The leases of Hudson’s Bay’s eight-floor flagship store in downtown Toronto and the beleaguered retailer’s more than 80 locations across Canada are up for grabs — but experts say finding other companies to take over the spaces will be challenging.
While the liquidation of most of its stores is underway, Hudson’s Bay has kicked off a process to scout for parties interested in bidding for the leases of the company’s enormous retail footprint. Canada’s oldest company is hoping to use the proceeds from the sale of leases, inventory, real estate and intellectual property to pay down more than $1 billion in debt.
The process, known as “lease monetization,” is a path some other large retail chains, such as Target Canada and Sears Canada, took as they restructured, but the outcomes didn’t play out in their favour, according to the insolvency lawyers who spoke to the Star.
“It’s going to be a challenge to find a new tenant to just parachute into these existing large-footprint locations, because there are not a lot of companies out there that would need that much space,” said Timothy Dunn, a restructuring and insolvency lawyer with the firm Blaney McMurtry.
The vast space of Hudson’s Bay stores could indeed be an intimidating factor for buyers. The downtown locations in Toronto, Vancouver and Montreal each span more than 600,000 square feet, which is about the size of 10 football fields.
If single tenants can’t be found, the retail spaces could sit vacant for months, as landlords may opt to reconfigure the spaces and seek multiple tenants — an “expensive and time-consuming” process, said Dunn.
Only leases that Hudson’s Bay agreed to pay to its landlords years earlier — which are now “significantly” below current market rates — will be attractive to new tenants, Dunn added. It’s unclear how many HBC leases are currently under market but, the retailer noted in court documents that some do hold value for this reason.
Retail analyst Bruce Winder said many Bay locations have “a legacy footprint from a different era where department stores took up three or four floors.”
“Now, most retailers have one floor at the most, and they don’t even have a store as big as that,” Winder noted.
Because of this, Winder said he suspects landlords may have to subdivide the footprints into smaller spaces and look for non-conventional retailers to move in, such as auto dealerships or fitness centres.
He said retailers like Holt Renfrew, Simons or TJX Canada, which operates Winners, Marshalls and HomeSense, could be the kind of companies interested in some parts of the former Hudson’s Bay spaces, but stressed this was purely speculation.
Adam Grachnik, a spokesperson for Holt Renfrew, called the news about Hudson’s Bay “incredibly sad as it impacts many people and is such an historically relevant brand to Canadians,” but noted that the retailer is “not considering the leases at this time.”
Simons’ CEO Bernard Leblanc told the Star in a statement that the retailer is “carefully analyzing any potential opportunities across all Canadian markets” but at this time “no announcements are planned.” He added that his team is currently concentrated on two new Simons stores opening in Toronto later this year at the Eaton Centre and Yorkdale Mall.
Linda Galessiere, a commercial litigation lawyer, said there were not many bidders for Target and Sears’ leases, with Target making about $260 million from the sale of its leases and Sears making nearly $100 million from the sale of its leases and some real estate. Many of the leases were abandoned and returned to the landlords after failing to secure tenants, said Galessiere, who represented some landlords in both cases.
“Sears had some leases less than $1 a square foot with rent, and they couldn’t find a buyer, because they were big and because they were not well-maintained,” said Galessiere, referring to the condition of some stores that were in need of repairs.
A successful reassignment of the leases also requires the consent of landlords who will evaluate the bids and determine if they fit with the image and marketing of the shopping centre, said Galessiere. One exception is that according to Companies’ Creditors Arrangement Act, under which Hudson’s Bay is seeking creditor protection, a company has the right to apply to the court to enforce an assignment, bypassing the landlords.
Other options for large spaces like the ones occupied by Hudson’s Bay include food halls, upscale grocery stores with eat-in seating or even pickleball courts, said retail strategist Lisa Hutcheson.
She noted that entertainment pop-up concepts have used large retail spaces in recent years, such as The Friends Experience — an interactive exhibit featuring original props and set recreations from the popular sitcom — at Yorkdale Mall, and the World of Barbie at Square One in Mississauga.
Union Station recently hosted pop-up roller skating, another possibility for former Hudson’s Bay locations, Hutcheson added.
But she stressed that there is no “plug and play” solution to replace the space Hudson’s Bay locations now occupy, especially the largest stores.
“Those days are gone and I don’t think we’ll see that in any form — maybe in a temporary environment but not anything long term.”
