Appraisal of Bay at $0 stirs interest
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Hey there, time traveller!
This article was published 27/11/2019 (1107 days ago), so information in it may no longer be current.
It would be wrong to suggest that Angela Mathieson’s phone has been ringing off the hook. But there certainly have been more people in recent days calling the CentreVenture CEO to inquire about the future of The Bay building in downtown Winnipeg.
The interest in The Bay’s flagship Winnipeg store was piqued by an appraisal report on 79 buildings owned by the Hudson’s Bay Co. (HBC), which is currently readying itself to go from a publicly traded entity to a private one. The market value of these physical assets will play a role in determining the share price offered to current investors.
The appraisal pegged the value of the historic downtown Bay building at — wait for it — zero.
The zero valuation comes from an appraisal formula that compares the value of the land and structure, the potential revenue that can be generated from it and its costs and liabilities. A quick scan of the predicament facing the Bay building explains the net zero valuation.
The building, which has more square footage than any other commercial property downtown, is not currently suited for any purpose other than its original — a department store. However, we live in a day and age where e-commerce, and not bricks and mortar stores, dominate retail. Stores like this are too big, too old and utterly incompatible with current customer trends.
Shopping for a new day at downtown Bay
It’s very big. The imposing but nearly vacant Hudson’s Bay building on the southeast corner of Portage Avenue and Memorial Boulevard, one of Winnipeg’s most important intersections, is many things. Big is certainly one of them.
At just over 650,000 square feet, it is a behemoth whose size is concealed by its modest six-storey construct.
That makes the building as big as any structure downtown, rivalled in total square footage only by the largest suburban shopping centres.
It is comparable to Manitoba Hydro’s headquarters, but 20 per cent bigger than the tallest office towers at Portage and Main, and nearly 50 per cent bigger than Portage Place mall.
Given the limitations on its use, and the enormous costs of converting it for some other purpose, it has no value. There are some in the commercial real estate industry who will tell you it actually has a negative value: the costs of retrofitting the building are more than its current value.
But then came the appraisal report and some renewed interest in what sort of deal could be reached to acquire and convert the grand and stately building. Mathieson, who heads up the city agency that markets downtown real estate, could not be happier about the timing.
“The release of the appraisal is quite helpful,” said Mathieson.
“It puts the building and its value into current and proper context. It allows more people to imagine what it would look like when it’s redeveloped.”
Calls have come since the release of the appraisal, she said, although most are of the completely exploratory variety. Still, Mathieson said it is always good to jump-start interest in a project that has been surrounded with uncertainty for years.
Over the past 20 years, HBC has reduced the number of floors it used for retail activity and closed both a basement-level grocery and a sixth-floor restaurant, the iconic Paddlewheel.
In 2012, HBC offered to turn over the building to the University of Winnipeg for nothing. Ultimately, the U of W had to refuse the gift, unable to find either the money for renovations or basic overhead.
Since then, an air of uncertainty has surrounded the building. It is too large and too costly to maintain for smaller tenants, and too old to be converted as-is into Class A commercial space. Architects have salivated at the prospect of obtaining commissions to remake the building as unique office space or adding residential units.
The city is in the process of seeking a historical designation for the building. Mathieson said this designation will not present any impediment to redevelopment. “The city has been pretty lenient about its requirements in projects like this,” she added.
The price tag for these projects is nothing short of extraordinary. In the past, estimates of as much as $150 million have been floated for plans that would bisect the existing structure to turn it into four separate buildings, or the addition of shafts to bring exterior light into the now-dimly lit interior of the existing structure.
“The release of the appraisal is quite helpful. It puts the building and its value into current and proper context. It allows more people to imagine what it would look like when it’s redeveloped.” – CentreVenture CEO Angela Mathieson
These visions carry the promise of turning the Bay building into a new focal point of downtown activity, on a corner that already features hallmark buildings of the U of W and the Winnipeg Art Gallery. However, with HBC still clinging to two floors in the building, and no one with sufficiently deep pockets coming forward with a plan to reimagine the building, it remains stuck in development limbo.
HBC itself could press the issue if, as part of its plan to buy back shares, it decides to sell or abandon some of its real estate assets. If the Bay were to close its store operations, private sector developers might be prompted to come forward with a plan.
Mathieson said that ultimately, a consortium of public and private sector interests will be needed to realize a bold future for the Bay building. Tax increment financing — where a portion of future property taxes are advanced to developers at the front-end of a project — would be a very safe bet for government given the potential value of a redeveloped Bay building.
However, the current political environment does not offer much promise of public support.
The City of Winnipeg is currently engaged in a pre-budget process that has featured increasingly alarming warnings of service cutbacks to help keep a lid on expenditures. The province, meanwhile, continues its tight-fisted approach to fiscal management that makes Premier Brian Pallister look like an unlikely partner in this kind of project.
And yet, the Bay building isn’t going anywhere. It’s too big and old to reuse as is, but too important to ever consider tearing it down. Fortunately, various interested parties are still taking the time to call and to keep an eye on the building.
Born and raised in and around Toronto, Dan Lett came to Winnipeg in 1986, less than a year out of journalism school with a lifelong dream to be a newspaper reporter.