Foreclosure Filing Takes Aim at Macy’s Building

Lenders have foreclosed on the downtown Sacramento building that houses the Macy’s store for men and furniture.

The three-story building is owned separately from the Westfield Downtown Plaza and the Macy’s women’s store. The owner is believed to be the group that built the structure more than 30 years ago.

Macy’s, which declined to comment, still has a lease on the building at 600 K St. and is expected to continue operating in it.

The parties directly involved are keeping mum on what happened, and only a few property documents provide basic information about the foreclosure last month.

Documents indicate that the landlord owed $8.3 million on the 171,000-square-foot building. The building was put up for auction with a starting price of $5.3 million, but there were no takers.

The two Macy’s stores at the downtown mall have the highest sales of any in the Sacramento region, real estate professionals and city officials say.

“The building is very important, but the most important part is not who owns it but who uses it,” said Valerie Mamone-Werder, business recruiter for the Downtown Sacramento Partnership. Most critical she said, is that Macy’s will still be the tenant. “Macy’s is very important to us as an anchor for downtown shopping.”

Macy’s uses the first two floors for sales. The third floor is used for storage.

The city of Sacramento owns the parking under the building and a little strip of land next to it, said Leslie Fritzsche, the city’s downtown development director.

The city, she said was not informed about what led to the foreclosure, and has had no direct contact with the group that lost the building or the lender that foreclosed on it.

It’s also not clear what the foreclosure might mean to overall efforts to pump some new life into the mall or find a new use for the site.

The foreclosure could be a good thing for the city of Sacramento, downtown broker Ken Turton said, if it results in a new ownership group that is cooperative and knowledgeable about urban retail. The mall, which is reportedly up for sale, could be purchased by a different buyer, or one buyer could purchase both properties.

The Wall Street Journal reported in 2011 that Westfield Group had put the downtown mall, along with 16 others, on the market. At one point, several local groups were eyeing the mall, real estate professionals have said. At least one placed an offer, but it was not accepted.

Westfield has never commented on those reports. Westfield also declined to comment for this story.

You’d hope, Turton said, that buyers would cooperate with one another.

Turton, who specializes in commercial properties in the urban core, represents unnamed clients interested in buying the building housing the Macy’s men’s store.

It is logical, he said, that the lender would sell the building to the group that buys Westfield. Few investors would have $5 million with which to buy the building just as an investment with hopes of re-selling it for more to whomever buys the mall.

Macy’s Inc. (NYSE: M) extended its lease for the men’s store last year by two or three years, Fritzsche said.

It is possible, real estate professionals speculate, that Macy’s drove a hard bargain in renegotiating its short lease extension. Macy’s could have argued for a better deal given the mall’s high vacancy level and the uncertainty about the mall’s future. Also, Macy’s would have been able to point out that the building would have had few suitors if it went back on the market, and any new tenant — if one could have been found — might have required expensive building renovations.

As for the lender, foreclosing is usually the last choice. Scrutinized by regulators, lenders want their books to look good.