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M&As launch banks into commercial real estate business

After a series of mergers and acquisitions, some banks doing business in Mississippi found themselves thrust into the commercial real estate business.

Before Tenn.-based First American Corp. purchased it for $2.7 billion in May 1998, Jackson-based Deposit Guaranty Bank had acquired several smaller banks and, of course, their buildings.

By the time Birmingham, Ala.-based AmSouth Bancorporation (NYSE:ASO) acquired First American on Oct. 1, 1999, it inherited numerous buildings of mostly Class A office space in Mississippi cities that included Corinth, Columbus, Greenville, Jackson, Laurel, Meridian, Natchez, Starkville, Tupelo, Vicksburg and Yazoo City.

As AmSouth’s headquarters shifted to Birmingham, multi-level buildings once fully staffed were downsized considerably, and the bank was left with excessive commercial real estate. Bank branches were relegated to the ground floor in most buildings, like AmSouth’s four-story corner building in downtown Natchez, and the rest was left empty.

“It’s transparent when big mergers take place,” said Andy Stetelman, immediate past president of the Mississippi Commercial Association of Realtors (MCAR) and president of London & Stetelman Inc. Realtors of Hattiesburg. “However, it creates opportunities for us because banks typically work with local commercial real estate brokers. We’re all in it to try to create the same solution: to find a user.”

AmSouth has leased or subleased much of its available space in Mississippi to law firms, accounting firms, entrepreneurs and small businesses — several are AmSouth customers — and is marketing available space in Greenville, Laurel, Natchez and Vicksburg at competitive rates.

The bank has sold some of its commercial real estate portfolio. The Duckworth Co. in Jackson, which had been in negotiations with First American before the merger, completed the purchase of the AmSouth Center in Jackson in September 1999 and leased back approximately 60,000 square feet to AmSouth.

“We’re always striving to make our space more efficient and to spend less money on lease space,” said John McGowan, senior vice president of property management for AmSouth. “For instance, in downtown Jackson, we recently renovated our executive quarters in an attempt to make that space more efficient and free up other space we were leasing. We found we didn’t need all of the space we agreed to lease in the sale, so we’re trying to sublease some of it for $10 to $12 per (square) foot.”

McGowan said the bank would explore sale/leaseback options. “For now, we’ll continue to lease our available commercial real estate for multi-tenant use,” he said.

Stetelman said there’s definitely a demand for any type of real estate “priced right in a decent location.”

“Banks have superfluous locations,” he said. “Last year, we sold a Deposit Guaranty branch on Hardy Street in Hattiesburg to an investor who recognized its potential. It was too small for the tenant, but the owner added on, and now it’s a non-banking retail operation.”

The single level, approximately 35,000-square-foot building in downtown Hattiesburg brought a fair market value, Stetelman said.

“It wasn’t a fire sale,” he said.

When Memphis-based Union Planters Corp. acquired Hattiesburg-based Magna Bancorp Inc., the parent company of Magnolia Federal Bank, for $450 million Nov. 7, 1997, it was left with some unneeded commercial real estate, most of it single-story branches. Since then, Union Planters Bank has sold most of its excessive holdings, Stetelman said.

“Within the last two years, the former Union Planters Bank – University Branch on Hardy Street has been transformed into First National Bank of South Mississippi,” Stetelman said. “Sometimes lenders will put restrictions on other lenders or financial institutions for a black-out period. Sometimes, it’s forever. Sometimes, it’s a year or two.”

Union Planters Bank officials could not be reached for comment for this story.

McGowan said the AmSouth space wouldn’t be conducive for the same type of arrangement. “Our available space is primarily in buildings where we have a branch on the ground floor, so that’s not really an option,” he said.

When Bentonville, Ark.-based Wal-Mart Stores Inc. accumulated surplus property from its relocation program, a real estate subsidiary, Wal-Mart Realty, was established. Earlier this month, commercial real estate brokers were e-mailed an inventory list that included 1.2 million square feet of available commercial/industrial space in Mississippi and similar listings for 37 other states.

“We won’t do anything like that,” said McGowan. “We didn’t intend to get into the real estate business.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com</a.

About Lynne W. Jeter

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