Gail Kalinoski/Commercial Property Executive – Hours after Macy’s announced its store in the Irvine Spectrum Center was closing, the Irvine Company released plans for a major $150 million reinvestment plan.
“The Macy’s closing has been contemplated for months and has provided us with a unique opportunity to rebalance Irvine Spectrum Center with additional retail stores to ensure that it continues as one of Southern California’s premier shopping, dining and entertainment lifestyle destinations,” Easther Liu, chief marketing officer for Irvine Company Retail Properties, said in a prepared statement. “As a master-planning company and long-term owner, we are always exploring how we evolve Irvine Spectrum Center’s vibrancy and relevancy to marry with our customer’s evolving tastes.”
Retail consultant Jeff Green, president of Jeff Green Partners, said some shopping center and mall owners will follow Irvine Company’s lead and carve up the former Macy’s stores into smaller retail spaces. Others may tear down the vacant Macy’s stores and build multifamily or limited-service hotels, he said.
“That is a lot of space to fill up. There isn’t anybody (retailer) to take the entire box, which is why I think you have to look to non-retail,” he told Commercial Property Executive. “Basically, the malls are going to become mixed-use. I think that is the direction the mall industry is going in anyway.”
The news that 36 Macy’s stores would close early this year -making a total of 40 when added to the four that closed in late 2015- was part of a “series of cost-efficiency and process improvement measures to be implemented beginning in early 2016,” announced by Chairman & CEO Terry Lundgren. They are designed to cut expenses by about $400 million while still investing in growth strategies including omnichannel capabilities at Macy’s and Bloomingdale’s.
Macy’s, currently operating about 770 stores, has said for several months that more stores would be closed. Most of the stores slated for closing should be shuttered within two to three months. It also plans to close a St. Louis call center.
“In today’s rapidly evolving retail environment, it is essential that we maintain a portfolio of the right stores in the right places,” Lundgren said in a prepared statement. “So we will continue to add stores selectively while also being disciplined about closing stores that are unproductive or no longer robust shopping destinations because of change in the local retail shopping landscape.”
“It’s not a surprise. It needed to happen for awhile,” Green noted.
He said most of the stores fall into three groups – underperforming stores, stores in underperforming malls or stores operating in outdated prototypes like the former store in downtown Pittsburgh, which had 1.2 million square feet. The company sold the store in July to Core Realty, which is planning a major mixed-use redevelopment for the historic building.
“It’s interesting that regions like upstate New York, western Massachusetts and northern Connecticut had a number of store closures,” Green said. “It could be due to the economy of the area. Many of them are small markets. They probably shouldn’t have been in some of those markets anyway.”
In addition to selling properties like the Pittsburgh location, Macy’s is continuing to monetize its assets. It has engaged Eastdil Secured, along with assistance from Credit Suisse and Goldman Sachs, to seek potential partnerships or joint ventures for the company’s mall-based properties as well as its flagship real estate assets in Manhattan, Chicago, San Francisco and Minneapolis. The company statement noted that Tishman Speyer has already expressed interest in pursuing partnerships on the four flagship locations so it is not advising Macy’s on those properties. Tishman Speyer will continue to advise Macy’s on potential opportunities for maximizing the value of other assets.
Tishman Speyer has already teamed up with Macy’s to redevelop its downtown Brooklyn, N.Y., location. In August, the retailer sold part of the store and a parking garage to the developer, which plans to put 10 stories of Class A office space on top of a slimmed down, renovated store. The deal called for Tishman Speyer to pay Macy’s $170 million in cash and another $100 million over the next three years to be used for renovations at the 422 Fulton St. store.
In October, Macy’s sold the top four floors of its downtown Seattle department store at 300 Pine St. to Starwood Capital Group, which plans to convert those floors to Class A creative office space, for $65 million.