Turning Brick and Mortar into Gold

The New, Improved Value of Sale-Leasebacks for Credit Unions

An Industry White Paper from

 

Capital is King. There can never be enough of it. In an unpredictable operating environment, credit unions need reliable access to capital without the long-drawn-out time required to organically grow deposits and increase loans and investments to generate more net income and raise capital. Alternatively, credit unions can’t always meet the restrictions and repayment requirements associated with raising secondary capital, a formerly attractive option that has become increasingly expensive and cumbersome. So, where can credit unions find needed capital and quickly? For those credit unions that own operational real estate, the answer lies in a sale-leaseback of those assets with CU Capital Management’s CUSO Network.

Key Takeaways

·         Sale-leasebacks provide credit unions with capital to reinvest in core business operations and growth initiatives.

·         Sale-leasebacks provide credit unions with the ability to retain operational control of real estate with no disruption to day-to-day operations.

·         Recent changes in accounting rules around sale-leasebacks now provide credit unions with the ability to immediately realize the net income and capital from a sale-leaseback.

·         While there are multiple sources for arranging sale-leaseback transactions, there is only one source that keeps the entire transaction – real property, sales proceeds, commercial real estate loans and investment dollars - within the credit union industry.

·         CU Capital Management’s Sale-Leaseback CUSO Network provides credit unions with opportunities for raising capital and liquidity, opportunities for permissible CUSO investments, and opportunities for direct lending and loan participations. This alignment of interests also provides selling credit unions with a much more comfortable landlord/tenant relationship.

Prologue: Unconventional Fiction Meets Unconventional Fact

The highest grossing film worldwide in 1985 was “Back to the Future” a critical and commercial success that earned $381 million in which eccentric scientist Doc Brown broke through the barriers of time in a highly unconventional DeLorean.

That same year, the most unconventional business transaction in recent history was “boy wonder” Sam Armacost’s sale-leaseback of BankAmerica’s world headquarters which netted the bank $660 million and sent shockwaves throughout the worldwide financial community.

 

In September 1985,  Sam Armacost, then the 40-something year old president of BankAmerica Corporation, entered into a $660 million sale-leaseback arrangement for Bank of America’s iconic headquarters. Towering above the San Francisco financial district at 52 stories, the building was the bold embodiment of Bank of America’s strength and security. Like so many other financial institution headquarters that are designed to be representations of success, the building symbolized BofA’s superiority. Opened in 1969, 555 California Street was meant to display the wealth, power, and importance of Bank of America and the building’s sale in 1985 sent shockwaves through the financial services industry sparking rumors of the Bank’s failure. Although his strategy was highly criticized in 1985, Armacost was 40 years ahead of his time. While retaining long-term occupancy of the headquarters building, Armacost brilliantly monetized a nearly-20-year-old, high-maintenance 52-story structure, and significantly strengthened the bank’s balance sheet during times of significant financial challenges and a historic period of bank and thrift failures. With assets of $2.6 trillion at the end of the second quarter of 2024, Bank of America is now the second largest US bank by asset size, only behind JPMorgan Chase at $3.5 trillion.


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