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A man walks by Hudson's Bay Company's department store in Toronto, on June 10, 2020.

Cole Burston/The Globe and Mail

Hudson’s Bay Co. is planning to “modernize” its department store properties by redeveloping some of the vast store buildings into mixed-use spaces that could include offices, other retailers in addition to the Bay, and even residential space.

HBC executive chairman and chief executive Richard Baker, who took the business private in March, also hinted that HBC is looking to sell some of its real estate. Mr. Baker said in a statement on Monday that the company plans to continue “generating value from these assets, as we did through the sales of the Lord & Taylor flagship building and our interest in European real estate assets.” Last year, HBC closed the $1.1-billion sale of the Lord & Taylor building in New York and announced the $1.5-billion sale of its stake in the European real estate assets.

Canada’s oldest retailer owns or controls 40 million square feet of commercial floor space across North America – either in buildings it owns entirely or through joint ventures, or space for which it holds long-term leases that could potentially be subleased. HBC did not say which stores were intended for redevelopment.

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Many owners of commercial real estate began rethinking their use of space even before the novel coronavirus pandemic tanked retail sales, putting pressure on store owners and their landlords. Some of those plans have now accelerated, said John Crombie, head of retail for Cushman & Wakefield in Canada. For example, Oakridge Centre shopping mall in Vancouver has closed more stores than originally planned to move up its construction schedule on a mixed-use redevelopment plan.

“There’s no question that mixed-use type of properties are becoming very popular. In fact most of the new construction we’re seeing that is in the retail space is mixed-use,” Mr. Crombie said. But he added that such developments are expensive and take many years to execute. They don’t work everywhere, either: Most developments are best suited to properties with nearby access to transit lines, such as subways.

HBC made its announcement this week while it is facing legal battles with its landlords. Shopping centres in Quebec, B.C. and Florida have taken the retailer to court for missing rent payments during the pandemic that total millions of dollars.

HBS Global Properties, a joint real estate venture between HBC and Simon Property Group, is also facing a lawsuit in the United States, seeking to foreclose on the mortgages of 24 Saks Fifth Avenue and Lord & Taylor stores. The lawsuit was filed earlier this month by a trustee for the holders of the joint venture’s commercial-mortgage-backed securities. The same trustee filed an earlier complaint in May after HBS defaulted on US$7.4-million in debt payments for April and May.

“HBS is disappointed that in the context of a global health crisis the lenders would choose litigation over cooperation,” the company said in a statement last week. "With that said, HBS remains committed to resolving issues with the lenders in an amicable way.”

The real estate redevelopments are long-term projects that will take years, and shoppers will not immediately see stores overhauled. However, HBC has already signalled its plans to refurbish its flagship store in downtown Montreal to add office space, though the company says it does not plan to close the store altogether.

“We have a number of iconic flagship stores in Canada. While productive, our objective is to right size the space for a better customer experience and even greater productivity," Ian Putnam, president and CEO of HBC Properties and Investments, said in an e-mailed statement. "The higher floors in certain department stores tend to be less productive and by redeveloping for offices and other alternative uses, we can maximize the real estate and unlock additional value while also generating natural foot traffic to our stores.”

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HBC has also been planning to reduce its store footprint in Canada, with the Edmonton and Winnipeg flagship stores slated for closing.

It could also be looking at further redevelopments in the U.S. Although HBC sold the Lord & Taylor retail business to e-commerce company Le Tote last year, it retained control of the department store chain’s real estate, including lease obligations. Lord & Taylor declared bankruptcy in August, announcing plans to close all 38 stores.

HBC now has its own real estate development business, since it acquired the New York-based firm Streetworks Developments last year. Streetworks has been involved in mixed-used developments in the past, including the Blue Back Square project in West Hartford, Conn., and will plan and lead HBC’s redevelopment projects.

Since privatization, HBC has shifted its corporate structure to act as a holding company, with Hudson’s Bay, luxury chain Saks Fifth Avenue and discount Saks Off Fifth, and the real estate division led by Mr. Putnam operating more independently of each other than they did in the past.

Mr. Baker told The Globe and Mail in an interview in May that HBC planned to “right-size and rethink” some of its real estate, including the Montreal and Vancouver flagship stores, “to create value beyond the store itself."

“One of the reasons we went private was because people didn’t understand that we are a real estate company that owns three strong operating companies,” Mr. Baker said at the time.

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“We’re not a department store chain. We’re a holding company that owns many billions of dollars worth of real estate; and we own [department stores].”

With a report from Rachelle Younglai

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