December 6, 2019

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How low can it go? Downtown Bay appraised at $0

Quick quiz.

Guess which of the 79 buildings the Hudson's Bay Co. owns in its multibillion-dollar real estate portfolio is practically worthless?

Of course you know the answer. It's The Bay's iconic flagship store in downtown Winnipeg.

Cushman & Wakefield conducted an extensive technical appraisal of the company's properties as part of a lengthy corporate transaction that's in the works to take the company private. It concluded what many in Winnipeg already understand to be the case — the Portage Avenue building is not worth anything... $0.00 to be exact, according to Cushman & Wakefield.

It's likely worth less because it carries a $302,298 tax liability.

The Hudson's Bay Company building at Portage Avenue and Memorial Boulevard has been appraised at $0, likely because it carries a $302,298 tax liability. (Mike Deal / Winnipeg Free Press)

The Hudson's Bay Company building at Portage Avenue and Memorial Boulevard has been appraised at $0, likely because it carries a $302,298 tax liability. (Mike Deal / Winnipeg Free Press)

With 515,523 square feet of leaseable space, it is also one of the largest in a portfolio that includes at the top end the Saks Fifth Avenue flagship store in New York, which, at 493,911 square feet, is valued at $1.6 billion.

The appraisal also estimates values if the buildings were to be leased to a third party or multiple third parties, but it doesn't get much better for what was once a mighty symbol for downtown commerce.

The appraisal suggests that with $91 million of improvements for a single tenant it might be worth $8 million, or with $111 million of investment for multi-tenants it might be worth $10.8 million.

A couple of senior Winnipeg real estate professionals said rental rates suggested in the appraisal are too high and the investment required to bring it up to market conditions is far too low.

And to top it off, the building received heritage designation earlier this year, which included some interior elements, so it cannot be demolished.

Construction of Winnipeg’s downtown Bay store begins in 1925.  The building that would open on this spot a year later could boast it was constructed entirely of Manitoba products.  - HudsonA Manitoba Masterpiece
Construction of Winnipeg’s downtown Bay store begins in 1925. The building that would open on this spot a year later could boast it was constructed entirely of Manitoba products. - Hudson's Bay Company Archives, Archives of Manitoba
Visible behind the construction site are the Free Press and Boyd buildings. - Hudson
Visible behind the construction site are the Free Press and Boyd buildings. - Hudson's Bay Company Archives, Archives of Manitoba
 - Hudson
- Hudson's Bay Company Archives, Archives of Manitoba
 - Hudson
- Hudson's Bay Company Archives, Archives of Manitoba
 - Hudson
- Hudson's Bay Company Archives, Archives of Manitoba

"Would you take that building if someone said you could have it for a dollar? I don’t know if I would," asked Rennie Zegalski, principal at Capital Commercial Real Estate Services Inc. in Winnipeg.

The Bay currently operates out of two of the six floors of the building. Even Cindy Tugwell, executive director of Heritage Winnipeg which championed the heritage status, understands it's not worth much as a retail enterprise.

"It has to be a huge liability for The Bay," she said. "The operating costs far surpass the revenue they generate. It has become a liability to them."

It does not take a retail industry expert to know that large format department stores are a thing of the past and there have been many schemes suggested over the years to try to figure out a viable plan to re-purpose the building. But none of them could be configured to work.

"Many really smart people have tried to make sense of this property for decades," said John Pearson, president of ICI Properties at Shindico. "That includes the (University of Winnipeg), Manitoba Hydro and several government entities. Our firm was part of that… trying to find some use for the property for the future. All of those entities vetted and hugely researched the situation to try to find some value in it. In our opinion the building is at the end of its useful life."

The Bay currently only operates out of two of the six floors of the once-bustling building. (Mike Deal / Winnipeg Free Press)

The Bay currently only operates out of two of the six floors of the once-bustling building. (Mike Deal / Winnipeg Free Press)

Pearson's assessment is probably the consensus at this point. Redevelopment proposals have dried up over the past few years.

Kate Fenske, president of the Downtown BIZ, laughed when she heard the appraisal.

"It just doesn’t get any easier," she said.

But she said that what happens across the street at Portage Place, which is about to come under new ownership, may have some impact on The Bay property.

Real estate professionals will say property appraisals can be a moving target depending on the motivation — either to jack up the value for the benefit of current owners or depress it for the benefit of a purchaser. 

But most Winnipeggers will see it for what it is. 

"The long and short of it is the valuation certainly indicates what the community and what those who have been interested in developing it have said for a very long time," said Angela Mathieson, the CEO of CentreVenture. 

One real estate professional said that demolition, were it even possible, would likely cost more than the actual value of the land.

"It is a huge clunker," said the veteran Winnipeg real estate professional who asked that his name not be used.

Redevelopment would be a massive expense with such huge floor plates and massive steel and concrete infrastructure. At the time it opened on Nov. 18, 1926, it was the largest reinforced concrete building in Canada.

"There are not enough windows, the HVAC is the sh-ts," he said. "You probably need to knock it down and turn that land into something else."

martin.cash@freepress.mb.ca

Martin Cash

Martin Cash
Reporter

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

Read full biography

History

Updated on Thursday, November 21, 2019 at 10:49 AM CST: corrects titles

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