Rudy Milian, CRRP’s Post

When will the residences be ready for occupancy ?

Great insights Ken Pilot! Given the current value of the RE assets, I am not surprised by the bid. Under Terry Lundgren, Macy's massive expansion through acquisition always seemed a bridge too far. To your point, extracting value from flagship real estate would be difficult. However, opting for smaller, more curated stores (as per their latest initiatives, which have been under Jeff Gannette) while closing and selling underperforming stores in secondary and tertiary markets would likely improve the balance sheet and enhance profitability. The benefit of a PE-backed redux should allow Macy's to prune what isn't working well, focus on innovation, improve CX, while experimenting with what a next-generation department store could be... There is the added benefit of doing all of this while avoiding the pain of public market scrutiny. No doubt interesting times ahead for Macy's!

Just in time for the Holidays…Miracle on 34th $treet….Arkhouse management and Brigade Capital hope to pay less than the book value of the combined Macy's Real Estate holdings. Kinda smells like the opportunity Eddie Lampert eyed with Sears and Kmart and what Richard Baker saw as the opportunity with Saks Fifth Avenue (he paid $2.9B with the RE value of the Manhattan Flagship valued as greater). The hard part for these real estate motivated moves, buy the buildings and get the company for free, is you still have to grow the business. And we know, regardless of the potential value of the buildings (which are not easily converstable to anything other than retail) department store businesses are challenging. Give credit to Richard Baker for at least trying to realize the value of Online versus the stores and creating 2 separate companies. But, even with that approach, Saks is still fighting to pay it’s bills on time. Will Santa come for Macy’s??

Department Stores, which have been at the core of American cities since the mid-to-late 1800s, are one step closer to saying goodbye. For more than two decades, their cultural relevance (think Macy's #Thanksgiving Day parade and 4th of July fireworks) has been much greater than their economic relevance (in 2022, department stores accounted for less than 2% of US retail sales). The proposed $5.8 Billion acquisition of Macy's -- which, as an aside was valued at $4.8 billion before the offer, despite having a real estate portfolio "worth about $6 billion" -- is just the latest chapter. "Kohl's ... has faced pressure from activist investors and continues to struggle with sluggish sales. JCPenney filed for #bankruptcy and was rescued by mall owners. Saks Fifth Avenue and Neiman Marcus Group have been exploring a merger amid a slump in sales of luxury goods. And The Bon-Ton Stores, Inc. is a shell of its former self. Only Dillard's Inc., which is run by its founding family, has continued to thrive." (NOTE: No mention of Belk and Von Maur, two other notable dept store chains). The symptoms? A shift in consumer spending "to discount stores, fast-fashion retailers, and new entrants" as well as "buying more directly from brands," a reluctance to evolve the business model and self-cannibalize, under-investment in stores and nextgen operations and technology, all leading to "years of chronic underperformance.” https://lnkd.in/enJTq7nr

There is an insightful article in today's WSJ highlighting Richard Baker's strategic moves in the retail industry. His private equity firm, which owns Saks Fifth Avenue, has announced the acquisition of Neiman Marcus for $2.6 billion. The firm also owns Lord & Taylor and other renowned retailers. Baker's approach involves capitalizing on the valuable real estate assets of these companies. For instance, he sold Lord & Taylor's Fifth Avenue store to Amazon for $1.1 billion and after acquiring Saks in 2013 for $2.9 billion, the Fifth Avenue store was appraised at $3.7 billion. This success story underscores that in a challenging retail landscape, combining retail operations with high-valued real estate assets can be a winning formula. #RealEstate #BusinessStrategy

Arkhouse Management and Brigade Capital have presented a lucrative proposal of $5.8 billion to acquire the department store chain Macy's and make it a privately-owned entity. With Arkhouse's profound expertise in real estate, it is highly likely that their primary interest lies in the valuable land occupied by Macy's stores, rather than the merchandise housed within them. Interestingly, Macy's real estate assets alone hold a staggering value estimated to be between $7.5 billion and $11.6 billion. If this deal materializes, it would inevitably lead to a substantial reduction in Macy's physical retail operations, considering the vast number of stores they currently operate, which includes nearly 500 Macy's stores, along with over 200 Bloomingdale's and Bluemercury locations. Transitioning into a private company could potentially grant Macy's additional time and flexibility to pursue its ongoing efforts to revitalize the brand. However, it is crucial to keep an eye out for any alternative plans or the possibility that the new owners may deem the situation beyond salvageable. #fashionindustry #departmentstore #retailindustry

The future of Macy's? Just ask Charles E. Fancher, Jr! Chuck Fancher explains the challenge of a potential sale of real estate assets to maintaining retail operation viability. #commercialrealestate #retailnews #retailrealestate #saleleaseback #futureofretail #departmentstore #macys https://lnkd.in/gfBBMDuK

Attention Macy's (Real Estate) Shoppers: Only 4 Days Until Christmas Ten days have passed since news broke that Arkhouse Management and Brigade Capital Management submitted a $5.8 billion buyout proposal to Macy's. Arkhouse focuses on real estate investment, and strives to "unlock unrealized equity value caused by the mispricing of real estate assets in the public market." The buyout proposal triggered a flurry of activity, with investors reexamining Macy's real estate portfolio in order to ascertain whether the premium was warranted, and whether there was enough value in the real estate (in today's fraught environment) to justify a higher bid, whether by Arkhouse/Brigade or other investors. Investor interest in Macy's real estate isn't new, dating back to 2015 when activist shareholder Starboard Value took a position in the company. Subsequently, Hudson's Bay approached Macy's about a takeover. Starboard and Hudson's Bay both believed that the public market had failed to recognize the value of Macy's extensive real estate portfolio. Moreover, Macy's isn't the first retailer investors have dissected in order to ascertain real estate values, with a long list of others including Sears/KMart and Kohls. Macy's owns a diverse array of real estate assets including: the 2.2 million square foot Harold Square Flagship; anchor stores in some of the top shopping centers in the country; ground leased stores and a substantial footprint of logistics properties (worthy of careful scrutiny). In order to estimate the value of Macy's portfolio, investors will have to wade into the weeds, for example, in order to identify properties burdened by restrictive covenents and their impact on value. This includes evaluating prospects for enhancing the value of the Harold Square Flagship by leveraging air rights and community investment in order to build an 800' tower on top of the building. This also includes segregating Macy's retail properties, with some of its "A" properties located in malls generating in excess of $1,500 per square foot in sales. Evidently, Arkhouse is mindful of the need to model additional details, indicating its willingness to increase the value of its proposal is contingent on access to the books. Will the 2023 holiday shopping season lead to a closeout? While response to Arkhouse's bid remains muted, that could change quickly. #Arkhouse #Brigade #Starboard #Macy's #HaroldSquare #realestate ________________________________________________________________________________________ To learn more > https://exceedant.com/

The value of Macy’s real estate portfolio today is worth USD 6bn where as its enterprise value is a little over USD 10bn. However unlocking value from real estate portfolios is not an easy task with sale and lease back agreements being the most common but financially inefficient mechanism.

Macy's has received a $5.8 billion offer from an investment group to take the iconic department store chain private, a deal that could signal a greater interest in the retailer's real estate holdings than its actual retail enterprise. The bid for the 165-year-old retailer was made Dec.1 by Arkhouse Management, a real estate focused investing firm, and Brigade Capital Management, a global asset manager, the The Wall Street Journal reported. Going private shields brands of this scale from quarterly earnings analysis, allowing a shift in focus from driving profitable growth to creating shareholder value, especially through real estate. Multibrand retailers and similar businesses must choose between staying public, risking undervaluation, or going private at a lower cost. Read more below: