WeWork Buys Storied NYC Building For New HQ In $850M Deal
Co-working giant WeWork has entered into real estate ownership with a bang, acquiring Lord & Taylor's 103-year-old flagship store on Fifth Avenue in Manhattan for $850M.
WeWork bought the building from Lord & Taylor's parent company, Hudson's Bay Cos., in a joint venture with Rhône Capital, the private equity firm it partnered with to raise a fund to acquire properties. The 650K SF building will be converted to WeWork's HQ after the holiday shopping season in winter 2018, after which the Lord & Taylor space will be renovated and redesigned, paring down to 150K SF of leased space on the first three floors. WeWork will occupy 500K SF on the top eight floors.
As part of the deal, WeWork has agreed to open leased locations in parts of HBC's stores, which include Saks Fifth Avenue and Hudson's Bay.
WeWork will start by opening locations on the top floors of HBC stores in Toronto and Vancouver, Canada, and Frankfurt, Germany, the New York Post reports. WeWork members would have to walk through the shopping areas to access their offices during store hours, Baker told the Post, and have a separate entrance when stores are closed.
Rhône also agreed to invest $500M in HBC directly. The JV with WeWork will assume some of it.
WeWork CEO Adam Neumann, who has led the company he founded in 2010 to a $20B private valuation and expansion on to four continents, said the deal allows WeWork to expand into physical retail spaces, one of the final property frontiers for the unicorn.
“The trend of urbanization is something we must all recognize and understand," Neumann said in a release. "There is no reason why retail space should not be part of that movement.
"WeWork’s role in this big trend will be to reimagine and reshape places so as to foster collaboration, innovation and creativity. Retail is changing and the role that real estate has to play in the way that we shop today must change with it. The opportunity to develop this partnership with HBC to explore this trend was too good to pass up."
WeWork Property Advisors' purchase of the building, at 424 Fifth Ave., is believed to be the first acquisition by WeWork Property Advisors, which was formed with hundreds of millions of dollars to invest in real estate.
The $850M price tag is 30% above the building's appraised value, according to HBC.
WeWork is expanding into the residential sector with its WeLive co-living brand, has partnered with Airbnb to tackle business travel lodging, and last week it launched "Rise by We," a fitness platform, in Downtown Manhattan.
The acquisition comes as Hudson's Bay and its department store brands have been hammered by changing retail trends, as have its competitors, like Macy's and Nordstrom. Selling real estate has been a favored strategy among some department store investors — including activist investor Jonathan Litt, who owns a stake in HBC — and it has been used to create liquidity.
Macy's has sold some of its locations to capitalize on their real estate value and keep the company afloat, and Sears sold all of its owned stores to a spinoff public investment trust, Seritage Growth Properties, which has itself been shedding stores from its portfolio.
Richard Baker, a real estate investor, acquired Lord & Taylor in 2006. He sold it to HBC and now serves as HBC's executive chairman and CEO. As recently as May, HBC had floated the idea of redeveloping the Lord & Taylor store into a skyscraper, but WeWork plans a gut renovation to turn the existing space into its own headquarters, where beer kegs and tequila shots figure to be prominent features.
“Immediately upon closing, these transactions are expected to significantly strengthen HBC’s balance sheet, enhance our liquidity, and advance our core strategies by monetizing the Lord & Taylor Fifth Avenue building and increasing the productivity of key locations, which taken together, is expected to enable us to drive ongoing value creation," Baker said in a statement.
