A B.C. billionaire who spent the summer fighting to move into former Hudson’s Bay properties found herself on the losing end of an Ontario Superior Court decision on Friday.
Judge Peter Osborne ruled that landlords for the collapsed retailer will not be forced to accept Ruby Liu as a tenant.
While no one immediately announced plans to appeal the decision, the losing side could seek to overturn the outcome.
In his judgement, Osborne said he had “significant concerns” about Liu’s ability to meet their term of the leases she wanted.
Major landlords including Cadillac Fairview, Oxford Properties and Ivanhoé Cambridge were opposed to Liu buying 25 former Hudson’s Bay leases for $69.1 million.
They painted Liu as an inexperienced retail entrepreneur and said her plan to open at least 20 spaces within 180 days of getting leases was unrealistic.
Liu maintained the three malls she owns prove she has what it takes to launch a new department store and said landlords were battling her because she’s an “outsider” and not their preferred tenant.
Osborne’s decision was months in the making and came after he waded through 25,600 pages of arguments from a who’s who of commercial landlords and investors.
It was back in March that Hudson’s Bay, riddled with $1.1 billion in debt, filed for creditor protection. Unable to find a buyer, it later liquidated its 80 stores and 16 more from Saks, and then turned its attention to assets such as its leases, intellectual property and art.
A lease-bidding process netted a dozen bids for 39 properties. YM Inc., which owns mall brands like Bluenotes, took five for $5.03 million. A landlord took one for $20,000.
But the biggest bid came from Liu, who dreamed of opening a new department store chain named after herself. She wanted up to 28 leases to accomplish the feat and in May, the Bay announced it was willing to sell them to her.
Three of them easily won court approval because they were at properties in B.C. malls Liu owns — Woodgrove Centre, Mayfair Shopping Centre and Tsawwassen Mills.
The remaining 25 became one of the most hotly contested issues in the Bay’s winddown. Almost as soon as the Bay announced they’d sell the leases to Liu for $69.1 million, landlords met with her and came away with a wide array of objections.
Most said they found her unprepared. They said she had no business plan, a team of inexperienced executives who had spent time as real estate agents and early child educators rather than retail leaders and that plans for dining, entertainment and recreation spaces weren’t allowed under the leases she wanted to take over.
When she did produce a business plan, it estimated she could have at least 20 of her stores renovated from the rundown state the Bay left them in and operating within 180 days of signing leases.
Landlords thought the timeline was unachievable and argued her $400 million budget for the project — money they doubted she had readily available because her malls were $19 million in debt over the last two years — also wouldn’t suffice.
Liu, who made her fortune in Chinese real estate before immigrating to Canada, maintained her three malls prove she has what it takes. She argued landlords were battling her because she’s an “outsider” and not their preferred tenant.
The Bay and Pathlight Capital, the lender that stood to recoup the most from Liu’s deal, said the landlords objected because they wanted their properties back. If they got control of them again, they could lease their most venerable spaces to their pick of tenants — and could charge far more than the below-market rents in the Bay’s leases, some of which last for decades.
A return of the properties would also allow landlords to break the spaces into multiple smaller units for use by multiple tenants or redevelop them into mixed-use or residential spaces.
To try to cajole landlords into letting Liu into their properties, the Bay gave her deadlines to hire the retailer’s former CEO Liz Rodbell as a consultant and KPMG as a financial adviser and bring back her legal representation. It offered to shave $3 million off the price of the leases in exchange for the moves and threatened to end the deal and keep her $9.4 million deposit, if she didn’t make them.
Liu spruced up her business plan and but never brought on KPMG or Rodbell. She held hiring fairs and against her lawyers’ advice, wrote to judge Osborne in an apparent attempt to curry favour, landing her a court admonishment.
By July, ReStore, another Bay lender, was growing frustrated. The longer the Liu deal went unfulfilled, the more of ReStore’s capital was being burned on rent and professional fees and the more futile its chances of recovering cash were becoming.
It asked Osborne to kill the Liu deal and tamp down on the Bay’s spending by appointing a “super monitor” that would offer more oversight.
In making his decision, Osborne had to consider section 11.3 of the Companies’ Creditors Arrangement Act, which allows the court to assign leases to a potential tenant against the objections of landlords.
The section asked him to ponder whether Liu is an “appropriate” buyer who will be able to meet the lease obligations and whether her deal has the support of the monitor, a court-appointed, independent third party which regularly reviews the Bay’s creditor protection.
Monitor Alvarez & Marsal had said it thinks Liu can meet all her financial obligations but that there’s a “very real risk” she will not be able to succeed with the “monumental” task she’s set up for herself because she is inexperienced and unprepared.
