Iconic retail flagship sold as part of multi-faceted blockbuster deal

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Iconic retail flagship sold as part of multi-faceted blockbuster deal

By Marianne Wilson - 10/24/2017
A symbol of the grand old days of department store retailing has been sold to a fast-growing tech start-up that specializes in shared office space.

Hudson's Bay Company has sold the century-old Lord & Taylor flagship on Fifth Avenue in Manhattan to a WeWork Companies joint venture for $850 million. WeWork will convert most of the space in the 11-story landmark building into its headquarters. A small portion will be devoted to Lord & Taylor, which will rent the space from WeWork.

As part of the deal, WeWork will make a $500 million investment in HBC along with Rhone Capital, which formed a joint venture with WeWork to create WeWork Property Advisors. It also will convert the top floors of some of HBC’s department stores, beginning with the upper floors of the Hudson’s Bay locations on Queen Street in Toronto and Granville Street in Vancouver and Galeria Kaufhof in Frankfurt, into office space and pay market rent to HBC.

The deal will help HBC reduce its debt by more than $1 billion by capitalizing on the value of its real estate, something that the company's activist shareholder Land & Buildings has been pushing. Whether the agreement with WeWork will satisfy the investor, remains to be seen. HBC also owns another iconic retail building in Manhattan: the Saks Fifth Avenue flagship. The property was appraised recently at about $3.7 billion, according to the New York Times.

After the holiday season is over, WeWork will start renovating the Lord & Taylor building, which opened in 1914 and was named a New York City landmark in 2007. The retail space will be reduced from 650,000 sq. ft. to 150,000 sq. ft. and will be confined to the bottom floors.

“This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition,” said Richard Baker, HBC’s executive chairman and interim CEO in a statement. (Baker is serving as interim chief executive while the company searches for a new CEO in the wake of Jerry Storch's planned departure.) “Immediately upon closing, these transactions are expected to significantly strengthen HBC’s balance sheet, enhance our liquidity, and advance our core strategies by monetizing the Lord & Taylor Fifth Avenue building and increasing the productivity of key locations, which taken together, is expected to enable us to drive ongoing value creation.”

WeWork launched in 2010, in Manhattan. It was recently valued at $20 billion, “Retail is changing and the role that real estate has to play in the way that we shop today must change with it,” stated WeWork co-founder and CEO Adam Neuman. “The opportunity to develop this partnership with HBC was too good to pass up.”

Added HBC"s Baker: "Our partnership with the WeWork team creates new opportunities for HBC to redefine the traditional department store by extending those communities and drive additional traffic to our stores, particularly as we add co-working and community space to existing, vibrant retail locations."

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