RACE FOR I. MAGNIN SITE HEATS UP
Byline: Sharon Edelson
NEW YORK — The scramble continues for the I. Magnin building on San Francisco’s Union Square.
The Magnin flagship, a symbol of luxury retailing, was closed by Federated Department Stores in January, as a result of its merger with R.H. Macy & Co.
While questions remain about Federated’s rights to the lease, time is ticking away and competitors are making their moves. And Federated isn’t expected to give up the location without a fight.
A leading contender for the property appears to be Barneys New York, which is aggressively pursuing the site.
“It’s sort of like a horse race,” said Gene Pressman, co-chairman and co-chief executive officer of Barneys New York. “Whatever deal comes first that is economically prudent for us, we’ll hop on.”
Daniel Blatteis, a partner in Blatteis Realty Co. in Los Angeles, said, “We’re working on it with Barneys. We continue to pursue it. It’s the ideal site. I’m pretty confident it’s in RREEF’s hands.”
The RREEF Funds, a San Francisco-based pension fund that owns the building and the land under it, has maintained that Macy’s rejected the site during its bankruptcy proceedings. Federated claims Macy’s had a 60-day option on the lease. The option would expire around Feb. 17.
“We are still in negotiations with the landlord,” a Federated spokeswoman said Tuesday. “The deadline is in the next couple of days.”
Attorneys specializing in real estate and bankruptcy law said the question of whether Federated had an option on the lease should have been cut and dried. The fact that it isn’t is a sign of the general confusion about the property.
A lawyer involved in the Macy’s bankruptcy proceedings recently said he could not remember whether the I. Magnin building was placed on a list of leases the company rejected flat out, or a 60-day-option list, and added that buildings were switched back and forth between the two lists.
Federated apparently has not yet decided what it would do with the building.
“I would think [Federated] would want to have some control of the lease,” said a source at Macy’s. “There are many options. They could lease several floors. Macy’s West is certainly one of the considerations. It’s a question of economics and how much they’d have to spend on the building.”
While the I. Magnin building, located on the corner of Stockton and Geary Streets, is considered one of the most desirable pieces of San Francisco retail real estate, the building is not without problems. It needs major renovations that would cost, by one estimate, $100 per square foot.
Sources close to Barneys said the retailer remains undaunted by such expense.
“They’re trying to determine whether they can work with the existing physicality of the building or whether they want to tear the building down,” a source said. “They’re trying to make the deal work. They’ve met with RREEF, but haven’t made any offer. RREEF ideally would like to sell the property. [Barneys] can do anything they want to do if they want it badly enough.”
Pressman said one option would be to form a partnership with a developer and pay rent to the developer to defray costs.
“We’ve always gone in with an equity partner, and our policy would never change,” he said. “It could be Japanese partners, or it could be other partners. It depends on what deal could be structured.”
The prevailing opinion in San Francisco real estate circles is that RREEF will sell the building.
“RREEF is telling everyone they’re going to end up with the building,” said one real estate broker. “They’re out on the street marketing it. It’s one of those locations that comes up once in a lifetime.”
At one point, it appeared that Bloomingdale’s, with its scheme to move west, might open in the Magnin location. Federated reportedly considered the site for that purpose, but Bloomingdale’s executives felt the 10-story, 230,000-square-foot building had an awkward layout.
Federated has considered moving the Macy’s 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 Magnin location.
Space is growing scarce on Union Square, which has been in the throes of a major rejuvenation for the last year.
In the last few weeks, Agnes b. announced it would open a 2,200-square-foot store at 33 Grant Ave., and Giorgio Armani said it had narrowed its search for an Armani boutique in San Francisco.
According to brokers, there are only a few options for Armani on Union Square: There is still some space available at 278 Post St., where Nike Town and Cole-Hahn are opening stores this year, and there are about 20,000 square feet available in the Eddie Bauer building at 220 Post St.