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The Hudson's Bay Company building in downtown Vancouver on June 15, 2012.DARRYL DYCK

Hudson’s Bay Co.'s prized Vancouver retail property is no longer for sale and the department store chain is now considering redeveloping the prime real estate with its joint owner, RioCan.

HBC and RioCan Real Estate Investment Trust had been in talks to sell the property to Chinese billionaire Zheng Jianjiang, the chairman of Chinese manufacturing firm Ningbo Sanxing Electric, The Globe and Mail reported in May.

But that deal fell through over the summer, sources said. Now, HBC and RioCan, one of Canada’s largest retail landlords, are in early-stage talks to redevelop the cream terracotta stand-alone building in downtown Vancouver.

“We are looking at a possible redevelopment with HBC, but we have not made any decision” RioCan chief executive Edward Sonshine said in an interview. When asked if the property was off the market, Mr. Sonshine said: “It is not currently on the market.”

HBC did not immediately respond to a request for comment.

The failure to sell the top property comes as HBC faces pressure to retool its department-store business amid changing consumer tastes and increased competition from online retailers.

Investors and analysts had pushed the department-store chain to find better uses for its real estate, including redeveloping one of buildings into luxury residences or a hotel and selling the properties.

The HBC Vancouver property was officially put on the block earlier this year in an attempt to cash in on the hot local commercial real estate market, where office vacancy rates are at record lows and hotels are booming.

HBC, which runs its eponymous department-store chain along with Saks Fifth Avenue, Lord & Taylor and others, had already succeeded in getting a big price for one of its key assets, the main Lord & Taylor store in Manhattan, N.Y.

That was sold for nearly $1.1-billion to private equity firm Rhone Capital and co-working company WeWork, which is expected to convert most of the store into its head office.

But the Vancouver real estate was much more complicated because it is a heritage building and the space was pretty much spoken for.

HBC had planned to lease back the property and use the bottom four floors for retail and sublease the top two floors to WeWork. That would have made it difficult to redevelop the property by adding more floors or turning the retail space into offices or residential space. Because of its heritage status, the building could not be demolished.

“It is a tough property,” said Ross Moore, adviser with commercial realtor North Downs. “It would require a very unique buyer,” he said.

It is not known why Mr. Zheng pulled out. The billionaire already owns a small retail property in Vancouver and had offered to pay about $600-million, sources had said.

But his interest in the HBC building came after the Chinese government cracked down on large acquisitions of foreign real estate. The capital constraints have curbed Chinese buyers, who over the past few years have been responsible for $5.6-billion, or 40 per cent, of foreign real estate investments in Canada.

Now that HBC and RioCan are talking about redeveloping the building, it could be easier to make changes. The property is on Granville Street, an area that has become more popular with tech companies such as Amazon close by.

Mr. Sonshine and HBC executive chairman Richard Baker have a history of working together. In early 2015, the two companies formed a real estate joint venture with HBC as the majority owner. That joint venture also owns HBC’s key properties in Ottawa and Montreal.

Among the options is RioCan buying the entire Vancouver property, sources said.

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