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Brookfield Buying Top Floors of Chicago Macy's, Plans to Redevelop as Office

Macy's Exploring San Francisco Store Sale; Evaluating Redevelopment Options for Other CRE Assets
February 27, 2018
Macy's State Street store in Chicago

Continuing to look for ways to raise cash from its real estate, Macy's Inc. (NYSE:M) announced this morning that it has agreed to sell the upper floors of its downtown State Street Chicago store to a developer, and is also exploring the sale of a downtown San Francisco building.

The department store chain signed an agreement to sell floors eight through 14 at 111 N. State St. in Chicago to a private real estate fund sponsored by Brookfield Asset Management. Brookfield intends to convert the largely unused floors into creative office space and rent it to other tenants.

As part of this transaction, Macy's reported it will receive $30 million as well as an undisclosed upside participation in the conversion of the upper floors to office space. The department store expects to close on this transaction in the first half of fiscal 2018.

Macy's and Brookfield formed a strategic alliance in November 2016 to review 50 properties for redevelopment. So far the companies have agreed to certain terms on nine assets, which Brookfield will redevelop once it has received necessary approvals.

Once those approvals are in place, Macy's plans to either sell its interests in the individual assets to Brookfield, or contribute them to individual joint ventures. If all nine properties are sold, Macy's estimates the cumulative value to be $50 million.

Macy's also announced it is exploring opportunities to sell the approximately 243,000-square-foot former I. Magnin portion of the main Union Square building in San Francisco. Macy's Union Square complex comprises multiple buildings, and the former I. Magnin flagship building at the corner of Stockton and Geary streets is a separate structure that Macy's said is more suited for redevelopment.

Through all of last year, Macy's said it got $411 million in cash proceeds from asset sales. These sales included stores as well as non-store real estate such as warehouses, outparcels and parking garages. Over the last three fiscal years, it has sold $1.3 billion in assets.

Heading into this year, Macy's said it is continuing to evaluate other opportunities in its real estate portfolio focusing on identifying those with potential redevelopment value.

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