By:  Benyamin Davidsons

Brigade Capital Management and Arkhouse Management offered a $21-a-share bid for the shares of Macy’s Inc. they don’t already own.  As reported by the NY Post, experts say the bid is aimed at taking on the department store’s real estate holdings.

Macy’s owns the real estate at close to half of its stores—with the total value of the real estate properties valued at roughly $7 billion to $8 billion.  The hedge funds have offered to pay much less than that—placing a bid of $5.8 billion to acquire Macy’s.  Macy’s Inc also controls retailer Bloomingdale’s and the cosmetics chain Bluemercury, which boasts approximately 300 locations.  “It really came out of nowhere,” said one high-level retail executive, of the bid, under the condition of anonymity. “But those guys understand real estate really well, so I assume this is about Macy’s real estate portfolio.”

There has been talk that the bidder would want to demolish or rebuild at the coveted locations- including the Macy’s Herald Square flagship store and Bloomingdale’s on Lexington Avenue at East 59th Street.  The Post, however, says there are likely no near-term plans to redevelop either building.

In February 2020, just before the pandemic, Macy’s itself had announced a plan to build a 900-foot-tall office skyscraper on top of its 11-story flagship store in Herald Square.  Per the Post, the idea was obviously stalled when the pandemic struck, but again in May 2021, CEO Jeff Gennette had announced that Macy’s would spend $235 million to upgrade Herald Square’s transit and pedestrian features — obviously steps toward getting the zoning change that would be necessary to build a new tower.  Since then, again there has been a total lull in the plans, with Department of City Planning spokesman Joe Marvilli telling Realty Check that Macy’s never even filed an application for the upgrades.

Macy’s spokeswoman Stephanie Jimenez recently said the department store “is declining to comment at this time.”  A notable commercial dealmaker laughed at the idea.  “Are you kidding? Offices over Herald Square? In the worst market in fifty years? At the same time when four or five other supertall plans aren’t going anywhere, either?” The source conceded, “Yes, everything could change in a few years. But takeovers aren’t usually based on the long-term. Hedge funds want returns right away.”

As for The Bloomingdale’s site at 1000 Third Avenue between East 59th and East 60th, it would admittedly be an ideal site for a luxury condo tower, but not for office space.  The problem there is that Macy’s doesn’t actually own the building.  Per the Post, public records show, that the luxury department store is just a long-term tenant with a lease.  The ground itself is owned by a Bloomingdale family trust, and it is being leased out to Macy’s through the year 2058.

Since last week, when the investor group offered $5.8 billion to buy the iconic department store chain and take it private, shares of Macy’s stock have soared.  That’s mostly because of the premium price offered of $21 a share, when the stock traded at just $15.86 at daily closing on Nov. 30.  Macy’s Inc shares closed at $20.06 on Monday, gaining over 26 percent in just two weeks. Despite the recent rally, Macy’s price can be considered a bargain if compared to the $70-a-share peak it enjoyed in 2015.