California investors may have read recently about national retail and restaurant chains forming real estate investment trusts to generate income from their commercial real estate portfolios. The hedge fund Starboard Value has been a strong advocate of the strategy, and the activist firm’s CEO said that Macy’s could possibly double its share price by forming a REIT during an investor conference on July 17.
According to the Starboard CEO, the commercial real estate owned by Macy’s would be worth about $21 billion on the open market. The Ohio-based retailer’s landmark New York City store is thought to be worth about $4 billion, and stores in San Francisco and Chicago have been valued at around $1 billion. The retailer operates over 800 Bloomingdale’s and Macy’s stores around the country.
Starboard Value made similar observations about the commercial real estate holdings of Darden Restaurants when it purchased a majority interest in the Florida-based company in 2014. Darden announced in June that it hoped to pay down a large part of its debt by selling over 400 locations to a REIT. Sears also recently announced its plans to raise capital by forming a REIT. The retailer said in April that it hoped to generate over $2 billion by transferring 235 commercial properties to a REIT.
The rewards of commercial real estate investments can be significant, but the path to returns is often made challenging by contractual conflicts, permit problems and zoning disputes. An attorney with experience in real estate disputes may be able to help a client involved in a property transaction to avoid the cost and uncertainty of litigation by reviewing contracts and other important legal documents for clauses or provisions that could give rise to conflict.