Obsolete Uses and Real Estate Investing

March 3, 2023

Waiting in line at my local bank to get foreign currency for a trip, I was amazed to count 11 bank teller windows at this vintage bank where only one window was open for transactions. What a waste of space, moreover what is the purpose of the branch bank and its relevance with online banking and automated payment processes, etc? It has certainly changed, and in the new world, I am amazed to see branch banks still being built and being sold at ridiculous cap rates.

Retail Bank Locations

They still have a purpose for business customers who need to make cash deposits and for personal services such as loans and other banking purposes, but do they have a future? In talking with my friends, in the banking world, the purpose of the retail bank today has more to do with branding and attraction of depositors to the bank than in the old days of a place to get cash.

Why invest in branch banks from a real estate perspective?….a stable yield, with a credit tenant that in 15 years may go away but there is a residual land play. You may be better off buying a 10-year bond, as they are priced closely.

Office Buildings

The future of office space is being debated now, as we emerge from COVID-19, and the C-suite is trying to get staff back to the office. In support of office real estate, companies are built on culture and talent and that talent develops in a collaborative atmosphere. You cannot build culture and future talent remotely via Zoomy. Office space today is also about recruiting – the headquarters reflects the culture of the firm and is a strategic place to recruit sought-after talent.

How to use office space is what is being debated. Is it needed 5 days a week? Are we headed for 4-day work weeks? Will it best be used in a “hoteling” concept where people come in and out on intermittent schedules? We have gone from large mahogany offices to cubicle farms to open seating with collaborative environments. Each has its benefits.

Why invest in an office or is there a future? Yes – we think the office as an attractive asset class will return, but it will be site-specific and amenity-rich. The best performers will be in the “hip” mixed-use center that is located near young talent with many amenities and a casual feel. In Atlanta, many locations on the Beltline fit this description.

Retail Big Box

Amazon leads the charge of online retailers who pushed the social fun out of the Big Box retail centers and Malls to the iPad at home. Going out to shop is a waste of time when you can get what you want delivered to your door at the same price. The Big Box was needed to handle foot traffic and displays and to inventory mass merchandise that would flow out every week. The space doesn’t need any more and the shoppers may come to buy, but only to compare shops and then buy online. It is a new world

Is there a place for Big Box retail in your real estate investments? Maybe – the anchor for the Big Box tenant is the key component…many are going under from Bed Bath and Beyond to Big Lots. Clearly, grocery stores are here to stay, so is the Big Box retailer essential?

Old Industrial Buildings

Industrial development and investment are one of the growth markets in real estate. How does it get obsolete? Industrialization of the past was manufacturing and storage. Many things manufactured years ago aren’t being built anymore. And what was made there may have incorporated toxic chemicals that precluded the real estate from continued use. In the distribution world, the industries of today need higher clearance, deeper bays, and strategically located building close to major distribution channels to get to customers faster…and they need to be huge!!!

However, obsolete industrial space (after cleaning toxic chemicals) becomes the new and funky residential and loft office space. The structure is usually good, urbanization has made the location fit and the price point allows a lot of money to be used for conversion to a “cool” loft.