Cheeseburgers, Fries, Shakes and Home Equity Loans

Branch deployment is at an all-time high for both credit unions and banks. We in the industry know the top real estate locations are pursued by financial institutions, fast food restaurants, gas/convenience stores, and drug stores. These users typically drive the value and price point to the highest square-foot dollar values in the market. A source of truly untapped value by most standards is believe it or not – the abandoned or poorly performing fast food restaurant. Many are rundown, smelly and outdated. Others are just not making it for reasons unrelated to the site and yes, some are not making it because of site specific situations. There are many benefits of transitioning into one of these spaces. These include getting a prime location with a high traffic volume that is probably near other retail stores. Sometimes, it’s even at a traffic controlled intersection. Also, these locations aren’t desirable to many other businesses so you avoid a bidding war. Another important point is even if the building shell isn’t usable, it is more often than not a usable site. The building is normally situated on the site with a drive-up in mind and it will usually have the necessary curb cuts. If the restaurant for sale is relocating a few doors away, it may have a deed restriction against other fast food or food sales which could eliminate convenience marts as one of your competitors for the site. Additional competition can be eliminated simply by the size and configuration of the site or adjacent property use and availability. Abandoned gas stations are also great options but often contamination has gone beyond a simple remediation and affected the ground water. This increases the complications associated with taking over the site and possible future liability. Of course, like any site, there are drawbacks to these too. There are potentially serious complexities associated with the lease that covers the property. Just because the property is vacant, or closed for business for a long period of time, does not mean the landlord doesn’t have to be paid or is not being paid. Also, reaching the decision maker is sometimes difficult as many of these locations are part of a series of restaurants or belong to a franchise owned by the same or different entities. The decision maker may be located in another state and be insulated by several layers of administrative bureaucracy or this one little restaurant may not be high on his/her list of priorities for a multitude of reasons, no matter how important it is to you. The due diligence component of this process can also be challenging if this type of real estate and construction is new to you but a design build firm or consultant can help. The condition of the building, how to change the appearance without spending your entire affordability and reserves on it, not to mention the mechanical systems and roof penetrations, pose design and cost issues that will need to be definitively addressed. In addition, I can almost guarantee there is a good chance there will be mold behind the restaurant’s drywall caused by the massive amounts of humidity emitted from the cooking, frying, cleaning and occupancy of people combined with an inefficient HVAC system or one that’s undersized for the application. If the restaurant is on an outlot of a shopping center, you may be dealing with a height restriction on the building. You may wish to investigate if the shopping center’s owner or anyone else has architectural review and control or the ability to make any changes to your building, site, signage, hours of operation, etc. For example, you may not be able to put on a different roof so the existing roof or parapet walls will need some alterations to change the look of the building. Dealing with grease traps and pits could mean higher costs to your credit union. Usually if the restaurant is not performing well, they won’t spend the money on maintenance or to have the grease pumped out of the pits. The responsibility for remedying this will be yours and the cost needs to be provided for in your budget. What about the roofs, vents, range hoods and exhaust stacks that exist in the building? Not all need to be removed. Some can be steam cleaned and capped. This is cheaper and there is no disruption of the roof system. A thorough evaluation and cleaning of HVAC supply and return ducts, as well as the unit itself, will save you much heartache and money in the future. Also note that 99% of the time, the utilities and mechanical room are in the absolute worst spot. If the price is right for the project, a good consultant can deal with it and design around it. It costs a fortune to relocate your mechanical room. If your credit union is committed to a specific floor plan and building typology, the option to work around things may not be viable. However, the majority of credit unions can and will save a lot of money this way. Sometimes getting exactly what you want will mean a complete tear down but most of the time, that is not the case. A little effort can make for a fantastic end result. Next time you need to start thinking about a new location, think about cheeseburgers, fries, and shakes. You may find your new gem in an unexpected place.