You can't get more Americana than the Macy's Thanksgiving Day Parade, and there's probably no American department store as iconic as Macy's flagship store in New York's Herald Square. The structure is even a National Historic Landmark.
But if you follow retail news at all, you know Macy's has been in financial trouble recently, closing many stores. Although that's true, Macy's is betting Americans aren't ready to say goodbye to this beloved institution and is making some interesting changes to its flagship store.
Macy's current plan is to build a tower atop its flagship store in New York City. The tower should be between 750 and 900 feet tall and will house 1.5 million square feet of office space. To make this happen, Macy's will also upgrade the area infrastructure to the tune of $235 million, meaning Herald Square is about to be transformed. Here's what's to come, courtesy of the New York Post:
- Herald Square and Broadway plaza will become car-free pedestrian zones.
- Easier pedestrian access at Broadway and 34th streets.
- New entrances to the Herald Square subway station.
- New gateway entrance to the station at Greeley Square.
Expected benefits of the project include an extra $269 million in tax revenue and over 16,000 new jobs.
This all sounds fantastic, but Macy's isn't doing all this out of altruism. You can attribute the infrastructure improvements to New York's land review process called the Uniform Land Use Review Procedure (ULURP), a several-step process that helps ensure the city grows in a planned way that benefits residents and not just corporations.
A little background
The idea of adding a tower to the Macy's Herald Square location dates back to January 2016. At that time, talk was to add one or two slender towers to the flagship store. The reason: To make additional money off the valuable location on which the store sits: 34th Street. When completed, the towers could be used for anything, but the thought at the time was hotel rooms or offices.
Fast-forward to the summer of 2019, and the plan changed to building only one tower that would be 800 feet tall. (The project was delayed because of the pandemic.) A New York Times article pointed out that this new tower, with all the traffic it would bring, could be disastrous for an area already experiencing extreme crowding so bad that every inch of sidewalk space is filled and traffic is often at a standstill from too many drivers clogging the roads, not to mention an unreliable subway to boot. The only way to get community approval for a project that would bring in more traffic would probably involve implementing a huge infrastructure improvement plan.
But didn't Macy's close lots of stores?
Macy's has indeed closed lots of stores. In what the company calls its Polaris strategy, it plans to close 125 stores in lower-tier malls. At the end of 2020, there were 540 Macy's locations. Plans are to close 80 more stores in 2022 and 2023. This is all part of Macy's plan to stay in business. Closing low-performing stores allows Macy's to focus on high-traffic locations and online sales.
And what about the glut of offices in the Big Apple?
New York City currently has a vacancy rate of over 16% for office space, the highest vacancy rate ever -- higher than after both 9/11 and the 2008 recession. But one day New York could return back to normal. New York has seen crises before where offices sat vacant, and many developers think the pandemic has been just one more. The thought is that the market always comes back.
The Millionacres bottom line
New York City has experienced great upheaval during the coronavirus pandemic. This Macy's project could be the boost this part of New York needs. If you invest in commercial real estate in New York City, watch this one. The project is still in early stages and hasn't even begun the ULURP process yet.