The proposed liquidation of the Hudson’s Bay Company (HBC) has cast uncertainty over its substantial real estate footprint, raising concerns among landlords and stakeholders about the broader impact on the retail sector. While immediate challenges are evident, particularly for property owners and creditors, the long-term outlook suggests that the sector will adapt, with prime locations poised to retain value.
Court adjourned Tuesday with no decision made by Ontario Justice Peter J. Osborne about the liquidation of stores or the sale of any Hudson’s Bay properties.
RioCan Real Estate Investment Trust is notably affected due to its joint venture with HBC, encompassing 12 store properties, including prominent downtown locations. In a press release on Tuesday, RioCan expressed disappointment over HBC’s filing for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) on March 7, 2025. The trust emphasized the necessity for any restructuring to be conducted on fair and balanced terms, reaffirming its commitment to protecting the interests of its unitholders and stakeholders.
Jonathan Gitlin, President and CEO of RioCan, stated, “The HBC locations in the JV include prime real estate within Canada’s major markets, that have value either as operating retail centres or redevelopment opportunities. Our team has a proven track record of finding solutions for vacant space and will work to protect the value of the real estate in the JV.”
For the year ended December 31, 2024, RioCan’s exposure to HBC was detailed as follows:
- Joint Venture Value: The RioCan-HBC JV had a carrying value of $249.0 million, representing 3.3% of RioCan’s equity.
- Financial Contributions: The JV contributed $23.7 million to RioCan’s Net Operating Income (3.2% on a proportionate share basis) and $13.6 million to Funds From Operations (2.5% of FFO).
- Credit Support: RioCan provided credit support totaling $88.7 million to HBC through the JV, including loan guarantees and mezzanine loans, secured by interests in several JV properties.
The specific properties involved in the JV include flagship locations in Montreal, Vancouver, Calgary, and Ottawa, among others, totaling approximately 842,000 square feet of net leasable area.
Potential Redevelopment Opportunities
Despite the challenges posed by HBC’s liquidation, there are potential opportunities for landlords to repurpose the vacated spaces. Large retail areas could be transformed into smaller retail units, entertainment venues, or even grocery stores to align with evolving consumer preferences. This can be expensive, however.
The traditional reliance on department stores as anchor tenants has diminished, with brands like Nike, Apple, Canada Goose, and Lululemon now serving as primary traffic drivers. Mixed-use developments that incorporate residential, office, and entertainment spaces also help mitigate the impact of losing major retailers.
Gitlin emphasized the value of the prime real estate within the JV, noting that these properties hold potential as either operating retail centres or redevelopment projects. He highlighted RioCan’s proven track record in addressing vacant spaces and its commitment to protecting the value of the JV’s real estate.
Broader Implications for the Retail Sector
The release of significant retail space into the market is anticipated to exert downward pressure on lease rates in the short term, particularly in secondary and tertiary shopping centres. Malls with weaker foot traffic may face challenges in attracting tenants for large spaces, whereas high-performing malls are likely to adapt by attracting sought-after brands and incorporating experiential retail elements.
Nonetheless, prime Hudson’s Bay locations are expected to remain in demand, and innovative repurposing strategies will be crucial for property owners aiming to maintain asset value.
HBC’s filing under the CCAA allows the company to restructure its operations, streamline costs, and refocus on its core strengths. The company is exploring strategic alternatives and engaging stakeholders to explore potential solutions to preserve and strengthen its business. However, industry observers remain skeptical about the retailer’s ability to execute a successful turnaround, and we’ll know more with Justice Osborne’s upcoming ruling.
