as Wall Street’s sickness contaminates the economy, these second-tier banks, many with suburban roots in the tri-state area, will sniff out expansion opportunities as space comes on the market and Manhattan retail rents drop, sources said.
“There will be a shift away from the 900-pound gorilla on the street … to smaller niche players,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman.
Brokers have been estimating how many bank branches Chase (with 121 Manhattan branches) will purge when it absorbs Washington Mutual (with 45 Manhattan branches), following its rescue purchase of the bank in September.
WaMu’s demise has been dubbed the biggest failure in banking history, done in by the culprit of the banking crisis: ill-fated mortgage lending practices.
Smaller banks are also sizing up the acquisition of Wachovia, with 23 Manhattan branches, by Wells Fargo, which has no branches in the city.
Risky business
Second-tier banks like Valley National and Astoria Savings Bank may seize an opportunity to capture market share in the city. National and global competitors, slammed by the subprime mortgage lending crisis, now charge higher interest rates on mortgage loans, are tightening credit terms and eliminating programs to minimize risk, said Luigi Rosabianca, principal attorney and founder of Rosabianca & Associates, a real estate law firm.
These smaller banks are now looking “to fill the void that has been created in the past few weeks.”
A number of the second-tier banks have expressed interest to Rosabianca’s real-estate developer clients in tapping Manhattan for expansion, he said.
As a general proposition, the smaller, mom-and-pop banks are more financially sound then their bigger counterparts, cushioned by big deposit bases, Rosabianca said.
They also have much lower loan default rates “than the other banks because they’re more prudent about whom they do business with.”
Chase plans to shutter between 400 and 500 of the 5,400 WaMu branches it acquired nationwide but will not disclose how many will go dark in New York City and has not set a timetable for the closures, said spokesman Michael Fusco.
With the acquisition of WaMu, “they swallowed a lot —there’s a lot of duplication of location and branches from that group,” Consolo said.
Indeed, in some neighborhoods, such as Columbus Circle, Chase has multiple branches within a two-block radius, and Washington Mutal also has a branch nearby, said Alan Victor, executive vice president of the Lansco Corp.
Because of the amount of real estate coming on the market, the smaller banks “are starting to poke around. I can’t say anyone is committing, but they’re waiting to see what sites are becoming available.”
While Chase is poised to sell off branches, Wells Fargo could hold on to all of its New York City Wachovia locations because the bank doesn’t have retail branches here, brokers said.
Smaller banks, such as Harlem-based Carver Federal Savings; Emigrant Bank; Hudson City Savings Bank, with 126 branches in the tri-state area; Astoria Federal Savings Bank; Valley National Bank; and Sovereign Bank have already put out feelers in Manhattan, said Consolo.
“They’ve come to all of our [bank] properties and are reviewing the opportunities,” she said. “They’re the lookers — who the winners will be, I don’t know.”
Northeastern regional bank Sovereign is bullish on the New York market.
“New York is a very, very important market for us — it’s something we are committed to,” said Ellen Molle, a spokesperson, but she could not elaborate as the bank is in the process of being acquired by Banco Santander.
Sovereign operates 75 branches in New York City, including 15 in Manhattan.
Sources said Atlantic Bank is angling to expand in Manhattan, where it currently operates seven branches.
Atlantic is part of New York Community Bancorp, a bank holding company for New York Community Bank, a savings bank with 178 branches in New York and New Jersey, and New York Commercial Bank, with 38 branches in New York City, Westchester County in New York.
“When we’ve expanded, it’s been through acquisition of other banks’ branches in markets where we see significant consolidation opportunities. We don’t build a new building or a new branch,” said Ilene Angarola, executive vice president and director of investor relations for New York Community Bancorp.
“Manhattan is a market we would consider expanding into with our Atlantic franchise” as well as others, she said.
“As rents decline, then real estate becomes more attractive.”
Let’s make a deal
If ever there were a time to secure a good Manhattan deal, it’s now, brokers said.
“There’s more space on the market and rents are going to come down,” said Andrew Mandell, a broker with Ripco Real Estate. “There is fear in the market.”
In some cases, a smaller bank could end up negotiating a sweet deal with Chase, for example, “just so that they can get [the branch] off their books.”
Retail rents are already 10 percent off asking rents in the city, Consolo said.
Victor sees even steeper drops of 20 to 25 percent in some neighborhoods.
As a result, the smaller banks will be able to “negotiate a better deal and take advantage of a down market,” he said.
“But keep in mind that the banks had created an artificial market … and inflated the market,” Victor said.
It’s no secret that other retailers had been shut out by the stranglehold the banks held over much of the city’s best real estate.
Two years ago, a corner retail spot in the city could bring landlords twice the normal asking rent, as banks like Wachovia, Chase and Washington Mutual battled it out for those coveted locations for top dollar.
But those days are gone.
Although the meltdown in the banking industry this fall in the last two months has made branch growth a moot point for the big banks, their expansion binge in the city had already ceased this year as the financial industry began to unravel and as their branches reached a saturation point.
“The bank wars we saw are over,” Consolo said. “It’s a completely different playing field.”
The new, smaller players “will not be overpriced or overbid.”
Still, brokers don’t expect the mom-and-pop banks to make new inroads for another 18 months.
But when they do, watch for a new crop of branches with a more homespun feel, brokers said.
Among the smaller banks, “the business has been quite parochial in nature — it’s about knowing your uncle, and there’s a hands-on approach,” Rosabianca said.
Consolo agreed. “It’s going back to having your little country bank on the corner that takes care of all of your needs and is more service oriented,” she said.
And they won’t have the sleekness of the big guys.
“Maybe it’s not bright lights and lots of glass, but some wood and comfortable chairs,” Consolo said.
“Maybe they’ll start serving lunch and dinner,” Victor said. “At least breakfast.”