WeWork Buys Lord & Taylor's Historic Fifth Avenue Flagship Store

HBC sells flagship New York location to WeWork for US$850M

Canadian department store operator Hudson's Bay Co (HBC.TO) (HBC) agreed to sell its Lord & Taylor flagship building in NY for $850 million to WeWork Cos, in what may be a step toward easing tensions with activist investor Jonathan Litt.

The Lord & Taylor flagship store will continue to operate through the end of the 2018 holiday season, upon which it will be converted to WeWork's NY headquarters, though HBC will continue to operate a 150,000 square-foot Lord & Taylor store in the location.

The company's flagship building has been a presence on Fifth Avenue for more than a century; the 11-story limestone structure opened in 1914, and was named a New York City landmark in 2007.

HBC said that the Lord & Taylor flagship store will continue to operate in the entire building through the 2018 holiday season.

"The path to maximizing the value of Hudson's Bay lies in its real estate, not its retail brands", Jonathan Litt, founder of Land and Buildings Investment Management, a HBC shareholder, wrote in a letter to the board in June.

HBC said the partnership will place it at the "forefront of dynamic trends reshaping the way current and future generations live, work and shop". "By leasing its excess, lower rent, retail square footage to substantially higher rate, traffic driving, shared office space, Hudson's Bay will generate higher revenue and be more productive".

WeWorks will also lease space in other HBC stores-owned in other cities. "Maybe this is step one out of many steps". In addition, Rhône Capital, which partnered with WeWork in a real estate investment fund a year ago, will make a US$500 million equity investment in HBC.

HBC has repeatedly claimed its real estate is worth three times more than its current market cap.

The leasing arrangement with WeWork will begin with space in the Hudson's Bay store on Queen Street in Toronto, the Hudson's Bay store in downtown Vancouver and a Galeria Kaufhof in Frankfurt.

That investment dilutes shareholders' holdings by about 21 percent, according to Reuters calculations.

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