Credit Union Real Estate Decisions: The Same But Different

So, you want to expand your credit union. Across town. Across the state. Maybe even across the country.

Many CU’s do that, so how hard can it be? After all, you’ve done business in your state during times both good and bad and you know the lay-of-the-land: Its industries, politics and people.

So you begin the requisite expansion steps by making assumptions about future market growth and revenue projections. And since you’ve opened a few local branches in the past several years, you apply those real estate costs to your pro forma estimates. After all, how different could expenses be from one regional market to the next?

In a word: Very!

It Costs How Much?!?

Cost-wise, Tampa is different than Orlando. Minneapolis different from St. Paul. Sharing the same border, Orange County is vastly different than Riverside County. This is a reality that exists in every market and every state.

Prior to becoming our client, a small but growing credit union applied land purchase and construction costs from their current 400,000 population market to their proposed expansion into a 300,000-size market less than 90 miles away.

They under-budgeted by nearly 100%.

So close on a map but a world away cost-wise. The fact is, while commodities such as lumber, steel, glass and concrete may be similar, labor can vary wildly and the biggest difference of all – by far – is the cost of the real estate itself. Either to own or lease.

Example: When first creating their expansion plan, our client was looking at specific potential properties with an estimated cost per-square-foot (PSF) that they presented and “sold” to their board. Two years later, much of that inventory was no longer on the market and what was available was far more expensive. In short, while our client planned and then waited based on their pre-determined timeline, the real estate market didn’t care and it certainly didn’t wait.

The point being that, more than ever, real estate assumptions are a dynamic and constantly changing thing. As a result, development plans – to the extent possible – must be made on actual space in the actual market where you are planning to expand – not on a site in another market that you secured two years ago.

Finger in the Wind Versus Verifiable Facts

Based on experience, our opinion is that most static information presented by a majority of local brokers is not only inaccurate but an existential threat to your plans and future. For this reason, we created and leverage our proprietary market assessment and planning tool,
Rubicon Reveal.

With databases from numerous sources being constantly updated, Rubicon Reveal enables us to provide our clients with timely and detailed research data on every U.S. market. The result is a powerful information tool with data ranging from current and projected labor costs all the way down to the price and availability of a ground lease pad at the corner of Main & Main.

Flexibility as a Competitive Advantage

Over the years, we have seen numerous credit unions with detailed timelines that were blessed by their Boards and not to be changed. But in the real world where properties appear and disappear from markets like real estate Whack-a-Mole, our counsel is to seize profitable opportunities when and where they arise.

Consider what happens when a well-located property suddenly becomes available at an attractive price. It checks all the right boxes in a market where you are planning to expand – but not for another year.

By being flexible, savvy credit unions will be nimble enough to call an audible, revise their timeline and take advantage of the opportunity (think land banking) – even if it’s out of sync with the original plan. As any military leader will tell you, the plan changes as soon as the operation begins.

This flexibility may then enable you to take action in 2023 instead of a year or more down the road. The result is a new branch chalked up in the “win column” even though it’s not where you originally planned.

Even in the face of inflation, rising interest rates, high commodity costs and labor shortages – strong opportunities still arise. Sometimes even better than anticipated. When they do, embrace flexibility and be sure your future plans are based on what is “now known” instead of “what was.”