Macy’s is poised to hire a specialist to help decide what to do with its vast real estate holdings and is mulling joint ventures with other companies to manage its flagship and mall-based stores, the Cincinnati Business Journal reports.
Activist investor Starboard Value in January wrote a letter in praise of Macy’s for its cost-cutting efforts and, especially, for the more concrete moves it’s made in exploring what to do about its valuable real estate, calling that a “prudent” step.
Macy’s is already working with Eastdil Secured, Credit Suisse and Goldman Sachs to assist in selling minority stakes in its property. Interested parties reportedly include real estate company Tishman Speyer.
There are songs and movies about the Macy’s store in New York City's Herald Square, and of course the retailer’s beloved Thanksgiving Day parade ends up there. Macy’s could gain some $3 billion to $4 billion by selling the property (it’s hard to pin down what the location is worth in terms of real estate), but what would it lose? That’s also hard to determine, and it’s not something that the investors who want to extract the real estate value out of the property at the height of the market necessarily want to consider.
“The hard part is, there’s nothing like Macy’s Herald Square,” Jim Costello, senior vice president at real estate research firm Real Capital Analytics, told the Wall Street Journal last year.
If the American department store is indeed on the way out, major changes to the building—conversions to condominiums or office space for other companies, for example—would be options that could further extract value from the property. Even with such a financial windfall, the loss could seem enormous down the road. After all, once the building is sold, it’s gone. And Macy's would have to continue to pay rent to any REIT or new owner.
Still, Macy's real estate portfolio stretches across the country: In January, Starboard Value estimated Macy's property assets at $21 billion. While few locations if any enjoy the iconic status (or value) of the Herald Square store, there is a host of costs and benefits to consider. There will soon be someone at Macy’s to help sort all that out.