MAJOR BANK BRANCH CLOSINGS ARE ON THEHORIZON...

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The debt crisis in the financial services sector, whichhas come to a head in recent weeks, has claimed retail banks aswell as some of Wall Street's biggest investment houses. Lastmonth, JPMorgan Chase acquired Washington Mutual for the fire-saleprice of $1.7 billion after the latter had the dubious distinctionof suffering the largest bank failure in US history. Wachovia,which also incurred heavy exposure to the subprime mortgage market,was to be sold to Citigroup in a deal arranged through the FDIC.However, as this was written, a Wells Fargo/Wachovia mergerannounced on Friday seemed to obviate that deal—although not ifCitigroup can help it. Regardless, the spate of high-profileM&A activity—not to mention some of the regional banks thathave gone out altogether—does suggest that we may see fewer bankbranches by 2010. A decisive 78% of respondents to last week'sonline poll agree that a big wave of branch closings is in thenot-too-distant future, and New York retail expert C. BradleyMendelson, executive director at Cushman & Wakefield, feels thesame way. Here, he explains how this is likely to playout:

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"How many branches close depends on who ends up with thesebanks. You have these two mergers, for lack of a better term; oneis WaMu and Chase and the other is Wachovia and Citibank, or maybeWachovia and Wells Fargo. But Citibank is saying Wachovia didn'thave any right to make a deal with Wells Fargo and the FDIC issaying they're going to back the deal they originally backed, whichwas with Citibank. We'll see what happens. But certainly among allthese banks, there is redundancy in the New York area. There are anumber of locations where they're across the street from each otheror on the same block. Chase has 148 branches in New York City andWaMu has 35 to 40 branches in the city—they're all in competitivelocations. If Wells Fargo ends up with Wachovia, there are no WellsFargo branches in New York City. So they'll have an instantexpansion. Citibank and Wachovia, on the other hand, are redundantin certain places.

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"There are different kinds of bank branches. If you've visitedChase or WaMu, you know those are two different types of businessesalthough they're both banks. I don't know if Chase can effectivelyre-brand a lot of those branches. Certainly, there will be a numberof bank branches on the market. There's no doubt about it. They'renot going to close branches and let them sit, because it's toocostly for them to do that. Some of the leases don't allow them togo dark, so they'll have to either stay open until they replacetheir bank or sublease. But banks are famous for not subleasing toother banks. If I have a branch near my office, and it changes to adifferent bank, I'll probably switch to that bank. There's not alot of loyalty in the bank business today.

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"As far as other banks taking over these spaces when the leasesrun out, there aren't many other banks. You're going to see somemore bank mergers, and the numbers of different banks will dwindle.The space will go back to the landlord, and he can lease it towhomever he wants. If there's another bank, maybe they'll take it.But there really is no more bank business at the moment. That'spretty much dried up.

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"What comes into that space next could be anything—whatever isactive in the marketplace at that time. It also depends on thelocation. It could be a pharmacy; if it's on Madison Avenue, itcould be a fashion tenant. If it's on Sixth Avenue, it could be afinancial company like Charles Schwab. A space in a residentialarea like the Upper East Side or Upper West Side will appeal to adifferent kind of tenant.

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"This will all start playing out in six months to a year. Thesebank deals haven't closed yet, and you have to give them time toclose and digest. These deals were made more quickly than anyonecould have anticipated. One day, there's a bank; the next day, it'snot there anymore."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.