Citi Considering Reducing Retail Branch Count
Citigroup may be looking to sell or shut down some of its 1,001 retail bank branches in the U.S. and Canada. Citi wants to focus on their core markets of New York, Washington, Miami, Chicago, San Francisco and Los Angeles. DealBook has more here.
Needless to say, this is not good news for capitalization rates for properties leased to Citibank. I believe there are a handful on the market in Northern California at this very moment. I imagine that as news of this nature makes its way into greater circulation, capitalization rates will move upward for all financial institutions, as they should. There are way too many bank deals on the market at unjustifiably low capitalization rates. I know that before you even finish reading that last sentence you will be thinking “you are an idiot because the deals are selling at those capitalization rates so the pricing is justified”. That is a head scratcher for sure. My take: It is that kind of logic that got us here in the first place. Lots of people thought it made sense for subprime mortgage backed securities to trade at just 50 basis point spreads over treasuries as well. Look where that got us.
Prices are holding much stronger in the single tenant (credit) market nationwide than any other property type. This I believe is justified; however, investors still need to weigh the underlying risks and uncertainty of the tenant’s primary business operations. Financial institutions, especially the big ones, are propped up by the government right now for the sake of stability in the economy (read bubble). Where would Citigroup, AIG or Goldman Sachs be today without this government support? See Lehman Brothers. Would you bet $3,000,000 on the security of $48 annual rents from Citibank right now?
