Money-Growing: A Precious Square Meter

Nonexistent Market

All deals on the Russian property market take place within a single frame of reference where the volume of the deal – estimated either by the size of investment involved or space rented or acquired – is a key criteria. The higher is the sum involved the more significant is the deal. Ideally, a company offering better terms and conditions wins the bid, with the public and the media being informed on its victory by intermediaries who brokered the deal – realty agencies.

Considering that the fees charged by those firms usually stand at 2 to 5 per cent, the total sum of the contract must conform to time and effort spent, hence, the deals on commercial real estate market usually run into hundreds of square meters. Finding a spot for an ATM is much more difficult, chiefly, because, installing a cash machine requires but a single square meter of space. Intermediaries take no interest in such deals.

“We often receive applications from commercial banks seeking to find and rent ATM space. But, as a rule, realty agencies do not consider such requests as the size of commission is too small whereas the effort required to broker the deal is quite big,” Aidar Galeyev, head of analysis and information at Miel-Nedvizhimost realty, says. Most realtors share the opinion. As a result, banks are denied an opportunity to enlist services of a professional agent, which, in most cases, means there is still no civilized secondary market in this country.

On the other hand, it is unlikely that the banks themselves would sell precious 1-square-meter spots to one another, for, should such a deal occur, the seller would not only fail to replenish his budget as ATM maintenance costs are trifling but also yield his spot to a rival. Under those circumstances banks are forced to abandon normal market practices and delve into intricate economic lobbying by establishing direct contacts with landlords and developers of office centers and malls. Even if some realty agrees to help a bank it will also have to assume the role of a professional lobbyist.

“Establishing ties with landlords and property managers of shopping malls, negotiating the terms of the deal and signing tenancy agreements for ATM space – all those tasks are addressed by a single expert,” says Vladimir Lutsenko, deputy chairman at SDM Bank.

Teaming Up

Successful talks result in emergence of strong alliances between banks and owners of shopping centers and offices. As a result, banks secure tenancies on their premises, renting a space of several square meters for several ATMs. “Tandems between banks and retail chains are quite common. Here are a few example: Auchan and Mega have teamed up with Sberbank [Russia’s major Savings Bank] and DeltaBank; Perekryostok and Alfa Bank, and some others,” says Ian Al-Nuri, commercial property analyst at Penny Lane Realty.

Another example of cooperation between retailers and bankers is that of the Moscow International Bank and Lenta supermarket chain. MIB’s ATMs operate on the premises of Lenta’s stores, Oleg Razin of Vesco Consulting reports. “MDM Bank and Sedmoi Kontinent [retail chain] have agreed to issue joint credit cards and open 40 branches of MDM Bank catering to individuals on the premises of Sedmoi Kontinent stores,” Razin adds. The Bank of Moscow has installed its cash machines in the building of the Moscow mayor’s office.

Not only does such cooperation contribute to stronger partner relationship but it also helps build strategic alliances. Just as Perekryostok and Sedmoi Kontinent occupy the same market niche, Alfa Bank and MDM Bank are the credit institutions of the same level. The best form of such cooperation is where an ATM and the property belong to the same owner.

“Also it is quite common when a developer and a bank belong to the same group of companies. For example, ATMs operating on the premises of Galereya Aeroport retail center developed and run by Garant-Invest Nedvizhimost belong to Garant-Invest Bank,” says Oleg Voitsekhovsky, managing director of the Russian Board of Retail Centers.

Forms of Presence

Experts report that banks launch their ATMs in certain offices or shopping centers as part of larger deals with the landlords. For example, a bank may act as a co-investor in the project for development of a mall that will house its ATMs in the future. Oleg Voitsekhovsky says that shopping centers usually install ATMs and open branch offices of banks – partners of the development company. “A bank may act as an investor or service accounts of landlords,” the expert says.

As an example, he cites Slavyansky Kredit bank running ATMs on the premises of Zolotoi Vavilon malls. “For the most part, we install ATMs in retail centers, with which the bank maintains some sort of relationship, for example, if it provided lending for the development. Then we are offered more favorable terms,” Vladimir Lutsenko says.

A bank may also install an ATM in a mall or a business center where that bank rents a property. The ATM does not necessarily have to be installed in or near the bank’s office. “If a bank holds a tenancy at an office center the tenancy agreement usually provides for installation of the tenant’s ATMs on the premises,” says Sergei Lobkaryov, head of commercial real estate at MIAN.

“As a rule, bank machines within office centers are installed by the banks who rent office space there. An ATM may be situated in the bank’s office or near the main entrance,” Oleg Razin agrees. Regina Lochmele, head of office and industrial real estate market analysis at Colliers International, cites examples of Garanti Bank and ICICI Bank, the tenants at Capital Plaza.

But even where a bank was not involved in the development of an office center, nor rents any office space it still has a chance to install its ATMs there for people working in that building to be able to withdraw cash from their salary accounts. “SDM practices agreements with anchors at office centers as part of joint payroll projects with corporate tenants,” says Vladimir Lutsenko. On the whole such practice is quite common, especially where the entire property is rented or owned by a single company.

“Where banks do not hold tenancies at an office center you can still see an ATM of one or several banks who have entered into an agreement with the landlord or the management company. An ATM operating on the premises of an office center has recently become an inseparable part of extra services offered to office tenants,” says Sergei Lobkaryov.

In the opinion of Regina Lochmele, the process of selecting an ATM has a lot in common with selection of future tenants. The main criteria are the landlord’s preferences as regards to tenants’ profile and impossibility of bringing rival companies under the same roof. “Thus, installing an ATM in a business center and negotiating anchor tenancies are processes that often run parallel and complement one another,” she says.

Unlike the case is with business centers where a bank can rent an office, secure anchor tenancy and install its ATMs there, anchor tenants in shopping malls, seeking to boost sales, themselves contact banks with a request to install ATMs. “In shopping malls anchor tenants install ATMs on their premises and sublet them, unless that runs counter to the provisions of their agreement with the landlord. They may or may not be the clients of that bank,” Sergei Lobkaryov says.

Square Meter Rent

The size of rentals for ATM space depends on the role of the bank in the project. Where a bank is a co-investor in the development or is somehow affiliated with the landlord most likely the bank will not be charged a cent. “In such cases the bank pays no rent to the management company,” says Oleg Voitsekhovsky. If a building houses an office of the bank, ATM rental charges are often included in the total charge. In all other cases rates vary greatly.

1-square-meter ATM locations are rented at $200 to $1,000, Sergei Lobkaryov reports. Aidar Galeyev puts the cost of renting ATM space at $800 to $3,000 per square meter, depending on attendance rate at the shopping mall concerned. According to Oleg Razin’s estimates rates vary from $2,000 to $10,000. The key criteria are location and buyer attendance at the mall. There is no connection whatsoever between the placement of an ATM within the mall or office center and the size of rent charged to other tenants.

Choosing ATM Location

After the bank has entered into an agreement with the developer and the sides have agreed on the amount of rental payment the bank is to decide where to install the ATM so as to make it accessible to the majority of visitors. Market analysts say that the most favorable location is in proximity to the main entrance. “The ATM should be situated at the entrance, in the entrance hall,” says Alexei Chizhov, head of office real estate at Becar Consulting.

“As a rule, ATMs are installed in the busiest parts of the building, not far from the entrances,” agrees Yevgeny Yakubovsky, general director at Novaya Ploshchad Property Management. That is true both for shopping malls and business centers, although in each of those types of properties there are additional favorable one-square-meter spots.

“There are two main variants of ATM placement in a business center – inside the entrance hall or outside the building,” says Regina Lochmele. “The advantages of placing an ATM within the entrance hall of a business center are better security and convenience of access for office tenants. ATMs outside the building are accessible 24 hours a day and create additional publicity for the bank.

In Aidar Galeyev’s opinion, “the main lobby of an office building is the most convenient place for customers and favorable for commercial banks; in a shopping center, on the contrary, ATMs should be installed near escalators, on the way of customer flow, not at the entrance.”

“The optimal location is in the areas that account for the largest numbers of visitors to the mall: entrance hall, the main shopping gallery, areas near anchor tenants – supermarkets, large home appliance stores,” Oleg Razin concludes. On the whole, analysts agree that ATMs are winning more and more “precious square meters” on the commercial property market.

“Nowadays the development strategy of most domestic and international banks provides for expansion of their presence on the market, including an increase in the number of branch offices and ATM locations,” holds Regina Lochmele.