In a landmark $1.1 billion deal, global co-working company WeWork has purchased the flagship Manhattan retail store of Lord & Taylor to become its new headquarters.
The 11-storey building, which is nearly 100-years old, is home to a 676,000 square foot store on Fifth Avenue and has been sold by Lord & Taylor’s owner Hudson’s Bay as it comes under pressure to unlock the value of the Canadian company’s real estate holdings and pay down debt.
WeWork will convert most of the building to offices with the retailer still maintaining a pared-down department store over about a quarter of the space. WeWork has made the acquisition with joint venture partner Rhône Capital.
Rhône Capital provided a US$500 million equity investment.
The Lord & Taylor department store has long attracted many tourists and locals to its famous Christmas holiday season store window displays, but like many traditional retailers has been battered by the impact of e-commerce.
Hudson’s Bay also owns the famous Saks Fifth Avenue and is also under pressure to sell that asset with the property recently being appraised for about $3.7 billion.
WeWork has grown to more than 160 locations across 52 cities since being founded in 2010.
The deal between Hudson’s Bay and WeWork allows the retailer to access the largely millennial workforce attracted to WeWork’s office facilities and for WeWork to continue securing prominent attractive locations.
[Also read: Shop, Work, Live: Creating a Relevant Experience for the Millennial Generation]WeWork will also be able to lease retail space in other Hudson’s Bay stores that would have minimal impact on their earnings at these retail locations.
Hudson's Bay executive chairman Richard Baker told CNBC in a television interview, "We've announced a deal for four locations, Fifth Avenue Lord & Taylor building, Toronto, Vancouver and Frankfurt in order to put WeWork in the top portion of these buildings, and drive those young, millennial WeWork members through our retail stores for them to have beautiful office space — with high ceilings and big windows — and it's a real win-win."As part of the deal Hudson’s Bay will also become an early adopter of WeWork’s ‘Powered by We’ operating platform, which combines physical spaces and digital systems for more efficient design, building and operating of office space.
In August, WeWork was able to secure a $4.4 billion source of capital from Japanese conglomerate Softbank, with Softbank receiving two seats on WeWork's board.
Chief executive and co-founder of WeWork, Adam Neumann, said: “WeWork could not be what it is today if it wasn’t for our New York roots. The WeWork of today is a testament to the energy and hustle of this great city and it permeates everything we do.
“Retail is changing and the role that real estate has to play in the way that we shop today must change with it.”