Activist investor pushing for hotel, office conversion of Saks Fifth Avenue flagship

Activist investor Land and Buildings is pushing Canadian retailer Hudson’s Bay Company to explore other uses for the Saks Fifth Avenue flagship at 611 Fifth Avenue.

Land and Buildings, a hedge fund headed by Jonathan Litt, disclosed a 4.3 percent stake in Hudson’s Bay. It urged Hudson’s Bay to monetize its real estate portfolio, saying that it owns “rare diamonds in the rough that a real estate investor occasionally finds in its career.”

In 2014, the Saks Fifth Avenue flagship was valued at $3.7 billion, making it one of the most valuable retail assets in the country. The valuation exceeds the purchase price for the Saks brand. Hudson’s Bay, which also owns fashion brand Lord & Taylor, paid $2.9 billion for Saks in 2013.

“Hudson‘s Bay is a real estate company, full stop. If there is a smarter and better use of any or all of the locations, stores should be closed and redeveloped and put towards their optimal use,” the company wrote in a letter addressed to Hudson’s Bay board members. “The path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands.”

Land and Buildings claims that Hudson’s Bay’s real estate portfolio can be worth four times the company’s current share price. The firm estimates that Hudson’s Bay’s real estate assets have a value of C$35 (US$26.48) per share. Its current share price is $8.88 (US$6.72). This, Land and Buildings argues, makes it necessary to explore other options for the Saks Fifth Avenue flagship.

“Hudson’s Bay’s portfolio of assets is truly unique. Consider that the Saks Fifth Avenue store between 49th Street and 50th Street, across from Rockefeller Center, was recently appraised at C$16 (US$12) per share net of debt, and is likely one of the most valuable locations not only in Manhattan, but in the United States,” the firm said.

“Is the best use of this location truly a department store? What about a hotel? Or office? Or boutique retail stores the likes of Apple and Gucci? Or an internet retailer looking to go upscale through a bricks and mortar presence as Amazon appears to be doing with its purchase of Whole Foods? The point is that with real estate this valuable, there are a myriad options for value creation, all of which must be explored.”

Land and Buildings urged Hudson’s Bay board to copy the strategy of Vornado Realty Trust CEO Steve Roth. Vornado bought department store operator Alexander’s then redeveloped its location at 59th Street and Lexington Avenue into the Bloomberg Building. The property now has retail, offices and condos.

Land and Buildings has recently targeted family-owned real estate firms. Last June, the firm sued mall REIT Taubman Centers, challenging the 30 percent voting interest of the Taubman family. It also called for the ouster of the Ratner family from Forest City Realty Trust.

Leave a Reply

Your email address will not be published. Required fields are marked *

COPYRIGHT 2015 REAL ESTATE WEEKLY. ALL RIGHTS RESERVED.