Sunday, February 22, 2009

Shuttered Bank Branch on 53rd Street A Window to Credit Crisis

posted by chicago pop

A Bad Bet: WaMu Location in Hyde Park

The story of the shuttered Washington Mutual branch at 1364 E. 53rd Street is not unique. It was repeated all over the city of Chicago and nationwide during the five year boom in bank-branch expansion. The boom saw corner cafes, fashion boutiques, dry cleaners, and other neighborhood retailers displaced by bank branches willing to pay top dollar for central urban locations, driving up lease prices and driving non-bank competitors out.

Filter Cafe at Damen and Milwaukee; the ladies' boutique at St. James and Clark; readers can undoubtedly supply many other examples of unusual local businesses replaced by sleepy offices with a few tellers and an ATM over the last half decade.

As of 2009, many of the local retailers that preceded the branches are long gone. The news is that now, many of WaMu's bank branches are going, too. Fifty-seven of them by March 2009. For the retail fabric of Chicago's neighborhoods, the outcome is a net loss. On some Chicago blocks, there is now less retail occupancy in 2009 than there was 5 years ago.

The Washington Mutual property on Hyde Park's beleaguered 53rd Street commercial district is a paradigmatic case.

In 2004, as the credit boom was nearing its peak, a handsome though dilapidated brick building at 1364 E. 53rd Street was home to a number of rental units, and a ground floor fully occupied by five independent retailers.

In 2005, 1364 E. 53rd Street was purchased by a new owner, MAC Properties, and the leases on the ground floor retailers were not renewed. The retailers left, and in 2006 were replaced by a Washington Mutual Bank branch.

Now it's gone, too.

So turns the wheel of fortune. Is 1364 E. 53rd better now than it was before? Before: 5 independent, minority-owned businesses in a solid but run-down building, some of them delinquent in rent payments. After: a building preserved from the wrecking ball, refurbished, and returned to the market as rental units by its new owner, a building that now presents a quarter-block, 5,000 square foot stretch of empty storefront where the bankrupt WaMu branch used to be.

1364 E. 53rd Street, Hyde Park

WaMu's branch expansion began in 2002 and was part and parcel of the high-risk, rapid-growth strategy that led the venerable thrift bank into the choppy waters of subprime mortgages, subprime credit cards, and other risky forms of lending. As the Chicago Sun-Times reported of WaMu Senior VP and Group Manager Tony Manisco in April of 2004, the bank executive was "focused less on deposits and more on customer service and profitability from checking accounts and mortgage loans."

Using a concept devised in Las Vegas in 2000, one of the housing bubble's epicenters, WaMu set out to be the Starbucks of retail banking, an off-site living room where you could bring the kids and sign on to a low-rate home equity line of credit at the same time. As Manisco put it in 2004, "They use the mortgage, home equity products as the initial point of contact ... with attractive rates, and then they try to add other products."

By 2005, WaMu's attempt to break into the Chicago market was being called out by analysts as a bust. By late that year, WaMu had built 147 Chicago branches from scratch, at costs of between $750,000 to $2 million apiece, but had carved off only 0.3% of deposits in the Chicago metro area.

Hyde Park's MAC Properties, in what was probably a riskier move than they appreciated, signed a lease with WaMu at about the same time that analysts began pointing out how WaMu's expansion had come up short.

In 2006 WaMu began closing branches. In 2008, Chicago home foreclosures on WaMu-originated mortgages were outnumbering those of almost all other lenders, with 51 in February 2008, 64 in April, and 43 in September, according to foreclosure reports from the real estate website

The ironies of history. Now we have a landlord at 1364 E. 53rd who had a bank tenant paying $32/square foot and now has nothing; had he kept the paying tenants cut loose in 2005, he would be in a better position. Instead, he signed with a financial institution that has gone down as the biggest bankruptcy in US history, which has caused the credit markets to freeze up, and a recession to accelerate, all of which make it highly unlikely that he will find a new tenant for the space vacated by the bank that drove the businesses out to begin with.

The viral spread of bank branches may be over for now, and it's a good thing. Chicago suburbs recognized earlier than most the dangers posed by their irrational multiplication to healthy commercial districts. They began to zone against it when they realized that no one would want to visit a downtown full of bank branches, a district that closed at 5PM and had displaced the very businesses that would take all the money withdrawn from all the conveniently located ATMs.

[This post also appears on Huffington Post Chicago]


Greg said...

I don't miss Filter or the stuck up, self-satisfied hipsters that frequented it. :-)

But I totally agree about the oversaturation of bank branches. When I grew up in the suburbs our oldskool neighborhood stores went out of business and were replaced with real estate offices. D'oh!

I can't say I blame MAC for bringing in Washington Mutual though, at the time it probably seemed like a business slam dunk. Especially with WaMu marketing to college kids with their free checking accounts and such.

chicago pop said...

I had a feeling the Filter example might not be a good one. Hipsters are polarizing.

Further notes on this tale of twists and turns: before MAC acquired 1364, previous buyers had not been interested in preserving the building. MAC preserved it, and did not convert it to condos (which now looks like the smart side of the bet).

But even at the time of MAC's lease with WaMu, you could have argued that they the bank was clearly heading for a shakeout from its massive and unsuccessful branch build-out.

Greg said...

Good point. Probably not the best decision on the part of Mac.

I kinda wonder what else could fit in that space now. They took several smaller shops and joined them all together into one big office. Seems like all they can really do with it now is bring in more offices (bank, real estate, dentist, etc.). I guess another restaurant could work with some build out. To bring back small neighborhood shops would require a total redesign.

Just thinking out loud.

chicago pop said...

To bring back small neighborhood shops would require a total redesign.

Greg's right. Bank branches are more expensive to convert to other uses. So bringing one in is kind of a one-way street to office space. Any of the kind of white collar, professional services Greg lists are what is most likely to move in here. If not MAC's backoffice (or main office) operations itself.

The problem with that, of course, is that everyone and their mother wants 53rd to be a vibrant retail district. You don't get that with banks, or with dentists, real estate offices, or monasteries (I think there actually one of these on Blackstone and 53rd, SW corner).

What helps is to have a diverse inventory of footprints -- some small, some mid-sized, some low rent, some mid-range, that will allow the retail in a district to develop some synergy between start-ups and established businesses. When MAC let WaMu take out those 5 shops, they went a long way towards taking retail off the block completely at that location.

This was an early acquisition by MAC -- one of its first, I think. I'm not sure they'd do the same thing again, given how important it is to hold on to what little retail vitality 53rd Street has left if they want to attract outsiders to move to the neighborhood.

Zig and Lou said...

Funny how things come full circle. Z&H looked for nearly a year for a viable commercial retail space (location, location, location) in our neighborhood. We are happy with our location (being able to walk to work makes me smile each and every day) but (a big but) we did/do need a larger space to realize the full scope of Z&H. Quality retail space is seemingly often off-limits to indepedent retail business in our neighborhood. All that aside, $32 a square foot make me whistle.

Chicago Pop: "Hipsters are polarizing." Is a great t-shirt.

chicago pop said...

Z&H: Just curious -- are you saying that the WaMu space is something you could work with -- theoretically?

If nothing else, we could always bring back the Herald's Chicken that used to get sold out of a cage on the corner of that building...

Zig and Lou said...

"concerned primarily with theories or hypotheses rather than practical considerations"

practical considerations aside, 4-5 thousand square feet is the dream and there are other interesting and non-typical spaces that would serve the needs of Z&H and offer new and dynamic experiences for our neighbors.
We have lots of ideas (not so many bagels, we need to bake more each day)

Stephen said...

Seems like an opportunity for some soon to be displaced restaurants in Harper Court. I'd like to see both Calypso Kitchen and Dixie Kitchen stay in the neighborhood.

On a similar note - the new Maravillas on Lake Park (and 55th) is nice. But, I'll miss the oddness of the Harper Court space.

Greg said...

I hope Maravillas can make it in their new location, I really like their food.

I wonder if Dr. Wake would work out in the empty WaMu location? As far as I know, he hasn't found a new location yet. He actually seemed pleased to be leaving Harper Court.

JC said...

The real estate problem on 53rd & Kenwood is the Ghost of Harold's Chicken coming home to roost. The old Harold's served the best chicken in the city, and was a holy site. The outpost in the Woodlawn shopping center was an inferior imitation. "Cleaning up the neighborhood" efforts led to the closing of the genuine Kenwood Harold's, and the eventual conversion of the space into a WaMu is obviously sacrilege. Now the Devil has been paid his due. Simple as that.

Matt said...

WaMu closing is good news for those who want to make 53rd Street more vibrant and filled with more retail options other than a boring bank branch (see also: 5th/3rd bank on 53rd street). In my opinion, the old WaMu site should be sub-divided into smaller retail spaces so hopefully the tenants displaced from the Harper Court Redevelopment will have a place to relocate to (i.e. Calypso, Dixie Kitchen, etc.). Right now 53rd street's retail space is almost 100% occupied and Harper Court tenants can't stay in the neighborhood because there is no other retail space available. WaMu closing on 53rd changes this. This creates an excellent opportunity to keep these restaurants/shops in the neighborhood while Harper Court gets redeveloped in the coming years into something more viable. If there is one thing our neighborhood needs, it is more retail space.

Otto said...

You don't get that with banks, or with dentists, real estate offices, or monasteries (I think there actually one of these on Blackstone and 53rd, SW corner).

The Dehonians have a missionary goal. I believe that building was converted into a sort of dormitory and training center (the Art Werk space was originally supposed to be a storefront chapel, as I recall).

It's a crying shame, as they were nice apartments.

David Farley said...

You guys are on The Consumerist, complete with picture.

btw - why is it so hard to convert bank space to something else? I don't think they install big honking safes anymore, or other unwieldy furnishings.

chicago pop said...

It might actually be more interesting to convert to a restaurant if there WERE a big honkin' safe. I once had dinner in a converted bank building in a small midwestern farm town. I asked for the table in the bank vault, through the enormous round steel door. The food wasn't that great, but the ambiance was memorable.

FYI, the WaMu is too close to Murray Academy to get a liquor license, which means no restaurant.

chicago pop said...

You guys should go read the comments to the excerpt from this post over at The Consumerist (hat tip, D. Farley). Some guy calls me a "random twitter/blogger guy". Which means of course, he disagrees.

Love it.

Stephen said...

Well, Sit Down is about the same distance from Murray, and it is a restaurant.

chicago pop said...

While I think it would be great if Calypso or Dixie could go in there, I'm saying I don't think it's possible because those resto's would have to change their business model in order not to go against city code. Sit Down doesn't sell alcohol. Calypso and Dixie both do, and would have to go dry if they wanted the 1364 space.

Even if Sit Down did sell alcohol, I'm guessing it's more than 100 feet away from Murray grounds and so therefore could do it. Maybe not, I haven't measured. But the WaMu is right across the street, less than 100 feet.

See the City's webpage on liquor license restrictions.

Richard Gill said...

"I once had dinner... in a small midwestern town...The food wasn't that great..."

C-Pop, that is a prize understatement. I have much first hand experience with dining in restaurants in small midwestern towns and have a close friend with family ties to said type of town, who refers to the cuisine as "farmer food." Oh, the food is wholesome and hearty, but, like Bert on Sesame Street, it is "dull, dull, dull."

Bread: white rolls or rye-crisps.
Salad: Lettuce, tomato, cucumber, and choice of French or Thousand.
Entree: Fried chicken, ham, turkey, minute steak, fried fish (not otherwise indicated by name).
Sides: mashed, fries, hash browns, green beans, corn (choice of two).
Dessert: rice pudding, jello, vanilla ice cream.
Beverages: Water, hot tea, coffee (weak or feeble), soda (diet may or may not be available), iced tea (pot of hot tea and a glass of ice).

Maybe I exaggerate some, but not a whole lot. It was, however, in a small town that I was introduced to chicken fried steak ("'chicken fry"), which I really liked.

A few years ago, I bailed out on a free "buffet" in Northwood, Iowa, and then stopped at a brew-pub in Albert Lea, Minnesota. At least they had good burgers and rings. When I walked in, the hostess said, "They're over there." She thought I was with a group of farmers who were sitting at a table, drinking coffee. And I wasn't even wearing a Purina Feeds cap.

Don't get me wrong. My family comes from a small town in Kansas, and I love going there. But the restaurant food. I guess I'm in trouble now.

Anyway, a person can be grateful, even for the mediocre among our local bistros.

Greg said...

I kinda like the consignment store idea someone mentioned at Consumerist. We don't really have any thrift stores down here... I have to go up to Wicker Park for my light blue slacks and Jim Nabors 8-tracks.

Shanty Minister said...

WaMu was bought by Chase -- no?
I have it on good authority that Chase will be converting SOME WaMu branches over to Chase branches. But I can't say if this particular location will go over to Chase (not likely bc of saturation already in area.)

What other communities are doing (thruout the US) is building Green Office/Retail Collectives. It would be great if the City or a forward thinking Developer did a few such a developments in the Hyde Park area. (There is the potential for at least one already being planned, right?)

One thing I have noticed on the northside of town, more and more empty office/retail spaces are available. (Some previously thriving streets look like commercial ghost towns.)
HP Landlords would be well served to make rents reasonable to independent business owners (and not look for the brass ring that is some national chain store to save you.)

Shanty Minister said...

Also, on commercial lease rates...
If some of the commercial tenants in Hyde Park are paying $32/SF, that is just bad business.

One of the reasons the HP CoOp on 47th (in my opinion) went out of biz was because of that stupid high rent rate/SF. As an architect, I did retail designs for anchor tenants and no one paid over $20/ and often, it was less than that (e.g. Walgreens, Big Box & medium sized retailers, etc.)-- in exchange for longer leases or a percentage of profits. Restaurants also got similar (or better) deals.

Some of the downtown Chicago office rates are $32/sf. Where would you rather be at that rate?

You Ma & Pa HP businesses need to get help from a better RE Lawyer and architect when negotiating these rents-- and the rents are NEGOTIABLE.

Kofi Bofah said...

Washington Mutual - the biggest bank failure in history.

The Fifth-Third seems like it will have staying power.

Chicago is a tough, fragmented market to crack for banks.

I don't even know why these smaller players even try.

Bank of America looks to be making inroads - but they showed up with the firepower of holding 10% of U.S. deposits.