Tapping Into Your Treasure Chest

If your credit union is desiring growth but wondering how best to fund it, the treasure locked inside your own real estate portfolio may well provide the answer.

Last week, I came across a compelling and timely article posted on CUToday.com. Entitled “The Road to Success is Paved with Capital (From Sale/Leasebacks), the post was written by Guy Messick, CEO of NACUSO Business Services, a subsidiary of the National Association of Credit Union Service Organizations.

In his post, Mr. Messick describes three basic options for generating capital to fund future credit union growth. Clearly, per his title, he advocates for Option #3.

Option #1. Organic Growth:

i.e., Access capital achieved by revenue exceeding operating expenses over a period of time. Always a desired goal but not necessarily a fast one.

Option #2. Secondary Capital Offering:

While a potentially faster way to secure capital, Mr. Messick points out that obtaining NCUA approval is often a long, costly, and often not successful process. He also points out that secondary capital is also considered subordinated debt that has to be paid back.

Option #3. Sale/Leaseback of Owned Real Estate: 

Here, I’ll quote the article directly …

“If a credit union has owned the real estate for a number of years, a portion of the cost of the real estate has been written down and there is a good chance that the market value of the real estate has appreciated in value. If a credit union sells its real estate, the difference in the sale price and the value of the real estate on the credit union’s books can be recognized as capital. If the credit union desires to retain the use of the real estate for its operations, it can lease back the real estate for a period of time, typically for ten to twenty years with options to extend. There is no lack of sale/leaseback buyers.”

Below that it read: 

Rubicon endorses this strategy and, typically for the clients that have seen strong appreciation in their owned-assets, we often encourage them to consider sale/leaseback as a relatively fast and highly cost-effective way to fund future growth. In fact, Mr. Messick’s article resonated strongly with us because Rubicon has written about this exact topic three times during the past year while also assisting five credit union clients in facilitating sale/leasebacks. For our take, also see the links below. (They’re short, I promise).

 In spite of the pandemic and even in the face of rising interest rates, commercial property remains in strong demand. If your credit union is desiring growth but wondering how best to fund it, the treasure locked inside your own portfolio may well provide the answer.

  • But What If? – Driven by the COVID-19 and its hideous variants, the world is changing in myriad ways. Remarkably, many industries and organizations have used the pandemic as a way to re-invent themselves and catapult their businesses forward. Those that assume that things will simply “return to normal” are likely mistaken.
  • Rock & Roll and Your HQ Strategy – In a world where seemingly everything is changing, it’s logical for credit unions to “stand pat” when it comes to their headquarters. But this period of uncertainty can be a gateway to significant benefits – as long as those HQ decisions are made with your mind wide open.
  • Own Your Headquarters? Maybe You Shouldn’t – Credit Unions have traditionally owned their headquarters. But, like so many other things, COVID is upending the tried the true. Here’s the time may be right to re-consider the age-old own vs. lease strategy.

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.

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