Current regulatory constraints, a low-interest rate environment, rising operating expenses, the impact of new technologies, ever-changing consumer shopping patterns, and now, changes in how and where employees work, present significant challenges in achieving profitability.
After listening to many of our clients, Paramount has launched a new program called “Hidden Capital” to help financial institutions not only improve operational and branch network efficiencies but to also unleash potentially millions of dollars laying fallow in underutilized properties designed or acquired during a very different era in banking.
What Is “Hidden Capital”
Very simply put, Hidden Capital is money tied up in underutilized real estate and facilities that could be unleased to create opportunities to reduce overhead and improve profitability. One of the more familiar vehicles is sale/leaseback, particularly when demand in the capital markets is high, as it is currently. However, there are other examples of hidden capital that may be more relevant to individual institutions.
In markets where the economic environment is strong and demand for real estate is high, developers are aggressively looking for opportunities to meet that demand whether it is in the office, residential, institutional, retail or hospitality sectors. America’s more dynamic cities are where demand is highest and as a result, so is land cost. In the more mature enclaves, development sites are scarce and one way to address the shortage and make high land costs more feasible is to go vertical, which is why some of the country’s most successful projects have included air-rights development. Because of high land cost #1 and consumer lifestyle demands #2, developers are looking to make their projects more marketable and appealing by going with a mixed-use format.
Many older generation headquarter properties, for example, have wonderful architecture. These properties with high vaulted ceilings, marble columns, ornate fixtures and magnificent entrances, are also money pits with inefficient systems, cavernous spaces that require higher staffing levels, and they offer a customer experience that may have worked in years past, but no longer.
Included among ways to unlease Hidden Capital are,
- Sale of Underutilized Property for Redevelopment
- Value Creation by Reprogramming Vacant Branches
- Branch Rightsizing
- Lease Restructuring/Blend and Extend