Gunbarrell
Road - Chattanooga, Tennessee
The
Challenge
| 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.
Our
Strategy
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.
Results
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%.
