Bank Investments for Pension Funds

High Street sell-off

Over the past 5/10 years banks have been selling off their High Street property assets at a rate that has been fuelled by the seemingly insatiable demand from private property investors to put “safe” property investments into their pension funds.

Fresh bank investments come to the auction market daily. The question is, were they a sensible buy and do they remain so?

Like so many investment band wagons, the people that have done well, were the early ones. This is because irrespective of the property, yields have fallen in the intervening period and hence the capital values have risen.

Bank investments are often purchased by the lay investor. The perception is that a new 15 year lease, to a Bank Plc, is a rock solid investment and a yield that they command reflects this. The problem arises when these investments are purchased for long term pension funds, where little or no consideration is given to the property.

When purchasing bank investments, the following “property” considerations need to be taken into account.

1. Are the banks likely to renew their lease at the end of the term, usually in 15 years, which is probably when the rental income is most relied upon for one’s pension?

There is a strong risk that banks in secondary locations and small towns will continue to close and therefore there is no guarantee.

2. Would the building relet easily?

Many banks have been “custom built” over the years with stall risers, limited windows, inbuilt safes, etc. None of these are suitable for modern retail requirements. Furthermore banks are now abandoning these traditional buildings, as has recently been evidenced by HSBC, that have a national campaign to relocate into modern retail units with full glazed frontages.

3. Disabled Discrimination Act compliant?

Many banks do not comply with modern DDA regulations. In the main this is because they have steps up to their entrance. If the bank were to leave at the end of their lease, how easy would it be to relet a non compliant building?

4. Is the property locally/nationally listed?

If so, how many occupiers are there going to be when the property cannot be converted into a modern building, suitable for other users.

In summary when purchasing a bank investment it is essential to look at the future letability of the property. What is a rock solid investment today may collapse just when the income is needed. With a traditional bank frontage in a secondary location the property could be virtually unletable without a substantial amount of work spent on the property and that is if the planners let you. Beware!

Adrian Fennell

Date Added: April 5th 2007