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Macyʼs braced to cash in on its top shelf real estate

Macyʼs has hired Eastdil Secured to help leverage its valuable real estate to prop up its bottom line.
The department store chain has been under pressure to enter into joint ventures for its stores, including its flagship Herald Square store, worth an estimated $4 billion.

The Wall Street Journal reported on Monday that hedge fund, Starboard Value LP, a Macy’s shareholder, has asked the chain to enter to aggressively pursue real estate deals.

“We believe that a JV, or series of JVs, can crystallize the value of Macyʼs real estate while bringing in a partner with substantial capital and real estate expertise that will enable the JVs to grow and diversify their real estate holdings,ˮ wrote Starboard managing member Jeffrey Smith.

The letter suggested two separate joint ventures — one for Macy’s landmark properties such as Herald Square — and a second for its mall-based stores.

Starboard has valued the real estate portfolio at about $21 billion and said separating it could create $10 billion of shareholder value.

Under pressure from Starboard last summer, Macy’s hired advisers to study its real estate portfolio and examine redevelopment options across the country.

In New York, Tishman Speyer had been working with the department store to examine its assets after it ruled out the possibility of creating a REIT.

The developer has already paid $170 million to acquire a site at 422 Fulton Street where it will develop offices and Macy’s will own and operate the first four floors of the building as a retail store.

Tishman Speyer has also expressed interest in pursuing partnerships on Macy’s four flagship locations in Herald Square, San Francisco (Union Square), Chicago (State Street) and Minneapolis (downtown Nicollet Mall) and will not be advising the company on those properties.

Tishman Speyer will continue to advise Macy’s on potential opportunities for maximizing the value of other real estate in the company’s portfolio, said Macy’s.

The retailer has said joint ventures could include the redevelopment of stores “in a manner that maintains a robust Macy’s retail store presence while also bringing alternative use into those buildings.ˮ

Retail expert Faith Hope Consolo, chairman of the Douglas Elliman retail division, said Macy’s is being “market savvy.ˮ

She explained, “Any number of developers would very much want to have their Herald Square property, it’s on one of the most sought-after corners in the city, if not the country.

“This is no way shows a lack of confidence but a nod to the value of New York’s real estate.”

Following disappointing holiday sales, Macy’s last week announced 40 store closings (out of a current total of about 770 Macy’s stores) as part of a cost-cutting effort to save $500 million.

A series of “cost-efficiency and process improvement measuresˮ will save $400 million, said the company in a statement.

Terry J. Lundgren, chairman and chief executive officer said Macy’s continues to pursue the creation of shareholder value through real estate initiatives originally announced last November and has engaged Eastdil Secured to approach potential interested parties, with assistance from Credit Suisse and Goldman Sachs, regarding forming partnerships or joint venture for the company’s mall-based properties, as well as Macy’s flagship real estate assets in Manhattan, San Francisco, Chicago and Minneapolis.

Eastdil joins a team of advisors in banking, real estate, law and tax who are “focused on monetizing real estate assets in a manner consistent with Macy’s overall strategy.ˮ

“Our company is committed to operating great Macy’s and Bloomingdale’s stores in the best locations – both to serve shoppers who walk through the door and to fulfill orders that are shipped directly to customers around the country,” Lundgren said.

“In today’s rapidly evolving retail environment, it is essential that we maintain a portfolio of the right stores in the right places.

“So we will continue to add stores selectively while also being disciplined about closing stores that are unproductive or no longer robust shopping destinations because of changes in the local retail shopping landscape.”

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