/How much is Saks flagship store worth? $2.7 billion less than it was 5 years ago, says new appraisal

How much is Saks flagship store worth? $2.7 billion less than it was 5 years ago, says new appraisal

Hudson’s Bay Co.’s real estate holdings — once considered the brightest spot in a sagging department store empire — are worth a fraction of previous estimates, according to new appraisals released Tuesday as part of a bid to take the company private.

The documents suggest the value of HBC’s real estate has fallen from $35.24 per share in 2017 to $8.75 per share this year, following property sales and an apparent multi-billion-dollar decline in the value of its Saks Fifth Avenue flagship store in Manhattan.

In 2014, an independent appraisal valued the Saks building at $4.8 billion. Tuesday’s report by CBRE Group Inc. put the best-use value at $2.1 billion — a $2.7-billion drop — with the company pointing to declining New York rent, a worse-than-expected performance over the last five years, and the ongoing disturbance in the retail sector.

HBC released the appraisals of its 79 properties as a companion to a management circular sent to shareholders ahead of a vote next month. That vote will determine the fate of the 349-year-old retailer, which also owns Saks Fifth Avenue.

The purported drop in the real estate value — and the arduous process of extracting that value — is part of the reason that a special committee, struck by the board of directors is urging shareholders to support a bid, led by HBC executive chairman Richard Baker, to take the company private at $10.30 per share.


Saks Fifth Avenue in New York City.

Paul Hawthorne/Getty Images

A group of minority shareholders have contested that bid, focusing primarily on the value of HBC’s fleet of storefronts across North America. Private equity firm Catalyst Capital Group Inc. has signalled it had enough shareholder support to block the bid. But neither Catalyst, nor activist investor Jonathan Litt of Land & Buildings Investment Management, have responded to the release of the hundreds of new appraisal documents.

Last year, Litt wrote a letter to shareholders, bemoaning that the “Saks Fifth Avenue flagship in Manhattan, is worth more than where the stock currently trades.”

But CBRE noted several challenges for the 96-year-old building, including falling rent prices on Fifth Avenue and a heritage building status that would complicate any potential development project.

“Multi-level retail in Manhattan has been challenging in certain circumstances,” the report reads, adding that upscale New York City shopping districts, like Fifth Avenue, have been hardest hit by a “declining trend in asking rents” since 2016. The report also noted that the store had previously sold its air rights, for upward development.

HBC’s special committee held “extensive discussions” about the drastic value reduction for the Saks flagship, according to the management circular released on Friday. The circular said that the committee discussed several factors behind the decline, “including the performance of the store relative to expectations in 2014, changes in market rents on New York’s 5th Avenue, and the changes in the retail landscape.”

CBRE says declining New York rent, a worse-than-expected performance over the past five years, and the ongoing disturbance in the retail sector has dramatically lowered the value of the iconic store.

Demetrius Freeman/The New York Times

James Smerdon, a retail consultant and strategic planner with Colliers International, noted that appraising large, complex Manhattan sites involves so many factors that “one entity might value it very differently than another.”

“I would say that it would be very unusual to have the same consultants arrive at these wildly different values only five years apart,” he wrote in an email Tuesday.

In a Spring 2017 presentation to investors, HBC said the value of its real estate was $35.24 per share. A year and a half later, chief executive Helena Foulkes suggested the real estate was $28 per share. The continued drop in value could be attributed in part, to asset sales, including HBC’s Lord and Taylor flagship in Manhattan and properties tied to its European operations.

The CBRE reports informed TD Securities’ fairness opinion, which put the fair market value of HBC’s common shares in the range of $10 to $12.25.

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