Bank Merger to Worsen Glut of Office Space : Leasing: If the BankAmerica-Security Pacific deal goes through, the new firm will need only part of the space that is occupied now.
The merger of BankAmerica Corp. and Security Pacific Corp. is expected to exacerbate the existing glut of commercial rental space, dumping as much as 2 million square feet of office space onto the market in California and nine other Western states, real estate experts say.
The two banking giants both occupy sizable space in office towers in several cities where they have a presence. The consolidation of operations after the merger is certain to result in some of the space being vacated, real estate officials say.
“It’s already a soft office market and this move will make it even weaker,†said Perry S. Herst, chairman of Tishman West Cos. “There is going to be a huge financial fallout from this merger.â€
Tishman manages Arco Plaza, the Los Angeles building where B of A is housed, and Security Pacific Plaza, the Los Angeles headquarters for that bank. In all, the two banks together own or lease about 3.5 million square feet in the Los Angeles area.
B of A and Security Pacific will spend considerable time and money analyzing how to combine their operations and any consolidation of office facilities will likely take years to accomplish.
But their merger comes at a time when landlords are slashing rents and offering expensive incentives to combat a nationwide office glut that has sent vacancy rates soaring to above 21%. In parts of California, vacancy rates are slightly higher.
“It’s bad out here,†said John Amory, a senior vice president at the Phoenix office of CB Commercial Real Estate Group Inc. “They are going to lose money subleasing their buildings in this market.â€
Excluding its bank branches, B of A owns and leases more than 3.1 million square feet of office space in California and about 2 million in the rest of the country--an amount roughly equal to all of the office space in Beverly Hills.
B of A’s San Francisco headquarters alone takes up more than 1 million square feet of space and the bank has another 420,000 square feet in Bay Area cities such as Oakland. B of A also has a big presence in Los Angeles where it has main offices in Arco Plaza, a 700,000-square-foot credit card center at Beaudry Street and Sunset Boulevard and offices at Figueroa and 11th streets.
Security Pacific, which occupies about 3.1 million square feet of space overall, has a relatively small presence in San Francisco--about 100,000 square feet in the Embarcadero Center and 50,000 square feet on California Street.
The bank is one of Southern California’s biggest tenants. Realtors say Security Pacific’s major offices in downtown Los Angeles include about half the 1.4 million-square-foot Security Pacific Plaza, which is owned by New York insurance giant Metropolitan Life; 840,000 square feet in the Beaudry Center and 188,000 square feet in California Plaza. Security Pacific also occupies a 450,000-square-foot data processing facility in Glendale as well as more than 200,000 square feet of space in seven buildings in San Diego, where it has big financial services subsidiaries.
Experts say commercial tenants generally lease about 200 to 250 square feet of space per employee. Thus, if estimates hold true that as many as 20,000 Security Pacific and B of A employees will lose their jobs, the merged bank would need to cut its office space needs by more than 4 million square feet.
But, most experts expect the total space vacated by B of A and Security Pacific to fall within the 1.5 million to 2 million range because it is unlikely that the two banks can significantly cut office space for data storage or for operational tasks such as processing checks. “Both B of A and Security Pacific have major operational centers in Southern California, but the transactions they handle are not going to decrease when they merge,†said Richard C. Schnell, executive vice president of Cushman Realty Corp.
Instead, said Ben Irlander, president of Willrock National Inc., which has handled office leasing for Manufacturer’s Hanover and Chemical Bank in New York, the most likely spot for consolidations are “overlapping administrative and marketing facilities†in the six states where the two banks currently compete head to head.
Experts say the most extensive consolidations will probably occur in California where the banks have overlapping operations. Space is also likely to be vacated in Portland, Ore., and Seattle, where strong commercial real estate market would make it easier for B of A to sell or sublease office space to other businesses.
“It’s not overbuilt up here; the vacancy rate is less than 14%,†said Robert Niehaus, a vice president in the Portland office of CB Commercial, a major real estate broker. “The chances are pretty good that they will be able to sublease the space.â€
B of A leases 45,000 square feet of space in Portland’s One Financial building and has 60,000 more square feet in the ADP building, Niehaus said. Security Pacific leases about 70,000 square feet in Security Pacific Plaza.
Both banks have much larger operations in Seattle, where B of A acquired Seafirst Bank in 1983 and now leases and owns about 1.2 million square feet of office space, including 260,000 in the Columbia Seafirst Center and 720,000 in the 42-story Seafirst 5th Avenue Plaza. Security Pacific, meanwhile, has 350,000 square feet in the Security Pacific Towers.
In Phoenix, Security Pacific has one of its largest operations outside Los Angeles--a 220,000-square-foot credit card center and 210,000 square feet of other administrative facilities. B of A, which already had amassed 453,000 square feet of space in Phoenix, was on the prowl for more as part of an aggressive expansion. The search was halted after the merger announcement.
Merging Office Space
The combination of BankAmerica Corp. and Security Pacific Corp. could exacerbate the office glut in some cities where both occupy big offices. Here is how much office space, in thousands of square feet, is owned or leased by the two companies in select markets.
City BankAmerica Security Pacific Seattle 1,200 350 Portland 105 70 San Francisco area 1,800 150 Los Angeles area 1,300 2,200 Phoenix 453 430
Source: Cushman Realty Corp., CB Commercial, Security Pacific and BankAmerica
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