Macy’s Faces “Anemic” Market for SF Flagship in Union Square

It may take years for Macy’s to pack its suits and dresses out of San Francisco’s Union Square.

The New York-based retailer, which announced in February it would close its 400,000-square-foot store at 170 O’Farrell Street, will have a tough time selling it, brokers and developers told The San Francisco Standard.

There’s little demand for big-box retail. Which means Macy’s may be in for an “anemic” listing — and staying open while it waits to sell the five-story property, the largest department store in town.

“No one has the money or desire to buy it outright right now,” one commercial developer who spoke on the condition of anonymity to preserve working relationships, told the Standard. “That means Macy’s has to play an active role in facilitating a deal by staying on as an anchor tenant and ‘take back paper’ in return for the property.”

That’s called seller financing, an agreement that allows the buyer to pay the seller in installments, rather than taking out a traditional mortgage. Instead of a cash seller, Macy’s would serve as a lender.

Macy’s didn’t respond to a request for comment from the Business Times. But city officials have said the retailer has been receptive to staying put.

“We continue to be encouraged that Macy’s wants to work with the city to keep the site active as a prime retail destination in Union Square,” Anne Taupier, director of joint development at the Office of Economic and Workforce Development, told the newspaper.

“They are working with high-quality local developers to maximize opportunity at the site, whether that be through a partnership or a sale.”

The Macy’s closure announcement has drawn “strong interest” in buying and redeveloping the nearly block-size store, according to the San Francisco Chronicle. Possible future uses of the connected Macy’s buildings include retail, a hotel and housing.

TMG Partners and Prado Group, both based in the city, each have a shot at buying it.

An unidentified spokesperson for TMG confirmed last month that the firm is among a “few different entities” in talks for a deal, but said conversations were “still early.” Dan Safier, head of Prado Group, declined to comment about “ongoing negotiations.”

The availability of the Downtown Macy’s stems from the pending closure of 150 underperforming stores to boost sales and shift the company toward selling luxury goods. The retailer closed 40 stores in 2015 and 100 more in 2017.

The San Francisco store will stay open until Macy’s finds a buyer.

At its peak in the mid-1990s, Macy’s dominated San Francisco’s premier shopping district, with 1.1 million square feet of retail across its flagship at 170 O’Farrell, the I. Magnin Building at 90 Grant Avenue and the Macy’s Men’s Store at 120 Stockton Street.

“The biggest challenge is that the [O’Farrell] building takes up three-quarters of a city block,” the anonymous developer told the Standard. “There is not much you can reuse. Anyone willing to take this on is going to have to have a 15-year view, at least.”

A pitch by Morgan Stanley to turn the former Macy’s Men’s Store into offices has stalled.

“Anyone trying to revive that part of Union Square right now probably has a lot of time on their hands,” said another developer in the market for office buildings. “Look at the previous proposals. They’re all sucking wind.”

— Dana Bartholomew