The Wells Fargo-First Interstate Merger : PROPERTY GLUT : Closed Offices Will Mean a Lot More ‘For Lease’ Signs

The planned Wells Fargo-First Interstate merger will deal a blow to the recovery hopes for regional real estate markets, dumping still more empty office space on downtown Los Angeles and littering suburban shopping centers with yet more empty bank branches, real estate observers said Wednesday.

“Everybody thought we were going to turn the corner a little bit. Well, now, forget about it,” said downtown Los Angeles real estate broker Whitley Collins at CB Commercial.

Landlords downtown, where First Interstate is the largest office tenant, are not the only ones worried about the fallout from the $11.6-billion deal. The definitive merger agreement announced Wednesday would, if completed, also shutter an estimated 350 of the banks’ offices in California, most of them in suburban locations.

The closed branches would swell an already bloated inventory of vacant buildings left over from previous bank mergers--such as the Bank of America-Security Pacific combination--and the shells of failed savings and loans.

“We are just getting through all the Security Pacific branches and now we are back to square one,” said Stephen Cramer, a commercial broker in the Torrance office of Seeley Co.

The continued shrinkage of the banking industry, the growing number of bank offices in supermarkets and spread of technology means many of those vacant branches will probably have to be converted to other uses. Everything from cellular phones to Chinese food is sold out of former bank branches, which are often situated on highly visible corners with ample parking, brokers say.

“There is a vast oversupply of branches in the country,” said Douglas J. McEachern, chief of the real estate services group for Deloitte & Touche. “Customers are becoming accustomed to ATMs. The need for big branches is dissipating.”

In downtown Los Angeles, First Interstate Bancorp occupies an estimated 1 million square feet of office and commercial space, and it maintains its headquarters in the 73-story First Interstate World Center, the tallest building in the West and a local landmark. Wells Fargo & Co., which promises a sizable presence downtown but already has its own building there, has not indicated what will become of the properties.

First Interstate executives occupy custom-designed offices on the skyscraper’s top two floors, which offer 360-degree views of the city through floor-to-ceiling windows. The top of the structure is crowned with four large First Interstate logos covered in gold leaf.

“A big [Wells Fargo] stagecoach up there would not look too bad,” downtown broker Stephen Bay said.