Letter concludes that Bank may hold, as permissible bank premises, commercial facilities for lodging of out-of-town bank visitors. Bank may make any excess space in such building available to the general public.

O

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

December 5, 2005 Interpretive Letter #1045

December 2005

12 USC 29

Re:

Authority to Own Premises for Bank Personnel and Visitors

Dear [ ]:

This is in response to your inquiry, on behalf of [ Bank, City, State ]

(“Bank”), concerning the authority of national banks to own real estate necessary for the

transaction of business. For the reasons discussed below, we conclude that the Bank’s proposed

development of a hotel to provide lodging for the Bank’s out-of-area visitors qualifies as bank

premises and, therefore, is permissible under 12 U.S.C. § 29.

Factual Description

The Bank is headquartered in [ City, State ], and has offices and banking centers

throughout the United States. As of September 30, 2005, the Bank had the equivalent of more

than 175,000 full-time employees located throughout the country. These employees, in addition

to other Bank visitors – including customers, vendors, shareholders, and members of the Bank’s

board of directors – routinely visit [ City ] on Bank-related business. For calendar year

2004, the Bank calculated that visiting Bank employees alone spent approximately 72,000

business nights in [ City ]. Currently, the Bank houses the visiting employees, directors, and

certain other visitors in short- and long-term hotel space.

The Bank now proposes to establish a hotel to accommodate these employees and

visitors. The hotel would be constructed on existing bank premises, currently used as a parking

lot and adjacent to the Bank’s corporate headquarters in downtown [ City ]. The Bank would

remain the sole owner of the real estate and would be the sole owner of all improvements

resulting from the development

The Bank now proposes to establish a hotel to accommodate these employees and

visitors. The hotel would be constructed on existing bank premises, currently used as a parking

lot and adjacent to the Bank’s corporate headquarters in downtown [ City ]. The Bank would

remain the sole owner of the real estate and would be the sole owner of all improvements

resulting from the development. Construction is scheduled to begin in early 2006, with

construction scheduled to be finished by mid-2008. The Bank would hire an independent

contractor to develop and construct the building and would contract with a national hotel

management company to manage the hotel.

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The proposed hotel would have approximately 150 rooms. The Bank intends to use more

than 50% of the occupied rooms in the hotel to lodge out-of-area Bank employees, members of

the Bank’s board of directors, and selected vendors, shareholders, customers, and other visitors

in [ City ] on Bank-related business (collectively, “Bank Visitors”). Based on the projection

that the hotel would maintain 75% occupancy, the Bank would use more than 37.5% of the total

rooms in the hotel on an annual basis. The Bank may use additional rooms in the hotel;

however, when not used by Bank Visitors, the remaining hotel rooms would be made available

to the general public.1

The Bank’s business objectives in establishing the hotel is two-fold. First, the Bank

desires to reduce its annual lodging expense for Bank Visitors and believes that it will do so by

owning and using the hotel. Second, the Bank believes that the development of the hotel

adjacent to its corporate headquarters and managed by an established hotel firm will improve the

overall quality of experience for Bank Visitors visiting the Bank’s corporate headquarters and, as

a result, the desirability of working for and doing business with the Bank in [ City ]

ll do so by

owning and using the hotel. Second, the Bank believes that the development of the hotel

adjacent to its corporate headquarters and managed by an established hotel firm will improve the

overall quality of experience for Bank Visitors visiting the Bank’s corporate headquarters and, as

a result, the desirability of working for and doing business with the Bank in [ City ].

The Bank’s business decision to develop a hotel with 150 rooms is driven by two factors.

First, while the Bank believes it important to provide quality hotel facilities for its personnel and

visitors, it does not wish to manage such a hotel. The Bank stated that a 150 room hotel is the

smallest property (in terms of number of rooms) that the hotel management company would

agree to manage. Therefore, in order to fulfill the business objective of developing a quality

hotel to be managed by an established hotel firm, the proposed hotel needed to be no smaller

than 150 rooms. Second, the Bank expects that on a periodic basis, as a result of the Bank’s

normal business activities, Bank Visitors may use substantially more than 50% of the occupied

rooms in the hotel. Thus, the capacity of the hotel, in terms of occupied rooms, also may serve

to meet the potential peak lodging demands of Bank Visitors.

Legal Analysis

A national bank’s authority to own real estate is governed by 12 U.S.C. § 29. Section

29(First) provides that a national bank may purchase, hold, and convey such real estate “as shall

be necessary for its accommodation in the transaction of its business.” Consistent with section

29, the bank’s activities must be conducted in good faith, that is, for banking purposes and not in

a speculative manner.

Real estate necessary for the accommodation of a bank’s business includes real estate

other than that upon which bank office buildings are located. See 12 C.F.R. § 7.1000.2 Because

1 The Bank is authorized to invest in bank premises under 12 U.S.C. § 371d and 12 C.F.R. § 5.37

nk’s activities must be conducted in good faith, that is, for banking purposes and not in

a speculative manner.

Real estate necessary for the accommodation of a bank’s business includes real estate

other than that upon which bank office buildings are located. See 12 C.F.R. § 7.1000.2 Because

1 The Bank is authorized to invest in bank premises under 12 U.S.C. § 371d and 12 C.F.R. § 5.37.

The Bank does not need to file an application or notice with the OCC because its aggregate investment in

bank premises does not approach the amount of the Bank’s capital stock and surplus. See 12 U.S.C.

§ 371d(a)(2) and 12 C.F.R. § 5.37(d)(1). As of June 30, 2005, the Bank’s aggregate investment in bank

premises was approximately $6.7 billion, and the Bank’s capital and surplus was approximately $102

billion.

2 Section 7.1000(a)(2) lists examples of types of real estate that national banks permissibly may

hold under 12 U.S.C. §29 (First). These examples include property for the temporary lodging of bank

employees, officers, and customers where suitable commercial lodging is not readily available if the

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providing lodging for Bank Visitors, and doing so in a cost-efficient manner, is a legitimate

business concern for the Bank, we believe the proposed hotel would fall within the meaning

contemplated by section 29(First).3

The limitations of section 29 are designed “to keep the capital of the banks flowing in the

daily channel of commerce; to deter them from embarking in hazardous real estate speculations;

and to prevent the accumulation of large masses of such property in their hands ….”4 The

Bank’s ownership of the hotel will not offend these policies. In recognizing the authority of

national banks to maximize the utility of bank premises, the court in Brown v

he capital of the banks flowing in the

daily channel of commerce; to deter them from embarking in hazardous real estate speculations;

and to prevent the accumulation of large masses of such property in their hands ….”4 The

Bank’s ownership of the hotel will not offend these policies. In recognizing the authority of

national banks to maximize the utility of bank premises, the court in Brown v. Schleier stated:

When an occasion arises for an investment in real property for either of the

purposes specified in the statute, the national bank act permits banking

associations to act as any prudent person would act in making an investment in

real estate, and to exercise the same measure of judgment and discretion. The act

ought not to be construed in such a way as to compel a national bank, when it

acquires real property for a legitimate purpose, to deal with it otherwise than a

prudent landowner would ordinarily deal with such property.5

Once the hotel is completed, the Bank projects it would use more than 50% of the

occupied rooms in the hotel and on occasion may use a substantial greater percentage of the

occupied rooms. This level of usage exceeds what has been expressly permitted in the case law

on bank premises.6 If the Bank were to develop an office building instead of a hotel, there would

be no question that the building, with the level of occupancy proposed by the Bank, would be

permissible bank premises under section 29. Therefore, we believe that the Bank may make the

remaining rooms available to third parties in order to maximize the utility of its premises.7

property qualifies as a deductible business expense for federal income tax purposes. 12 C.F.R.

§ 7.1000(a)(2)(v). The Bank is not relying on any of the examples listed in section 7.1000(a)(2).

However, that exemplary list is non-exclusive, 60 F.R. 11924, 11925 (March 3, 1995) (preamble to

proposed rule) and 61 F.R. 4849, 4850 (Feb

parties in order to maximize the utility of its premises.7

property qualifies as a deductible business expense for federal income tax purposes. 12 C.F.R.

§ 7.1000(a)(2)(v). The Bank is not relying on any of the examples listed in section 7.1000(a)(2).

However, that exemplary list is non-exclusive, 60 F.R. 11924, 11925 (March 3, 1995) (preamble to

proposed rule) and 61 F.R. 4849, 4850 (Feb. 9, 1996) (preamble to final rule), and for the reasons

described herein, we believe that the proposed hotel would be permissible bank premises under section

29(First).

3 OCC Interpretive Letter, dated January 21, 1993 (to be published) (given scarcity and cost of

other commercial lodging, bank may maintain residential condominium for use of outside consultants,

auditors, and customers).

4 Union Nat’l Bank v. Matthews, 98 U.S. 621, 626 (1878).

5 Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902), aff’d, 194 U.S. 18 (1904).

6 See, e.g., Wingert v. First Nat’l Bank, 175 F. 739 (4th Cir. 1909), appeal dismissed, 223 U.S.

670, 672 (1912) (upholding bank’s authority to tear down bank building and construct new six story

office building in which bank will occupy only first floor, or 16.7% of structure); Wirtz v. First Nat’l

Bank & Trust Co., 365 F.2d 641, 644 (10th Cir. 1966) (recognizing bank’s authority to occupy 20.7% of

office complex and lease remaining space as excess premises).

7 OCC Interpretive Letter, dated July 8, 1993 (to be published) (national bank that permissibly

maintains residential condominium as lodging for use of visiting auditors, consultants, and customers may

rent condominium when not being used by such visitors as means of offsetting lodging’s expenses).

nk’s authority to occupy 20.7% of

office complex and lease remaining space as excess premises).

7 OCC Interpretive Letter, dated July 8, 1993 (to be published) (national bank that permissibly

maintains residential condominium as lodging for use of visiting auditors, consultants, and customers may

rent condominium when not being used by such visitors as means of offsetting lodging’s expenses).

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Conclusion

Based upon the information and commitments provided by the Bank, we find that the

Bank permissibly may develop the proposed hotel to provide lodging for the Bank Visitors. If

you have any questions, please contact Steven Key, Senior Attorney, Bank Activities and

Structure Division, at 202-874-5300.

Sincerely,

signed

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel