Photographer: Mark Elias/Bloomberg

What WeWork's Lord & Taylor Deal Says About the State of Retail

  • Stores, offices both shrinking, Terra Capital’s Batkin says
  • Lord & Taylor building is WeWork’s first high-profile purchase

Here’s one way to help out a struggling retailer: Turn its flagship store into the headquarters for a shared office-space company.

WeWork Cos.’ joint venture to purchase the landmark Lord & Taylor department store in Manhattan is “a very provocative deal, but not a surprise,” said Bruce Batkin, chief executive officer of Terra Capital Partners, a New York-based commercial-property lender. It’s simply a sign of the times, he said, in which a lot of commercial real estate is being reconfigured to match the way people live and work. Office layouts are getting smaller, as are retail spaces as more people shop online.

“People will continue to shop, but they’re shopping differently, and that doesn’t require the same footprint,” Batkin said.

WeWork is teaming with Rhone Capital LLC to acquire Lord & Taylor’s Fifth Avenue building for $850 million -- or 30 percent more than its appraised value last year, when owner Hudson’s Bay Co. refinanced a loan on the property. The deal will help the slipping Canadian retailer cut debt and bolster its balance sheet, while giving seven-year-old WeWork a marquee headquarters for its ever-growing co-working universe. Lord & Taylor will retain a smaller retail presence at the site, which will also have shared WeWork offices.

This deal “says I don’t need a 658,000-square-foot store” for Lord & Taylor, Brad Mendelson, vice chairman of brokerage Colliers International, said in an interview. “All these department stores have to start reinventing themselves.”

WeWork’s latest fundraising round valued it at $20 billion -- more than 10 times the stock-market value of Hudson’s Bay. The startup usually leases properties and then rents out office space to entrepreneurs, teams and larger enterprises, but it has explored buying buildings and recently formed a joint venture with Rhone to invest in real estate. The Lord & Taylor building was its first high-profile purchase.

“WeWork obviously wanted to be in that location and saw a tremendous upside because they paid a third more” than last year’s appraisal, Batkin said. “It’s an irreplaceable asset and it gives them a high-profile headquarters.”

— With assistance by Ellen Huet, and David M Levitt

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