Land banking: Banks grab top sites for branches, often years before they build

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Many of central Indiana’s banks are filling their own safe-deposit boxes, but they’re not stuffing them with jewelry, legal documents or blackmail material.

They’re banking parcels of land. The sites often are in fast-growing suburbs or redevelopment areas that hold potential for new brickand-mortar bank branches, sometimes several years down the road.

Competition can be fierce for the prime sites, and other financial institutions aren’t the only nemesis for banks: Walgreens and CVS also are fighting over the best ground, in some cases ponying up to the tune of more than $1 million per acre.

Regions Bank already owns land along Ronald Reagan Parkway near the new Indianapolis International Airport, even though the Alabama-based bank has no plans for a branch yet.

“We’re big believers in finding the land and buying it, even if we don’t plan to build for three or four years,” said Thomas B. Freeman, an executive vice president with the bank.

KeyBank is arguably the most active bank prowling the central Indiana real estate market, looking to open up to 15 new branches in the next two years. The Cleveland-based bank is close to inking deals for new locations along Meridian Street north of downtown and at Hamilton Town Center in Noblesville.

“KeyBank is in a great financial position relative to a lot of our competitors,” said Gary Hentschel, the bank’s president for central Indiana. “That’s an oppor- tunity for us.”

The rocky economy has delayed expansion efforts for many other banks, including Regions, which has slimmed its 2008 new-branch roster to about 20 from more than 80.

But looking at opportunities, including prime future locations, remains a priority, Freeman said. One of the bank’s top goals now is moving existing branches to more prominent locations.

Other banks are employing the same strategy. Cleveland-based National City moved from a site with poor visibility in an aging strip center along Michigan Road to a prominent position at 79th Street and Michigan Road, replacing an old liquor store.

Huntington Bank plans to open three new locations this year, including one on the site of the former Forbidden City restaurant in Castleton. The Columbus, Ohio-based bank also plans to consolidate existing branches into new buildings at 71st and Zionsville Road and U.S. 31 and Thompson Road.

The bank also has three central Indiana sites without immediate plans to build new branches, said Mike Newbold, the bank’s regional president. He would not name the sites for fear of tipping off competitors.

“What we’ll try to do is work with local developers and look three to five years out on the horizon and acquire sites before the ground is ever developed,” Newbold said. “It ensures our presence there, and the price is more reasonable.”

Cincinnati-based Fifth Third Bank opened three locations last year, including a branch at 71st Street and Binford Boulevard, in an area that’s in the middle of a handful of major redevelopment projects, including a new Kroger grocery store.

Fifth Third held its branch site on the corner for several months, giving redevelopment efforts a chance to simmer before taking the plunge, said Mason Coleman, a senior vice president for the bank.

At any given time, the bank has five to 10 properties banked for future development, he said. Fifth Third used to be a longer holder of properties, but the bank now tries to build within about 18 months.

“This is a constant evaluation process for us, whether it’s growth areas or redevelopment areas,” Coleman said. “We’re always looking for opportunities, and it’s tough to find choice locations.”

Not every bank is buying up property for future branches. Evansville-based Old National Bank, for one, doesn’t grab land before it’s ready to build, said Doug Gregurich, the bank’s senior vice president for tax and real estate.

The bank has sold most of its branches in lease-back transactions.

“The advantage is, we don’t tie up our money,” he said. “It hasn’t hurt us so far; we still have been able to go pretty much where we want to go. With so many developments going on, we’re getting calls all the time.”

Banks look for many of the same attributes in a location as retailers, including high traffic and favorable demographics.

They also look closely at housing starts, knowing that areas with lots of new homes are ripe for harvesting new accounts, said Mark Perlstein, a partner with locally based Sitehawk Retail Real Estate, which represents New York-based JP Morgan Chase.

Chase just opened a new branch at Southport and Bluff roads, and it plans to open branches in Avon in August and at Hamilton Town Center in Noblesville in November.

For a bank to hold on to a development site for more than a year, it takes a compelling reason, Perlstein said.

“If they know, for example, that there’s a Meijer, Super Wal-Mart or Target coming, and that deal won’t open for another 24 months, many times they will tie down property and try to open as close to the anchor tenants as possible,” Perlstein said.

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