For Sale-Leasebacks of Bank Branches, Stars Align

Talk about branching out. 

SouthState Bank grabbed headlines earlier this year when it agreed to a sale-leaseback of 165 of its branches across the Southeast for $467 million, and it’s not alone. In a structure typically more common for industrial and logistics properties, banks are increasingly offloading their branches to third parties, and Florida-based SouthState executed the biggest such deal in recent memory.

“We’ve looked at this type of transaction several times over the years, and felt like the stars aligned now,” John Corbett, CEO of SouthState, said during an April earnings call.

When it comes to financial institutions tapping the equity locked up in their branch networks, the stars are aligning for others, too. According to an analysis by SLB Capital Advisors of New York, the pace of sale-leasebacks of bank branches has accelerated. SouthState’s deal alone outpaced the entire volume of bank sale-leasebacks in 2023 and 2024 combined.

Beyond SouthState, which is headquartered in Winter Haven, Fla., and has $65 billion in assets, Harborstone Credit Union of Tacoma, Wash., also this year closed on a sale-leaseback totaling $79.3 million. SLB Capital Advisors points to half a dozen other institutions around the country that have executed smaller deals.

So, why the sudden popularity of sale-leasebacks? The trend is driven by a combination of rising interest rates and midsize banks’ need for capital, said Stewart Riggs, principal at SLB Capital Advisors.

“It is a very attractive source of capital for banks and credit unions,” Riggs told Commercial Observer. “They can execute a sale-leaseback and put cash back on the balance sheet. The whole banking system is predicated on taking one dollar and lending out five — but you need the one dollar.”

Bankers have shifted their mindset around property ownership. While the best branches once were seen as prized possessions, bankers have begun to view physical locations differently, Riggs said.

“Bricks and sticks is not what drives the profitability of a branch,” he said. “It’s the people inside the location.”

Other companies with retail locations long have done sale-leasebacks, and bankers are coming around to the benefits of an asset-light strategy.

“They need real estate, but they don’t need to own it,” said Tzvi Rokeach, partner at New York law firm Herbert Smith Freehills Kramer. “In my mind, this is the perfect asset for a sale-leaseback transaction. I would not be surprised if there were more.”

Another factor driving deals: Despite the fading importance of bank branches for everyday transactions, the locations remain in favor among investors, said Andrew Sandquist, vice chairman at Newmark in Chicago.

“Today, bank branches are quite valuable,” Sandquist said. “Bank branches are viewed favorably by investors, so the timing is good for banks to do these transactions.”

This may be counterintuitive to those who do all their banking online today and can’t remember the last time they set foot inside a bank, but reports of the bank branch’s death seem to have been exaggerated. U.S. financial institutions operated nearly 69,000 physical locations as of 2024, according to the Federal Deposit Insurance Corporation. That’s down from the all-time high of almost 83,000 in 2012 — but it still represents plenty of pieces of real estate owned by banks.

In the case of SouthState, its sale-leaseback portfolio spans 1.18 million square feet across Alabama, Georgia, Florida, North Carolina, South Carolina and Virginia.

The buyer was Blue Owl Capital, a New York-based company that’s a frequent acquirer of sale-leaseback properties. SouthState signed 15-year, triple-net leases that call for annual rent increases of 2 percent. JLL represented the seller in the transaction.

Corbett, SouthState’s CEO, told analysts that he viewed the transaction as “harvesting capital.”

“When we ran the numbers, the cost of capital was more attractive than other sources of capital,” Corbett said. “So, really, it’s more of a capital management exercise that will give us flexibility going forward. And the other thing is as we’ve looked at it, one of the things you want to look at is the spread of the cap rate versus the risk-free rate, and it was pretty narrow. So we felt like this was a good opportunity to do it.”

SouthState’s sale-leaseback came shortly after the bank closed on the $2 billion acquisition of Independent Bank Group, which operated branches in Texas and Colorado. But banks can use the proceeds for a variety of reasons, including making upgrades to their technology platforms. Smaller banks are in a race to match the digital offerings of much larger rivals.

“All of the banks are under a lot of pressure to have the best, fastest digital technology for customers,” Sandquist said.

Another use: absorbing losses from securities that went down in value as the Federal Reserve sharply raised interest rates in 2022 and 2023.

That was the case at Fulton Bank of Lancaster, Pa., which in 2024 sold 40 branches in Delaware, Maryland, New Jersey and Pennsylvania — also to Blue Owl Capital — for $55.4 million, at a 7.9 percent cap rate. The bank used the proceeds to offset the costs of selling underwater securities.

“Sometimes it’s a defensive play to offset losses somewhere else,” said Paul Davis, founder and CEO of Bank Slate, a consulting firm based in Greensboro, N.C.

While Blue Owl is a major player in buying up bank branches, it’s not the only acquirer. Another is MountainSeed Real Estate Services of Atlanta. It was the buyer of the Harborstone Credit Union branches. MountainSeed also paid $25.7 million for nine locations owned by Plumas Bank, a $1.6 billion institution headquartered in Quincy, Calif., and $17.6 million for four branches owned by MVB Bank of Fairmont., W. Va.

Sale-leasebacks come with some costs. For instance, while Fulton Bank pulled $55 million out of its branches, it paid $4.4 million in rent to occupy the 40 branches in the first year of the sale-leaseback deal. That sum is set to go up by 2.25 percent a year.

What’s more, banks typically sign 15-year leases on the branches, meaning they’re unable to close the locations as readily as they could if they owned the real estate.

“There’s maybe a little less flexibility there if they want to rightsize some of these branches,” Davis said.

However, banks typically sell only their highest-performing branches, those with the most deposits and in desirable locations.

“The vast majority of the time, the bank is not going to do a sale-leaseback on a location it plans to close in the long term. And investors don’t want to buy a location that they think could be vacated in the next 10 to 15 years,” Davis said. “The acquirers don’t enter into these transactions until they’ve had lengthy discussions and assurances that the banks are going to be in the branches for the duration of the lease.”

For bankers in love with their best sites, sale-leasebacks let them lock up locations for up to 40 years, said Griffin Pitcher, executive vice president at CBRE. A bank could do a sale-leaseback for 20 years, and add four five-year options.

“Sale-leasebacks are a pretty attractive way to take out capital without taking on added debt,” Pitcher said.

One twist in the sale-leaseback trend is that it’s unlikely that megabanks such as Chase, Bank of America and Wells Fargo will participate. Their massive customer bases mean they have abundant capital.

“You don’t see the big guys doing sale-leaseback transactions,” Davis said. “It’s certainly been an instrument of larger community banks and smaller regional banks.”

Jeff Ostrowski can be reached at jostrowski@commercialobserver.com.