WeWork's NY deal sends waves through Vancouver commercial real estate sector

HBC to sell Fifth Avenue flagship Lord & Taylor store

Hudson's Bay Company announced today that it will sell its Lord & Taylor flagship in NY to office sharing company WeWork and Rhône Capital for $850 million (1.1 billion Canadian).

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.

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Hudson's Bay said the deal would help it reduce debt by C$1.6 billion (S$1.72 billion) and ramp up its liquidity to about C$1.1 billion.

The deal also involves WeWork leasing space in HBC 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. HBC said it doesn't anticipate the reduction of its retailing footprint will have a significant impact on its earnings, as the location is much less productive than the Saks Fifth Avenue flagship store down the street. Land & Buildings has been pressuring HBC to surface value in its real estate holdings.

HBC has repeatedly claimed its real estate is worth three times more than its current market cap.

WeWork in August announced that Japan's SoftBank Group made a $4.4 billion investment in the company.

As the retail industry tries to cope with falling foot traffic and the e-commerce surge, retailers are attempting to reimagine their physical spaces through redevelopments that shrink their footprints as Kohl's is doing, selling floors in key locations as Macy's has done and redesigning customer traffic flow to accommodate in-store and online shoppers better, as Target is in the midst of.

He added that WeWork, which provides shared workspace for entrepreneurs and startups, is paying a 30 percent premium to the Lord & Taylor building's last appraised value. 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.

Richard Baker, HBC's executive chairman and interim CEO, said Tuesday the deals will strengthen the retailer and "enable us to drive ongoing value creation". "There is no reason why retail space should not be part of that movement".

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