The Real Deal New York

Today is WeWork’s deadline to close on the Lord & Taylor building. Here’s what’s happening with the deal

The shuttered Fifth Avenue department store will become the We Company’s new HQ
By Erin Hudson and Danielle Balbi | January 31, 2019 06:19PM

Adam Neumann and Bjarke Ingels (Credit: Alexei Hay, courtesy WeWork)

After paying millions to extend its closing deadline twice, WeWork Property Advisors seems poised to finally complete its $850 million purchase of Lord & Taylor’s Fifth Avenue flagship.

As a part of the final deal, which has a deadline of Jan. 31, the retailer’s parent Hudson’s Bay Company is retaining a $125 million equity stake in the property, according to a source with knowledge of the arrangement. WPA — an investment vehicle managed by the We Company and private equity firm Rhône Group — paid an initial $75 million deposit, with an additional $50 million at the time of the two extensions. WPA still owes an additional $600 million, and the transaction is expected to close by early next week, sources said.

Eastdil Secured negotiated a $900 million loan to fund the purchase. JPMorgan Chase, Starwood Property Trust and another lender are providing the debt, sources said. (The identity of a third lender was unclear, with sources saying a previous report naming Mack Real Estate Group was inaccurate.) Eastdil did not immediately respond to requests for comment. JPMorgan and Starwood declined to comment.

A roughly $600 million portion of the debt will be available at the time of the acquisition, with the remainder set aside for the renovation of the over 600,000-square-foot building at 424 Fifth Avenue, according to a source with knowledge of the deal. The We Company plans to lease a portion of it as its global headquarters.

It’s a landmark deal for the We Company, whose ability to fund the deal was called into question even before SoftBank slashed a $16 billion investment in the startup amid concerns from investors in its $100 billion Vision Fund. As recently as September, The Real Deal reported that WPA was on the hunt for an additional equity partner on the deal. The building was valued at $650 million in 2017, with Brookfield Property Partners placing a $700 million bid to buy it that year, according to previous reports.

The We Company declined to comment on the deal.

It is unclear whether any other entity besides HBC is taking any equity in the project.

A source with knowledge of the arrangement said HBC’s decision to hold on to a minority stake was made in August 2018, the same month the Canadian retail giant initially expected the deal to close. HBC’s “preferred minority equity interest” gives the former owner of the store a “preference on an exit… if and when the building sold,” according to the source. HBC declined to comment.

HBC’s relationship with the We Company dates back to the announced sale of the Fifth Avenue flagship back in October 2017, which came alongside a series of WeWork leases in HBC stores in Toronto, Vancouver and Frankfurt and a $500 million equity investment from Rhône. The latter part of these “strategic transactions” gave Rhône a “significant ownership” position in HBC, according to public company filings.

As a part of Rhône’s equity investment, its co-founder Steven Langman and early WeWork investor Eric Gross were elected to be directors of HBC at the company’s annual meeting in June 2018.

The city’s Department of Buildings earlier this month approved plans to renovate the interior structures at 424 Fifth Avenue, as well as a 26,000-square-foot addition. Bjarke Ingels’ firm BIG, which is WeWork’s chief architect, is doing the redesign and build-out.

Additional reporting by David Jeans and Rich Bockmann