Lord & Taylor’s flagship store on Fifth Avenue is getting sold to WeWork, the New York-based tech unicorn that markets shared office space.
Hudson’s Bay, the owner of Lord & Taylor and Saks Fifth Avenue, is selling the century-old Lord & Taylor flagship for $850 million, the companies announced Tuesday.
WeWork will convert the 11-story building at Fifth Avenue and 38th Street into its headquarters while making a $500 million investment in Toronto-based HBC along with Rhone Capital, which formed a joint venture with WeWork to create WeWork Property Advisors.
The plan also calls for WeWork to convert the top floors of some of HBC’s 480 department stores into office space and to pay market rent to HBC, which hopes it can convert WeWork’s millennial tenant base to customers.
“This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition,” Richard Baker, HBC’s executive chairman and interim chief executive, said in a statement.
HBC will use the funds to reduce its debt by $1.1 billion, but it will still have a small amount of debt remaining, including its mortgage for the Saks Fifth Avenue flagship, Baker told The Post. Saks Fifth Avenue is not slated to get WeWork tenants, however.
“There is not a single square foot of space in that store that can be used for anything other than selling luxury goods,” Baker said in an interview.
The Lord & Taylor store will operate through the 2018 holiday season before WeWork begins renovating the space, reducing the retail space to 150,000 square feet from 650,000 square feet.
WeWork, which launched seven years ago in the Big Apple, secured two hefty investments this summer — $500 million in a round that included Softbank and, several weeks later, a $4.4 billion investment from Softbank — to fuel its expansion.
“Retail is changing and the role that real estate has to play in the way that we shop today must change with it,” said WeWork co-founder and chief executive Adam Neumann in a statement. “The opportunity to develop this partnership with HBC was too good to pass up.”
The startup was recently valued at $20 billion.
HBC stores on Queen Street in Toronto and Granville Street in Vancouver and Galeria Kaufhof in Frankfurt are also earmarked for WeWork work spaces.
WeWork will get signage on the outside of those department stores that it moves into and its tenants will walk through the stores to get to their offices during store hours and will have access to a separate entrance when the stores are closed, according to Baker. The deal is expected to add on average 6,000 WeWork tenants who will pass through HBC’s stores every day.
WeWork has been growing rapidly not only because it provides space to small-business owners, but big corporations like Amazon and Google have also embraced the model and opened offices in WeWork buildings recently, according to Baker.
The $850 million price tag for the building is $200 million more than HBC told its shareholders the building was worth, according to Baker.
The injection of fresh capital into HBC gives the department store company a chance to right its listing business and to possibly take the company private.
In June, it announced a restructuring plan that would slash 2,000 jobs and save the company $350 million in Canadian dollars in 2018.
But the plan didn’t go far enough for some, namely activist investor Jonathan Litt of Land & Buildings, which is agitating for HBC to sell some of its real estate crown jewels, including the Saks Fifth Avenue flagship by Rockefeller Center, arguing that the real estate is worth more than the retail business.
Baker disputed the notion that HBC’s WeWork deal was a response to Litt’s campaign.
“This transaction started before he wrote his first note,” Baker said.
HBC has said it is exploring all options, but last week the company announced that its chief executive of nearly three years, Gerald Storch, would be stepping down Nov. 1 and an executive search commenced for his replacement.