By  on July 16, 2014

Macy’s has put the renovation of its Brooklyn flagship on hold and is considering a sale of the property to redevelop the site, according to sources.

The site, at 422 Fulton Street, has emerged as prime real estate due to the influx of new retail and residential units to the area, whipped up property values and thoughts that Brooklyn is undergoing a renaissance across several nearby communities.

Macy’s could garner about $300 million on a sale of the property, which has 841,000 square feet in total and a floor plate at 75,980 square feet, according to real estate sources. Property values in the vicinity are in the $300- to $400-per-square-foot range.

“We are studying ways to improve the Brooklyn store, but really have no comments to make at this time,” said a Macy’s spokeswoman.

One executive close to the project heard that Macy’s has been in touch with Tishman Speyer about redeveloping the site as a condominium tower that would include a scaled-down Macy’s at the base. That would mirror two developments — 225 West 57th Street in Manhattan where Extell Development Co. is building a residential skyscraper that will house a 285,000-square-foot Nordstrom, and 386 Flatbush Avenue in Brooklyn, where a condo high-rise will be built and Juniors will build itself a new restaurant.

Real estate sources also mentioned Thor Equities and Vornado Realty Trust as possible bidders on the site. Thor had no comment. Vornado and Tishman Speyer executives could not be reached for comment.

A redevelopment of the Macy’s site would have a profound impact on downtown Brooklyn, furthering an area already seeing major transformation. Nearby neighborhoods — Carroll Gardens, Brooklyn Heights, Park Slope and Fort Greene, Williamsburg and DUMBO — have become magnets for trendier businesses, gentrification and families that years ago would never have thought of Brooklyn as home. Furthering the area’s appeal is the downtown subway hub, the opening of Barclays Center on Atlantic Avenue just a few blocks away from Macy’s, and upgrades to the Fulton Mall, a pedestrian street mall covering 17 blocks from Flatbush Avenue to Smith Street.

“It’s really developing down there with big apartment buildings going up, concerts in the park and outdoor restaurants,” said another source, who also heard about Macy’s taking a new tact.

“Every major developer has been interested in buying land in DUMBO. It certainly wouldn’t surprise me if they’re thinking about that Macy’s site, too. It is such a good site,” said one president of a real estate company. “Someone could have knocked on Macy’s door and said, ‘I’d be interested in buying or joint venturing’ that site. Right by Macy’s, it still does feel economically depressed. It doesn’t feel like a hot area yet but it’s in the center of an evolving area.”

A sale of the property would provide Macy’s with plenty of cash, more than enough to fund a new, more compact and productive store.

Adjacent to the Macy’s flagship is a parking lot. Macy’s owns the site and has considered it for development.

The flagship site was formerly the flagship-headquarters for the now-defunct Abraham & Straus department store chain. The downtown site and other A&S units were converted to Macy’s in 1995.

A&S made its debut in Brooklyn, at 285 Fulton Street, in 1865. In 1883, the firm bought the cast-iron Wheeler Building at 422 Fulton Street, which became the flagship. In 1928, the company expanded the Fulton Street store, just before the 1929 stock market crash.

The site has several striking features, including an elevator court, a rotunda, an Art Deco lobby, wood-paneled offices and more space than Macy’s really needs. Decades ago, downtown Brooklyn had a cluster of department stores that included Gertz and Namm & Son, as well as A&S.

It is believed Macy’s is seeking an alternative to renovating the existing building in large part because there are construction complexities that would make the project costly and difficult. The store is composed of three buildings cobbled together over the decades. Some parts of the floors are at different levels; ceiling heights are not consistent, there are pass-throughs, and connecting departments would be challenging.

Macy’s renovation scheme in Brooklyn reportedly focused on pumping up Macy’s Millennial merchandising strategy. For the past few years, Macy’s has been aggressively launching brands that target Millennials, including Marilyn Monroe, Keds apparel, Argyleculture and G-Star Raw. Men’s wear was also expected to be a bigger part in terms of the footprint, along with private brands with contemporary styling such as Bar III and INC International Concepts.

A new plan would mean Macy’s temporarily abandons downtown Brooklyn but returns with a new urban concept, which could be the format for stores across the country and a template for enhancing existing downtown locations and addressing changing demographics. Brooklyn is seeing a more educated, upper-middle-class, white-collar population moving in, changing what’s been a classic youth market or aging market.

Target Corp. has begun opening CityTarget units to squeeze into dense urban areas with 60,000- to 100,000-square-foot boxes, or about half the size of typical Targets. Target operates a regular store in the Atlantic Terminal in Brooklyn. Wal-Mart Stores Inc. is also entering urban markets with smaller formats, and Bloomingdale’s smaller, contemporary SoHo format has been adapted to other urban markets such as Santa Monica and Glendale, Calif.

Macy’s is eyeing urban opportunities as well. Macy’s owns several old stores in downtown areas, some original stores, some inherited through mergers. With Macy’s putting the focus on Brooklyn, it’s clear the company wants to capitalize on the borough’s steady influx of better retailing. Recent entries include H&M, TJ Maxx, Shake Shack and A|X Armani Exchange. Century 21 is planning a 130,000-square-foot flagship in downtown Brooklyn on Fulton Street, seen opening in fall 2015. Earlier this year, Terry J. Lundgren, chairman and chief executive officer of Macy’s Inc., told WWD, “Brooklyn is a fantastic market. We are just waiting to figure out the right way to approach the Brooklyn store.” Lundgren said a “couple of options” on how to renovate are being examined. “We have a very old building there with a complicated floor plate.” Macy’s has already spent some money of improving the exterior. In addition, Macy’s last fall installed a large photo studio on the site for the marketing team and macys.com, not long after Amazon opened a 40,000-square-foot photography facility near the Brooklyn waterfront.

While Fulton Street is a good retail location, there’s still an aura of being cheap and tacky in spots. A residential development on the Macy’s site would likely put its main entrance on another side of the building, possibly Livingston Street.

“This is definitely a developer-friendly area and Macy’s has a big piece of property. They wouldn’t have any problem selling to a developer,” said the real estate president. “I believe they have quite a few options. The building has a lot of problems, making a renovation very complex and very expensive. To start again with a new store would probably be smart.”

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