Rubicon Latest Insights

Speaking of Stewardship – Boards of Directors & Real Estate

Once upon a time, a credit union that will remain nameless hired a real estate broker to help them secure a new multi-floor, multi-purpose building. The broker managed to convince the CU executive – along with the CU’s Board of Directors – that developing a brand new mixed-use building on a ground lease parcel was a good idea.

It wasn’t. Not then, not now. Not ever.

Anyone who understands the pros and cons of ground leases will recognize that once the lease term ends – say in twenty years, the parcel — as well as anything constructed on top of it – reverts back to the property owner without said owner paying a dime for any additions to the property by the lessee (said credit union), such as a multi-floor building.  


Anyway, immediately upon signing the deal and shaking hands, the broker drove very quickly away in his very expensive foreign sports car never to be seen again. The financial fallout from what the credit union had done committed to was quickly (and regretfully) locked in on that fateful day.  

The moral of this horror story is that, far too often real estate brokers who don’t understand the credit union industry are hired by CU leaders who don’t understand the real estate industry. The typical result is a “win” for the brokers – they still get paid – but a potentially major loss for credit unions that end up being saddled with properties that are ultimately too inefficient, too expense, or both. 

More specifically, it’s a loss for the people who count most – the credit union members. The de-facto owners. The very individuals that CU executives and board members are dedicated to serve.

This. Should. Not. Happen.  

But sadly, it does. Especially among small and medium-sized CU’s that don’t have the financial or administrative resources enjoyed by many banks and very large credit unions with their national brand reach and recognition.

Especially for these CU’s, it is even more important that board members have, at minimum, a basic understanding of the core disciplines of real estate ranging from market demographics (household incomes, employment data and education levels), to transaction fundamentals (owning versus leasing, basic deal terms and tax ramifications). Without this core understanding, it is hard for many board members to ask key questions, assess pro/con options and, ultimately, advocate for the members they have been selected to serve.

This understanding is also vital in order for board members to serve as astute contrarians as opposed to “rubber stampers” content to cede responsibility to brokers or developers who appear to have all the answers even when they may not.

And that’s a challenge, of course: The relationship between a credit union’s senior management and its board. Both intent on doing what’s right financially today while setting goals and delivering on the objectives of tomorrow. But with so much at stake when it comes to the location and cost of real estate, it is imperative for board members to be as well-versed in this aspect of the organization as any other issue.

On a daily basis, members may not have visibility into how the real estate sausage is made. But when it’s made poorly — i.e., branches not conveniently located, or service levels that decline because of employee attrition — members will ultimately cast their votes by closing accounts. And the reason ultimately connects back to poor real estate decisions and how they were made.

Learning about any new industry can be challenging, but it can also be interesting and invigorating. You don’t need to become a commercial real estate expert, but gaining a basic understanding of it is closer than you may think. 

Post Script: The credit union noted in the opening of this post was not a Rubicon client at the time of that ill-advised transaction. They are now.

Post-Post-Script: Last month, our post “Say What?” listed forty common real estate terms –  here’s the link

Corey A. Waite is the leading commercial real estate advisor to the credit union industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior Credit Union leadership to deliver strategic plans and transactional services focused on headquarters and branch locations alike. With a clear understanding of the unique mission and challenges of the Credit Union industry, Rubicon’s expertise and service is truly unique and value-added. You can reach the Rubicon Team at +1 (213) 462-2810.

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