WeWork and HBC Close on $850M Lord & Taylor Building Deal

NEW YORK CITY—WeWork closed on its acquisition of Lord & Taylor’s once grand flagship store at 424 Fifth Ave. from Hudson’s Bay Company for a total transaction value of $850 million. The deal was first announced in October 2017. Although initially Lord & Taylor was going to keep a smaller version of the store, the retailer subsequently decided to shut down at the location to focus efforts on online operations which included being featured on walmart.com. Lord & Taylor closed the doors of its Fifth Avenue store to the public on Jan. 2, 2019.

WeWork Property Investors exercised its option to convert US$125 million (CA$163 million) of the transaction value into a preferred equity interest in the building held by HBC through a joint venture structure. The Fifth Ave. sale was part of multiple global transactions between WeWork and HBC.

HBC is a Canadian retail business group with stores in Canada, the US and Europe. WeWork Property Investors is a real estate investment fund jointly owned by WeWork and Rhône Capital.

“The completion of this transaction, which will see us bring new life to the iconic Lord & Taylor building, reflects the evolution of the We Company, the diversification of our real estate strategy and the company’s ongoing transition from an occupier to an operator of space,” says a WeWork spokesperson.

For HBC, the closing of the transaction eliminates the approximately $400 million Lord & Taylor mortgage and has reduced borrowings under its asset-based revolving facility.

“This transaction reinforces HBC’s ability to identify undervalued real estate investments with great potential,” says Richard Baker, HBC’s governor and executive chairman. “We continue to strengthen our retail business and unlock the value of our real estate assets.”

“We’ve fortified our balance sheet in short order,” explains Baker. He notes since the end of the fiscal year 2017, HBC paid down approximately CA$1 billion in debt to support the company’s business goals and to move forward with strategies.

“This transaction highlights the evolution in both office and retail. It places WeWork, already the biggest office tenant in Manhattan, in a competitive position of ownership, challenging other office buildings around this excellent location,” says Hugh Kelly, principal of Real Estate Economics and director of Fordham University’s real estate master’s program.

“Hudson Bay, meanwhile, has monetized one of the world’s flagship retail assets, just as economists are seeing recession on the 2020 horizon. On the one hand, the deal signals the continued shift in highest and best use. But, on the other, it affirms the value of prime Manhattan land,” Kelly adds.