Friday, July 02, 2010

Macy's Ponders Sale Leaseback of Landmark Store in Pittsburgh

Pittsburgh Post-Gazette - July 1, 2010

The Macy's building, the Downtown landmark that has hosted generations of shoppers and numerous meetings under its famous clock, is up for sale.

But the store itself isn't going anywhere.

Jim Sluzewski, Macy's spokesman, confirmed Wednesday that the retailer has put the 13-story building at the intersection of Fifth Avenue and Smithfield Street on the market.

"Right now, we're exploring and seeing what interest there might be," he said.

The building, which for decades housed the Kaufmann's department store, joins the growing number of Downtown properties on the sales block, including the Gateway Center complex, the Henry W. Oliver Building and the Regional Enterprise Tower, formerly known as the Alcoa Building.

Even with a sale, Macy's department store would remain inside the building under a lease-back arrangement, Mr. Sluzewski said. The structure also would continue to house the retailer's Midwest region headquarters and district offices. "Our intention is to keep both there," he said.

However, he added that depending on the needs of the buyer, Macy's could end up consolidating the store's retail space within the building. Mr. Sluzewski said the building has about three times the amount of retail space of a typical suburban store. Macy's uses 10 floors for retail sales and part of the 11th for office space. The two highest floors are vacant.

"The store currently has probably more space than current traffic patterns require," he said. "We could reduce the number of floors the store is on. It all depends on what the need is and the interest is."

Mr. Sluzewski said a sale would have no impact on traditions like the department store's Christmas window display.

Macy's gained control of the building in the 2005 acquisition of May Department Stores, the former Kaufmann's owner. May paid $2.8 million for the real estate in 1986, according to the Allegheny County website. The property currently is assessed at $14 million.

In putting the building on the market, Mr. Sluzewski said, Macy's is seeking to capitalize on the redevelopment and stable real estate market Downtown.

"It really is a function of the tremendous energy and activity in Downtown Pittsburgh," he said. "We thought this would be a good time to see what expressions of interest there are."

Macy's is interested in one of two alternatives: Selling the building outright and leasing back portions of it or finding a tenant with an interest in leasing space while Macy's would maintain ownership.

The building has a long and rich history Downtown dating to the latter 1800s when the Kaufmann family opened a store at Smithfield and Diamond Alley (now Forbes Avenue). The store expanded rapidly, eventually occupying Smithfield between Forbes and Fifth. By 1913, the building in its current form existed.

Herky Pollock, an executive vice president for real estate brokerage CB Richard Ellis/Pittsburgh, said he sees the sale of the building as a way for Macy's to put its money to better use in operations or merchandising rather than having it tied up in real estate.

"It would also give them the opportunity at some point to downsize as they currently do not utilize their full building," he said.

Mr. Pollock sees potential interest in the building from local investors and developers as well as national public or private real estate investment trusts. He estimated the worth of the building at $25 to $30 a square foot, which would put a sale at $30 million to $35 million.

Mr. Sluzewski said no asking price for the building has been set. The Pittsburgh building, he said, is the only one Macy's is putting up for sale right now.

Tom Sullivan, a commercial broker for Pennsylvania Commercial Real Estate, said a possible sale of the building had been rumored for a while. He thinks Macy's is trying to cut operating costs.

"They use way too much space in the building. The operation costs have to be a killer. I would guess the building operates at a loss," he said.

While Mr. Pollock sees the numerous buildings for sale Downtown as the sign of a robust real estate market, Mr. Sullivan has a different view. He believes the owners see occupancy and lease rates declining in the future because of a prolonged recession and are trying to capitalize while they can.

"These people are getting out while the getting's good, in my opinion," he said. Sphere: Related Content

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