Credit Union Real Estate Decisions: But What If?
An astute and highly experienced credit union CEO client of ours recently predicted that there will be 50% less credit unions five years from now than exist today. Not branches mind you … 50% less credit unions.
It is his opinion that, while some will fail, the majority will be absorbed through mergers and acquisitions. Should he be right, this contraction – especially for small and mid-size CU’s – will be due to a variety of reasons. Among them, the rising cost and continually confining structure of their real estate portfolios.
To us, this situation is nothing new. What is new – driven in large part by the astonishing changes resulting from the pandemic — is the increased focus (and sense of urgency) many credit union executives are suddenly feeling about their real estate.
And I fully understand why they feel that way.
When Tried and True Isn’t
While Rubicon has always endeavored to be on the leading edge of transformation in the credit union industry, we have been both humbled and inspired by the degree of innovation happening in the world around us. So much so that – when it comes to their real estate – we are encouraging our clients to look at their portfolios and strategies through a fresh new lens. A lens focused on speed, liquidity and flexibility as opposed to long-held “tried and true” constructs that may no longer be applicable for the future.
In short, as strategic real estate advisors, we strongly believe that conducting business “as usual” is an existential threat to our clients. One that jeopardizes their members, their staff, their market-share and their long-term existence.
As a result, we are re-doubling our efforts to help ensure that our clients are in control of their real estate rather than their real estate controlling them.
Motivated by the innovation and creativity we are witnessing in businesses all around us — we are challenging long-held perceptions and asking each and everyone of our clients “what if?”
What if …
• You sell some or all of your owned real estate and re-allocate that capital elsewhere?
• You sell and lease back your entire portfolio?
• You expand into other markets?
• You reposition your existing branch footprint based on the future?
• You merge with other like-minded credit unions?
• You purchase another credit union outright?
• You de-couple headquarters from branches?
Playing it Safe May Not Be
While some may think this is a knee jerk reaction during a volatile time, we think otherwise. While our clients may ultimately not take action on any of these “what ifs,” the ramifications of not considering them – and therefore falling victim to inertia – belies the trust that members and employees have put into your organization.
Some time ago, a CU executive I know was incredulous at the notion of selling their long-time (and highly dated) headquarters. His opinion was that owning their headquarters implied financial strength and credibility to their members.
That’s fine in theory but the reality is that members don’t know if your headquarters is owned and, even if they did, they wouldn’t care.
From a branching perspective, members care that they are modern, comfortable and convenient. That their CU’s financial offerings are accessible, affordable and applicable to all phases of their life ranging from mortgages and auto loans, to braces and college savings plans. They didn’t – and don’t – care that you own your real estate as long as you can help them own theirs.
Loyalty is Fragile
Members see the world around them changing at warp speed and want to be aligned with a financial institution that can respond to their wants and needs in this weird but forever changed new world. And if your real estate is limiting your ability to serve those wants and needs, those members will leave you for someone who can provide them – whether they own their headquarters or not.
Going beyond real estate, our counsel to clients is to assume nothing. To look at virtually every aspect of your business and shake the (hopefully) post-COVID Etch-a-Sketch clean. Do research into areas that are revolutionizing — and in some cases even threatening — the business world like never before.
What is your level of awareness when it comes to cyber-security? (i.e., what would happen if your computer network was held for ransom?) Do you understand the rapidly changing dynamics surrounding international supply chains, AI and block chain? How soon will crypto-currency change your day-to-day world and that of your members? This and so much more is simply the tip of the Disruptive Iceberg but all of it – ALL OF IT – is going to impact your organization very soon and you have to be in a position to respond. Or cease to exist.
Credit unions willing to ask “what if” will be those who not only survive this period of great change, but will thrive as a result.
Your real estate is a good place to start.
Corey A. Waite is a leading commercial real estate advisor to the financial services industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior executives coast-to-coast to deliver strategic plans and transactional services focused on optimizing the needs of employees, clients and members.
When it comes to the credit union industry, I never cease to be inspired by the many people I meet who are committed to making their organizations and communities stronger and more sustaining.
In addition to enhancing income and capital, a Sale/Leaseback transaction provides a “win-win” by enabling CUSO investors to achieve certain tax benefits that are unavailable to credit unions.
Silicon Valley Bank (and others), inflation, fed interest rates and future job uncertainty are all fueling concerns about and within the banking industry. Yet, in the face of all this uncertainty, credit unions and community banks are still expanding their branch networks. Why? And are they going about it in the right way?
Nearly every firm we know has — or is in the process — of evolving its workplaces in order to recruit and retain key talent and grow their business. See what one of the world’s leading consulting firms has to say on the matter.
A lot of smart people go deep to deliver powerful information and insights that can benefit your business. And the best leaders are those who carve out the time to find, consider and, if and when appropriate, employ what they’ve learned.
For all its angst, the pandemic has been a catalyst for change throughout the credit union industry. CU’s of all size are embracing innovation and re-considering everything … especially when it comes to design and purpose of their branches.
While considering growth into new markets, credit unions should keep two things in mind: One, even nearby, expansion costs can differ wildly. And two, rigidity in expansion planning – while prudent – can also be costly.
Expanding a real estate portfolio is a heavy lift for any credit union. Succeeding with an expansion initiative – and with your Board of Directors – requires some important and un-relenting disciplines.
In the race to anticipate the future and stay ahead of the competition, it’s important to recognize that the “next shiny thing” is not really what your members want most. What they want is satisfaction.
In the face of so much uncertainty, the key to future growth – if not survival — for many credit unions is through mergers and acquisitions. Often times, the ultimate success of am M&A transaction is based on the true value of the seller’s real estate portfolio – and this is where assessment and due diligence isn’t always what it should be.
The sticker shock rise in construction costs has many credit unions pulling back on their current project pipeline. While that makes sense, it doesn’t mean you have to suspend your overall growth plans.
Trying to make up for lost time (and commissions), the real estate industry is eager to have you make deals. After all, what could go wrong?