WeWork and joint venture partner Rhône Capital have purchased Lord & Taylor’s flagship building at 424 Fifth Avenue from the retailer’s parent company Hudson’s Bay Company for $850 million, the companies announced today in a news release.
WeWork Property Advisors, the name of the joint venture, and Hudson’s Bay expect the sale of the Fifth Avenue building to close by Aug. 10 next year, the release notes.
The 676,000-square-foot property between West 38th and West 39th Streets has been home to Lord & Taylor since 1914. The transaction comes as department stores and retailers suffer under tremendous pressure from e-commerce.
Lord & Taylor will continue to operate in the entire building through the 2018 holiday season. Then Lord & Taylor will rent the bottom floors of the building comprising 150,000 square feet, or less than a quarter, of the current store. A WeWork spokesman declined to disclose the terms of the lease when asked by Commercial Observer.
The remainder of the building will be converted to shared offices and the new headquarters for WeWork, which is currently located at 115 West 18th Street between Avenue of the Americas and Seventh Avenue in Chelsea.
“This partnership places HBC at the forefront of dynamic trends reshaping the way current and future generations live, work and shop,” Richard Baker, HBC’s governor, executive chairman and interim chief executive officer, said in prepared remarks. “Our partnership with the WeWork team creates new opportunities for HBC to redefine the traditional department store by extending [it to the shared office community] and drive additional traffic to our stores, particularly as we add coworking and community space to existing, vibrant retail locations.”
In addition to the sale, investment management firm Rhône Capital is also making an $500 million equity investment in HBC, according to the press release. With more than a $1 billion in proceeds, HBC plans to use the money to reduce its debt.
And the deal also provides a way for the company to find a new use for its vast real estate holdings, which total about 61 million square feet globally. Hudson’s Bay has “made agreements” with WeWork to allow the coworking giant to lease office space in its retail portfolio, beginning with the upper floors buildings in Toronto, Vancouver and Frankfurt buildings, according to the release.
“The trend of urbanization is something we must all recognize and understand,” Adam Neumann, the CEO and co-founder of WeWork, said in a statement. “People from every walk of life are seeking spaces in big cities that allow for human connections. There is no reason why retail space should not be part of that movement.”
Meanwhile, HBC said in June it would cut approximately 2,000 jobs from its companies such as Saks Fifth Avenue, Gilt Groupe and Lord & Taylor in North America to save $350 million annually starting in 2018. And just last week, the company announced CEO Gerald Storch will step down as of Nov. 1.
To boost its profitability, activist investor Jonathan Litt of Land & Buildings Investment Management, a hedge fund that has a 4.3 percent stake in HBC, recently urged the company to sell its real estate, such as the Saks Fifth Avenue flagship store at 611 Fifth Avenue between East 49th and East 50th Streets.
That property, which sits across from Rockefeller Center, has been appraised for $3.7 billion, as The New York Times reported.
Regardless of the WeWork deal, Mark Cohen, a former Sears executive who is now director of retail studies and adjunct professor of business and marketing at Columbia University, told Observer that Lord & Taylor’s days are still numbered.
“It’s been in serial decline, and now it’s gonna move into steep decline,” he said. “Lord & Taylor is toast.”