Hudson’s Bay Co. in June 2023 went cap in hand seeking “incremental liquidity” from landlords, financial institutions and other lenders to shore up its Canadian operations, but the only one to step up was Cadillac Fairview Corp. Ltd., a subsidiary of the $266.3-billion Ontario Teachers’ Pension Plan.

Cadillac Fairview (CF) — a large real estate player whose shopping malls house a significant number of the retail chain’s 96 stores now facing liquidation, barring a last-minute financial deal — loaned the struggling retailer $200 million, a deal that made sense at the time, said Jo Taylor, Teachers’ chief executive.

“Clearly, if (HBC) could get through the challenges, it would be good for CF because it was a significant tenant,” he said, adding that HBC’s filing under the Companies’ Creditors Arrangement Act (CCAA) was an “unfortunate” development. 

“When those size of tenants vacate our shopping malls, we have to then spend money on redoing the site to actually find new tenants, so continuity is generally better than transition.”

Documents filed in connection with HBC’s court-monitored restructuring and potential liquidation say there are 15 Cadillac Fairview-leased properties, mostly Hudson’s Bay stores, in locations including London, Ont., Markham, Ont., and Pointe Clair, Que.

Taylor said there were negotiations before extending the department store chain the loan, which was later reduced to $176 million following a partial repayment when HBC closed the purchase of luxury United States retailer Neiman Marcus last December.

“Honestly, it was more of a give than a take in that particular case,” he said, referring to the retailer.” We thought about it carefully.”

Court documents filed in connection with the CCAA proceedings say interest on the Cadillac credit facility is payable monthly and accrues at a rate of 10 per cent per annum.

The transaction included two “mass lease amending” agreements that deleted or modified HBC’s “anchor” tenant rights of consent and approval over shopping mall redevelopment. There was also an undertaking that these changes would not come into effect unless there was a default by HBC that extended beyond five days and Cadillac Fairview took action to enforce the terms.

“These rights, collectively, have substantial value and if these lease amendments become enforceable, these amendments will be highly detrimental to Hudson’s Bay,” according to a document filed March 7. “In effect, all of these lease rights will be forfeited to CF and its affiliates if, as a result of Hudson’s Bay’s default under the Cadillac credit agreement, CF elects to exercise its rights under the undertaking.”

The documents also say there were guarantors in the U.S. on the original Cadillac Fairview loan agreement that were removed when the Neiman Marcus deal closed in December and HBC split its Canadian and U.S. operations into separately financed companies.

Blow to landlords

Taylor said the CCAA process won’t be easy for Cadillac Fairview, which has unrolled a strategy to reduce its exposure to the hard-hit office and retail segments of commercial real estate.

“There will be implications for the CF team in terms of losing a significant tenant,” he said, adding that it is too early to say what the costs might be from HBC’s filing and potential liquidation. 

HBC has other third-party landlords, including the commercial real estate arms of other large Canadian pensions.

“I don’t think we’re any different from any other landlords in Canada who also have a similar exposure to HBC,” Taylor said, adding this isn’t the first time Canadian landlords have faced the loss of a large retail chain.

“We’ve had Nordstrom, we’ve had Sears, who actually moved away from our shopping malls or our other locations, and we’ve been able to find solutions to move forward and still maintain decent performance.”

RioCan joint venture

An HBC press release in December 2024 described the Canadian department store as owning or leasing a real estate portfolio valued at $2 billion, with some of that in a joint venture with RioCan Real Estate Investment Trust.

The RioCan joint venture, formed in 2015, is described in court documents as HBC’s primary Canadian real estate subsidiary and includes 12 Hudson’s Bay stores, according to the real estate company. 

RioCan has a 22 per cent ownership stake in 10 of the locations in the joint venture, including flagship stores in downtown Vancouver and Montreal and in Toronto’s Yorkdale Shopping Centre. Two other stores in the partnership are in RioCan-managed shopping centres in Oakville, Ont., and Barrie, Ont., in which RioCan has a total interest of 61 per cent.

A thirteenth location associated with RioCan outside the joint venture is a Saks Off 5th store in Ottawa, in which the real estate trust has a 50 per cent interest.

In a statement, RioCan said it is committed to protecting the interests of its unitholders and other stakeholders and that it has a track record of finding solutions for vacant space.

“(We) will pursue all available business and legal avenues to do so,” RioCan said. “Additionally, we will leverage our extensive leasing and development capabilities to secure the best possible outcome for each property within the joint venture.”

HBC has retained a real estate consultant, Jones Lang LaSalle Real Estate Services Inc., pending court approval, to help it market leases on its stores and distribution centres.

Kate Camenzuli, vice-president of retail at commercial real estate services and investment company CBRE Group Inc., said she thinks some of the spaces could find new tenants, but they would have to be repurposed.

“I do not think there is a go-forward with a single user or two users to take the space,” she said, adding that new tenants are likely to have to pay more for whatever space they take because “anchor” tenants such as the Bay are typically given breaks since they draw customers to the malls and shopping centres.

“I do think the good centres will move, but (it will be) under the control of the landlord and they will have to be creative,” she said.

• Email: bshecter@postmedia.com

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