Byline: Sharon Edelson — contributions from Michael Marlow

NEW YORK — One of the most coveted pieces of San Francisco retail real estate, the I. Magnin building on Union Square, is caught in a tug-of-war between Magnin’s parent, Federated Department Stores, and The Reef Funds, a pension fund manager.
Reef, based in San Francisco, owns the building and the land under it.
Meanwhile, retailers are eager to enter the San Francisco market, including Barneys New York, which has expressed interested in the site.
Federated has closed the I. Magnin flagship on Union Square and is liquidating the rest of the chain due to its merger with R.H. Macy & Co.
According to a Federated spokeswoman, Macy’s officially rejected the Magnin lease through its bankruptcy, but she added, “We have 60 days after the effective date of the merger to reverse the rejection.”
“The opinion of our attorneys is that after an evaluation of that clause, Macy’s was told there is not a provision to unilaterally rescind the rejection of the lease,” said Jim Pate, district asset manager for Reef. “We take possession of the building on Feb. 23.”
Retail experts wondered whether Macy’s intended to let such a valuable piece of property slip from its grasp or whether it blundered.
Sources close to Macy’s said the company was adamant about keeping the building for Macy’s or another Federated division.
The Magnin building is located on the corner of Stockton and Geary Streets on Union Square, adjacent to the Macy’s West flagship. One option Macy’s has reportedly been considering is moving its men’s store from its current, less prominent location at Stockton and O’Farrell Streets — across from its main store on Union Square — into the vacant I. Magnin space.
The company could integrate the two buildings into a huge Macy’s unit — the main Macy’s store is 522,500 square feet. That would take some capital, since the 10-story, 230,000-square-foot Magnin building would need extensive renovation. Isaac Lagnado, publisher of Tactical Retail Monitor, estimated the cost of renovation at $100 per square foot.
A source close to Macy’s said, “There are many options. They could lease several floors. I think they would want to have some control of the lease,” to keep unwanted competitors out.
Rumors had circulated that Bloomingdale’s would move into the Magnin space, but Bloomingdale’s officials reportedly prefer a larger space spread out on less floors.
Union Square is hot again, with a Planet Hollywood and a Virgin Megastore opening in the spring, said Angus Scott, a broker with Stubbs Collenette in San Francisco. He noted a Disney Store is opening at 400 Post Rd., while a Borders superstore and Morton’s restaurant opened in that building around Christmas.
Nordstrom has a store nearby, and a Nike Town will be moving into 278 Post Rd. Eddie Bauer and Ann Taylor are also planning units on Post Road.
“In the last 24 months, all these transactions hit,” Scott said. “There has been a squeeze on real estate in Union Square.”