Macy’s Explores Options for Flagships

San Francisco Men’s store sold for $250 million
Posted on November 11, 2016 by Allison Zisko

Macy'sCINCINNATI—Macy’s Inc. is working with Brookfield Asset Management to leverage the value of its real estate portfolio, including exploring options for its New York flagship and its previously announced store count reduction.

The company also sold its Union Square Men’s building in San Francisco and its downtown Portland, Ore. store for a combined $304 million.

Brookfield will have an exclusive right for up to 24 months to create a “pre-development plan” for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets. These assets primarily include owned and ground-leased stores and associated land, most of which are located in malls not owned by major mall owners, the retailer said in a statement. Opportunities range from the additional development on a portion of an asset—such as a Macy’s-controlled land parcel adjacent to a store—to the complete redevelopment of an existing store, the retailer said.

“We have real estate assets with significant value-creation opportunities, and we believe that partnering with a leading global real estate investor like Brookfield is the best way to unlock the potential of those assets,” said Terry J. Lundgren, chairman and CEO of Macy’s Inc. “The Brookfield alliance strengthens our ability to improve the customer shopping experience by giving us greater flexibility to invest in our most productive and highest-potential locations, and to make the most of our real estate assets, or portions of them.”

Macy’s said it has signed a contract to sell its 248,000 square-foot Union Square Men’s building in San Francisco for $250 million, and will use part of the proceeds to consolidate that store into its main Union Square store. Macy’s will lease the men’s store property for two to three years as it completes the reconfiguration of the main store. The company expects the transaction to close in January and expects to recognize a gain of approximately $235 million in January 2018.

It has also signed a contract to sell its Portland store for $54 million. The transaction is expected to close in the fourth quarter of 2016, at which time a gain of approximately $36 million will be recognized. The downtown Portland store will continue operations through the holiday season and will be closed in spring 2017.

Macy’s also said it continues to explore options for its downtown Minneapolis store and its flagships in Chicago (State Street) and New York City (Herald Square).

Earlier this month, Macy’s sold five mall stores to General Growth Properties.

“Its inability to get the retail side of its business to work is one of the reasons Macy’s is looking to monetize its assets,” Neil Saunders, CEO of retail research agency and consulting firm Conlumino, told Retail Dive. “The partnership with Brookfield Asset Management ... will help with this—as will the ongoing sale of underperforming stores. In our view this route is prudent, not least because Macy’s does have a strong asset base, which can yield significant capital—as the sale of the Union Square, San Francisco store for $250 million has proved.”

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