Chicago bank branches emptying, but what will replace them? - In Other News

As you do more banking by smartphone, that bank branch you used to visit may soon turn into a restaurant, a day care center or even a condo tower.

After a branch building boom a decade or so ago, banks are closing offices by the thousands as more of their customers bank online. They're leaving behind space ready to be transformed into something else, whether an urban storefront or a free-standing brick building with a drive-thru in the suburbs.

"If the real estate is strong, any number of things can happen to the property," says Kim McGuire, senior vice president in the Chicago office of CBRE.

It's a problem or an opportunity, depending on your perspective, that will be here for a while. Banks operate about 89,300 branches in the United States today, down 8 percent over the past decade, according to Chicago-based real estate firm Jones Lang LaSalle. JLL expects an additional 20 percent drop over the next decade.

In the Chicago area, the number of branches dwindled 11 percent between 2010 and 2016, to 2,863, according to JLL. The losses included a former Fifth Third Bank branch in northwest suburban Wheeling. Cafe Zupas, a suburban Salt Lake City-based restaurant chain, recently took over the building, tearing out the drive-thru to create more parking space. In Old Town, a SharpeVision Lasik surgery center now occupies a recently closed Fifth Third branch location at North Avenue and LaSalle Street.

Banks are entrenching amid a broader shakeout in the retail real estate market. Retailers that sell everything from clothes to TVs are closing stores as e-commerce changes consumer shopping habits. Just as more people pay their mortgages and deposit checks by phone, shoppers are spending less time in physical stores.

Demand for retail space is sagging as a result: At 10 percent,​ the Chicago-area retail vacancy rate is down from its post-crash high, but it's also well above its ​ pre-recession low of 7.2 percent in 2006, according to CBRE.

Banks used to be a growth sector for retail landlords and developers, opening branches to attract new customers and deposits. In many cases, they would sign long-term ground leases at high-visibility suburban intersections and pay developers to put up expensive new buildings.

"Ten years ago, they were buying every corner, overpaying and overbuilding. They had to have a presence," says Jeff Shilkaitis, a broker at Re/Max Commercial in Naperville. "Now they are doing the correct thing: moving to smaller spaces, more-efficient spaces and doing more online banking."

Though technology is driving banks to close branches, so is consolidation, says Jeff Liljeberg, senior managing director at JLL. Banks are acquiring each other and closing branches when they take over competitors with overlapping territories. Last year, Itasca-based First Midwest Bank said it was closing 16 branches, mainly in the southwest suburbs, due to its acquisition of Hickory Hills-based Standard Bank & Trust.

Shilkaitis is selling one of those branches, a 7,400-square-foot building with a drive-thru in Plainfield. A restaurant franchisee recently signed a contract to buy the property at Route 59 and Caton Farm Road, which is listed for $1.45 million. Shilkaitis wasn't sure whether the buyer, whom he declines to identify, planned to rip out the drive-thru or use it.

Banks that own closed branches can simply put them up for sale. But many are locked into long-term leases for the land underneath branch buildings that they can't break, so subleasing is their only option.

The best properties—often those at high-visibility intersections or near big shopping centers—go quickly, while those in weaker locations can languish on the market. Many branches are refashioned into restaurants, but the properties attract all kinds of buyers or tenants. In Deerfield, online supermarket Peapod converted a former Amcore Bank branch into a grocery pickup site. Sherwin Williams and Sleepy's Mattress stores now occupy a former Harris Bank branch in Antioch.

Medical uses are common, too. In Yorkville, a former West Suburban Bank building is now a pediatric physical therapy clinic. Other former branches around the country have been converted into MRI and dialysis clinics.

Yet sometimes the best option is to tear a branch down and build something new. In Portage Park, a developer has razed a big Bank of America branch office at Milwaukee Avenue and Irving Park Road to build a 100,000-square-foot shopping center. A 114-unit apartment project is planned on the site of a Chase Bank building in Lincoln Square.

JPMorgan Chase of New York, which has 386 Chicago-area Chase branches, more than any other bank, has put several other branches up for sale. It's offering a building in Crystal Lake for $1.25 million, one in Aurora for $650,000 and another in Mokena for $310,000. "The theory for Chase is have less, but better" locations, says Peter Graham, a vice president at CBRE, hired to sell the properties.

Brokers these days must cast a wide net to find a buyer for an empty bank branch, but sometimes the best one is another bank. Graham is selling a shuttered Chase branch in downtown Evanston that has received a lot of interest from residential developers.

But Rosemont-based Wintrust Bank edged them out, recently signing a contract to buy it for $5.5 million, Graham said. Chase's asking price: $4.5 million.