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
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Retired Vice President at Macy's, Inc.
5moI worked in the department store real estate area for over 40 years; it was always a very tough business. Many, many great department store operations in all merchandise sectors are long gone. I would not count the current Macy’s store management and associate teams or store operations out. No question that continuous refinement and change is required for a very large store fleet positioned in as many markets as Macy’s is; it’s always required no matter how difficult. Doug is an accomplished real estate professional, critical thinker and creative problem solver. I believe he will be a valuable contributor and resource to the Macy’s Board as Macy’s works to move forward.