Dive Brief:
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Following criticism from a would-be takeover suitor that its board lacks real estate expertise, Macy’s on Friday announced the nomination of “a seasoned real estate industry executive with more than 35 years of experience across real estate advisory, investing and finance” as a director.
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Douglas Sesler is founder and president of real estate firm Fair Street Partners and was once Macy’s head of real estate. He will stand for election to Macy’s board at its upcoming annual meeting of shareholders, according to a Macy’s press release.
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Gavriel Kahane, managing partner at Macy’s investor Arkhouse Management, in a filing with the Securities and Exchange Commission earlier this year noted that only one current Macy’s director has “any real estate track record.” Arkhouse recently sweetened an earlier takeover offer by $800 million to $6.6 billion.
Dive Insight:
Macy’s has been here before.
Nearly a decade ago, activist hedge fund Starboard Value revealed a stake in Macy’s and began to pressure the department store to extract value from what was then an even larger real estate portfolio. The department store proceeded to name a real estate executive to its board and sell off some of its property. In Q1 of 2017, the company received cash proceeds associated with real estate transactions of $96 million and booked $68 million of real estate gains. Of those, $47 million were related to the sale of the company’s Downtown Minneapolis property; Macy’s at that time was under contract to sell more of its downtown Seattle store and close more stores.
The Securities and Exchange Commission back then went so far as to write Macy’s a letter suggesting that investors would be better served if real estate sales were listed as gains in a separate line on income statements, rather than as expense reductions. However, none of the retailer’s real estate activity matched Starboard’s expectations, and the financial firm that year sold off all its shares, saying it had lost patience.
Macy’s appears to be following a similar playbook in response to the pressure from Arkhouse, which has also pushed for monetization of the retailer’s real estate. The company recently announced that it would close 150 underperforming stores within three years, including cash-positive ones, and that decisions will be based on stores’ potential real estate value versus sales growth and profitability. Now it’s working to bulk up the real estate expertise of its board.
Then and now, the specter of the decline of Sears looms large. Over several years, that once-iconic department store worked to leverage its vast real estate empire while its retail operations steadily eroded and store after store closed. That retailer now barely exists.
Arkhouse Management on Thursday notified the SEC that Macy’s has at last agreed to the possibility of providing due diligence. While the retailer may be forced to entertain the firm’s offer, a takeover by real estate-minded investors could spell doom, at a time when Macy’s should be dedicating resources to improving its retail operations, according to GlobalData Managing Director Neil Saunders.
“While this would create a quick buck for investors it would weaken Macy's balance sheet and would increase costs over the medium term,” he said in emailed comments. “Moreover, it does absolutely nothing to remedy the issues with Macy's proposition which urgently need to be addressed.”
Macy’s board nominee is familiar not just with the real estate world more broadly, but also Macy’s itself.
Sesler founded Fair Street Partners, a private real estate investment and development platform, in 2021. At Fair Street, he invests in real estate developments, “including conversion of retail real estate for alternative use, and acts as a financial advisor related to real estate investments and restructurings,” per Macy’s release.
He was also once Macy’s top real estate executive, responsible for a real estate portfolio totaling more than 100 million square feet and the monetization and development of over $2 billion of real estate.
His past leadership roles in real estate investment include work with True Square Capital, Bank of America Merrill Lynch, Citigroup, Travelers Realty Investment Company and Chemical Bank (now J.P. Morgan). He has been on the board of Urban Edge Properties, a NYSE-listed real estate investment trust, since 2020 and serves on the advisory board of Hodes Weil & Associates, a real estate focused capital advisory firm. He is a member of The Real Estate Roundtable; The Urban Land Institute; NAREIT, an industry group representing REITs; and the ICSC, an industry group representing malls.
Arkhouse didn’t immediately return a request for comment on Sesler’s nomination.
