Maryland investors may have read media reports about leading retailers taking advantage of their commercial property portfolios by forming real estate investment trusts. The investment firm Starboard Value urged Darden Restaurants to pursue this strategy in June, and the activist firm's CEO said during an investor conference on July 15 that Macy's could almost double its share price if it followed a similar path.
The Starboard CEO said that Macy's property portfolio was worth about $21 billion. He said that the retailer's flagship store in New York City was worth $4 billion and locations in Chicago and San Francisco would fetch over $1 billion on the open market. The company generated $28 billion in sales during its last fiscal year from more than 800 Macy's and Bloomingdale's stores around the country. The Ohio-based retailer said in a statement that it was considering a number of options concerning its commercial real estate holdings.
While it remains to be seen if Macy's decides to take advantage of its property holdings by forming a REIT, other cash strapped retailers and restaurateurs have used the strategy to generate cash and pay down their debts. Sears generated $2.6 billion earlier in the year by selling approximately 235 of their properties to a REIT. The stores were then leased back to the retailer.
Commercial real estate can provide investors with significant opportunities, but zoning issues, contractual disputes and other unanticipated problems can be ruinous for the unprepared. An attorney with experience in this area may be able to help developers and investors avoid such pitfalls by reviewing the applicable contracts and identifying potentially contentious clauses.