- What Canadian mall landlords will consider repurposing retail space leased to the Hudson’s Bay Co.
- Why The company is seeking court approval to liquidate its Canadian operations
- What next Possible replacement tenants could include a toy store chain, car dealerships and gyms
A proposed liquidation of the Hudson’s Bay Co. will eventually allow mall operators to free up and repurpose prime retail space leased to the debt-ridden company, retail market watchers said.
Hudson’s Bay, which operates The Bay, Zellers and other Canadian retail brands, is facing insolvency after failing to secure financing requested for a last-ditch restructuring effort. Hudson’s Bay has approximately $1.1bn of secured debt, according to court records, comprising unpaid inventory, pre-existing credit facilitation and mortgage obligations.
An Ontario Superior Court judge is determining whether to grant the iconic Canadian retailer’s most recent request to liquidate its operations after more than 350 years in business. Discussions between the company and some of its major creditors continued on Wednesday in hopes of salvaging an agreement, The Globe and Mail reported. The court is expected to rule on the matter sometime this week.
Hudson’s Bay, which applied for creditor protection under the Companies’ Creditors Arrangement Act in early March, has 80 Bay-branded stores across Canada. It also operates 16 stores under the Saks Fifth Avenue and Saks Off Fifth banners.
Most locations are owned by third-party landlords including Cadillac Fairview and Oxford Properties. Twelve properties are co-owned or jointly leased by Hudson’s Bay and RioCan Real Estate Investment Trust through a joint real estate venture launched in 2015. Under that arrangement, Hudson’s Bay leases the co-owned properties from an entity established for the JV, paying some $10m a month for rent and other expenses.
Court-appointed monitor Alvarez and Marsal has endorsed Hudson’s Bay’s request for a stay on all monthly rent obligations toward the seven properties either owned by the JV or co-owned by the JV and RioCan, with RioCan independently holding a 50% stake. The stay would not include the five head leases issued by third-party landlords to the JV.
In turn, RioCan has opposed the recommendation.
Dozens of vacancies to fill
If the decision to liquidate is granted, it will open up valuable retail space in shopping centres where the company is considered an anchor tenant. JLL, which has already conducted a review of Hudson’s Bay store lease values, has been recommended by Alvarez and Marsal to market the sites.
Possible replacements floated include CAMP, a toy store chain based in New York City specializing in family-based shopping experiences; Arte Museum, a South Korean multimedia art exhibitor that uses large spaces for immersive displays; and Prison Island, a kid-friendly escape room provider from Sweden that might be looking to break into the Canadian market.
Other suggestions coming from market watchers include grocery store chains, gyms and car dealerships, similar to the Toyota and Volkswagen dealerships in the West Edmonton Mall.
“I think [the Hudson’s Bay liquidation] gives an opportunity for entrepreneurs or partnerships, whether it’s a licensed or franchise-based business that might be looking to come into Canada,” CBRE vice president and retail property strategist Kate Camenzuli told Green Street News.
Rather than lease out the former Hudson’s Bay locations, mall operators may consider a “slice and dice” scheme to cleave up the lots for maximum value, Camenzuli said, noting the variation in the store formats, from enclosed marquee shopping plazas like downtown Toronto’s Eaton Centre to suburban tertiary space.
“You’ve got a bit of everything and the boxes are huge,” she said. “I don’t know any retailer that would look to come and take out the lease as is.”
Altus Group vice president Raymond Wong didn’t rule out a single tenant taking on the Hudson’s Bay store leases, with retail rents benefiting in particular from grocery-anchor tenants driving up foot traffic. Any possible deal would take months to complete with the liquidation proceedings as well as market uncertainty created from the impact of trade tariffs.
“We know the traffic’s there and [shopping centre] branding that works for retailers, and maybe somebody may show up and pick up the whole thing,” Wong told Green Street News. “But the challenge is with the timing right now.”
Possible renegotiations
Faced with having to find new occupants for the Hudson’s Bay space, retail analyst Bruce Winder says mall owners might consider redeveloping those areas for something other than a store operation.
“A lot of malls are taking retail space and turning it into attached condominiums,” Wilder, who has over 20 years of experience tracking the sector, told Green Street News. “That is a major trend where you work, play and live in the same spot. That could very well happen, particularly in highly populated areas where real estate prices are at [a] premium.”
When Hudson’s Bay is no longer present, existing mall tenants might be looking for rent reductions to remain in their spaces.
“Part of signing there was due to the privilege of having an anchor for [the] mall,” Wilder said. “The Bay will be gone, so there will be all kinds of discussions.”
Download the Green Street News App
Get real-time alerts on all the news that matters most to you, straight to your mobile. Personalise your news feed and enable push notifications to stay up to date with the latest breaking news, property deals, people moves and more.
Search Green Street News in your device’s app store, click the links below, or scan the QR code.
