Regions Bank purchased AmSouth Bank in the fall of 2006. As a result, there were several instances where Regions and AmSouth had overlapping locations. As part of approval from the FDIC, AmSouth was forced to sell some of their assets without any bank use restrictions.
The issues were:
1. Multiple bank sites were placed into a large pool of assets across the mid-south then were put up for bid which made a very competitive sale process.
2. The very large bank building on Gunbarrel Road was approximately 6,000 square foot with three drive-thru lanes.
3. Bank buildings were selling for premium prices and other end-user banks were bidding at pricing levels well over $500 per square foot.
4. Rent levels needed to drive a market return on the investment were going to be unusually high. Bank users wanted to own assets as opposed to leasing them.
5. Financing would be difficult due to the high price that bank sites were commanding.
6. A sign lease was in place with a local sign vendor who was paying a below market rent of only $350 per month. The sign blocked the visibility of the bank building from Gunbarrel Road.
BSM identified multiple properties in the portfolio to bid on in hopes of obtaining better pricing. BSM underwrote each asset in the west, middle and east Tennessee markets then submitted a lump sum offer for fourteen assets. BSM also purchased the former AmSouth Bank on Gunbarrel Road that was directly across from the Hamilton Place Mall in Chattanooga, Tennessee. This particular asset was one of the best of the Tennessee assets that was being auctioned.
BSM Consulting needed to provide an in-depth demand/gap analysis that included all high-end retailers that were not yet in the Chattanooga market. In addition, a market study was needed to identify banks that were already in the Chattanooga marketplace. Research revealed several banks that were not yet in the Chattanooga market but planned on building a presence. Marketing materials had to demonstrate the quality of the real estate and its relevance in the Chattanooga area next to Hamilton Place Mall.
In order to engineer a reasonable equity and long-term debt structure, BSM had to make a judgment call regarding the underwriting standards and estimate the resulting loan dollars available to acquire the bank. It also seemed possible to create more value from the current outdoor sign lease.
During the short diligence process, BSM identified and began contacting a handful of banks that did not have a presence in the Gunbarrel Road area. BSM discovered that BB&T Bank wanted to enter the Chattanooga market with an important branch in terms of location and size.
Also, during this time period, all physical inspections, title, survey and other legal investigations were completed.
A 15 year, NNN lease was negotiated with BB&T Bank within three weeks after the end of the limited inspection period. The rent level was well above the typical market rent and yielded a return that exceeded 10% on cost. The new lease stipulated a 15% base rent increase every five years. The billboard lease contained a termination right if the AmSouth building was sold. BSM terminated the lease and then executed a new five year lease at a rental rate of $2,000 per month as well as a four percent increase each year. The sign was repositioned to open visibility of the BB&T Bank building.
BSM arranged for and placed a permanent loan on the property at an attractive interest rate which resulted in substantial cash flow. The total value created was 7.2 million dollars and represented a yield on cost of 10.37%.