Banking on Bank Branches

If there’s one thing that landlords can bank on, it’s the creditworthiness of banks.

“After the U.S. government, banks are the second-most desirable tenant from a credit perspective,” says Richard Hodos, president of Madison HGCD, a retail brokerage firm.

It’s no surprise that the proliferation of bank branches throughout the city in the past few years has meant relief for people searching for ATMs, but also means many other retailers have had a harder time securing space as banks stay on the prowl for high-visibility locations.

Banks, with great credit and willingness to pay more in rent, “have foiled many a deal in Manhattan,” Hodos said.

The bank explosion began two or three years ago, following a long period in the 1990s when banks were downsizing, says Alan Victor, an executive vice president with the Lansco Corp.

From June 1994 to June 2001, the number of bank branches in Manhattan fell by almost a quarter, to 450, according to federal data. But from June 2001 to 2003, nearly a hundred new branches opened.

That’s not exactly shocking to many city dwellers. It’s been hard to miss the legions of new branches, from out of state banks such as Washington Mutual, Wachovia and Bank of America to the growing ranks of Citibank and J.P. Morgan Chase branches.

Some areas are especially blessed – or cursed, depending on one’s perspective – with panoplies of banks. Broadway from 86th Street to 96th Street, for example, is home to nine banks.

“ATM fees have funded a lot of it,” says Faith Hope Consolo, vice chairman at Garrick-Aug Worldwide.

Though landlords might have once frowned on the prevalence of banks, brokers say that hasn’t been the case for a while. “I haven’t heard that in a really long time,” Consolo says.

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But other retailers are less sanguine. Banks “don’t help other retailers,” Victor says. “It would be better for Banana Republic to be next to another retailer.” Hodos agrees. “When banks are placed within a retail strip or street, they break up that continuity,” he says. The only plus for retailers is the ATM factor.

Banks that snatch up high-visibility corner locations have made it harder for other retailers to secure those spots.

“You find that banks generally pay very close to the asking rental price,” Victor says. “Some other retailers are more rent-sensitive.”

In part, that’s because banks view their branches not just as money-making centers but as marketing venues, he says.

“An apparel user has to factor in sales volume,” Victor says. “Banks can spread this out over a lot of branches and attribute a certain amount of the cost to public relations.”

Depending on the neighborhood, the difference between what a bank would pay in rent and what another retailer would pay could be 10 to 15 percent, Victor says.

And then there is the credit issue. It’s hard for other merchants, particularly retailers, to compete with institutions that are partially backed by the federal government.

“There’s a saying that retailers are either emerging from bankruptcy or heading into bankruptcy,” Hodos says. That includes well-known national retailers from K-Mart to Federated Department Stores, he says. “It’s become a strategy.”

But there is a bright side for retailers that are edged out: This too shall pass, agents say.

“Everything is cyclical,” says Hodos. The bank boom, which many say started in the last two or three years, will probably continue for just another year or two before fading, he predicts.

“It’s starting to slow already,” Victor says. “It depends on the success of the ones that are here.”

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