The former Hudson’s Bay retail location at Yorkdale shopping centre in Toronto in August, 2019.Christopher Katsarov/The Globe and Mail
Two of the country’s largest real estate owners are in a showdown over the future of the former Bay store in an upscale Toronto mall, the latest in a series of landlord-tenant disputes triggered by the Hudson’s Bay Co. bankruptcy.
RioCan Real Estate Investment Trust REI-UN-T is using hardball tactics at the Yorkdale Shopping Centre in an attempt to get mall owner Oxford Properties Group to buy out its lease on a shuttered Bay outlet for at least $75-million, according to court filings and a source familiar with the negotiations.
The Globe and Mail agreed not to name the source because they are not authorized to speak about the companies.
If Oxford refuses the buyout offer, as it has done to date, RioCan is threatening to rent the space to downmarket fashion store Les Ailes de la Mode for a relatively modest $1-million annually, court filings show. The bulk of Yorkdale’s tenants are high-end outlets such as Holt Renfrew, Prada and Tiffany & Co.
Retailer Isaac Benitah owns Les Ailes as part of his Fairweather chain. Filings show that if RioCan successfully exits its 135-year lease at Yorkdale, Mr. Benitah’s company will receive a portion of the payment from Oxford.
Inside the final days of Hudson’s Bay
RioCan has a $75-million mortgage with Royal Bank of Canada backed by its lease on the former Bay outlet. The company pays roughly $3.5-million a year in interest on the debt.
“Fairweather, along with its affiliates and principals, brings substantial retail operational experience and expertise, and it is our view that the proposed transaction fully aligns with the terms of the head lease governing this space,” said Terri Andrianopoulos, senior vice-president of RioCan, in an e-mail.
“If approved, this arrangement will help preserve the Yorkdale property as a significant asset,” said Ms. Andrianopoulos. A spokesperson for Oxford declined to comment.
Across the country, landlords are scrambling to fill anchor store locations vacated by HBC after owner Richard Baker, a U.S. real estate developer, put the 355-year-old chain into creditor protection. And several real estate companies are struggling to block potential tenants from taking the space.
The dispute between Oxford and RioCan echoes another fight over Hudson’s Bay leases. A number of landlords, including Oxford, opposed a plan to sell 25 former store leases to wealthy B.C. real estate executive Weihong (Ruby) Liu. In that lease deal, which was rejected by a court decision last week, one of the landlords’ main objections was Ms. Liu’s lack of experience running a retailer.
B.C. billionaire Ruby Liu loses legal battle to take over Hudson’s Bay store leases
On Friday, Ms. Liu lost a lengthy legal battle to take the space and launch a chain of department stores named after herself in British Columbia, Alberta and Ontario.
Mr. Benitah, part of a prominent Canadian retailing family, is chief executive officer of Toronto-based INC Group Inc., which also runs women’s clothing chain Fairweather, menswear retailers International Clothiers and Stockhomme, and discounter Designer Depot. Mr. Benitah’s Fairweather Group acquired Les Ailes in 2005.
All of these retailers have filed for creditor protection over the years and were forced to scale down their stores. In 2018, the Benitah family’s home-decor chains Bowring and Bombay filed for bankruptcy and later closed their stores.
Yorkdale is a crown jewel in Oxford’s property portfolio, with 286 stores that sold more than $2-billion worth of goods in 2024, the highest sales per square foot of any mall in Canada. Oxford is owned by the Ontario Municipal Employees Retirement System, one of the country’s largest pension-fund managers.
Toronto-based RioCan owns more than 200 properties and has a $5.6-billion market capitalization.
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RioCan inherited the Yorkdale lease for the Bay store after striking a joint venture on 12 properties with HBC in 2015. In May, RioCan wrote down the value of the JV by $209-million, after the joint venture was placed in receivership.
The Yorkdale store is one of four properties RioCan used as collateral for mortgages and loans. Prior to the bankruptcy, HBC paid $2.8-million a year in rent on the space, court filings show.
Les Ailes would pay far less for the premium location. Mr. Benitah’s company says it will open a Les Ailes store in Yorkdale by no later than May of next year. The lease agreement with RioCan set the rent at either $1-million annually, or 12 per cent of gross receipts, whichever number is higher, filings show.
The agreement also provides for a payment to Mr. Benitah’s company if the RioCan lease deal is cancelled. The sublease can be terminated by the receiver on the HBC RioCan joint venture with at least nine months’ notice, “provided that a termination fee is paid to Fairweather,” according to court documents.
That fee would cover the Fairweather Group’s expenses related to the sublease and would also include a percentage of any consideration payable to RioCan, if it entered into an alternative transaction.
Whoever becomes the new tenant at Yorkdale could conceivably be in a very long-term relationship with the mall’s landlord. The lease – held by HBC YSS 1 Limited Partnership, one of the Hudson’s Bay entities in the joint venture with RioCan – began in 2002 and provides for five-year terms that are extendable for 27 periods. That means the lease could extend until the year 2142, if all of those renewals are exercised.
Despite the inherent value in a space in one of the most valuable malls in Canada, no offers emerged for the lease during a separate process to solicit bids under the Bay’s creditor-protection proceedings.
In that lease-monetization process, a total of 62 Bay stores across the country received zero bids. The receiver presiding over the joint-venture then ran an additional process to try to find a taker for the Yorkdale lease, identifying 12 potential bidders. That led to a sublease agreement with Fairweather Ltd. that was signed on Aug. 16.
Before signing that agreement, the receiver approached Oxford about an alternative, to surrender the lease in exchange for payment, but the landlord declined, according to the receiver’s report.
Court documents also reveal the extent of the repairs needed to the Yorkdale store – a common issue, as financial troubles led HBC to stop spending money in recent years on badly needed repairs and renovations at most of its locations. A summary prepared by Oxford shows that the Yorkdale store would need $9.3-million in immediate repairs, and a total of $16.9-million in investments over the next three years.
The former Bay store needs a new roof to replace one that is in “poor maintenance” and at risk of leaking, at a cost of more than $6-million. The space also requires more than $2-million to modernize an elevator system dating to 1964, and to partially or entirely replace eight escalators; another $1.9-million to replace boilers, a heat exchanger and air-handling units that all date back to the 1980s; tens of thousands more for structural repairs to fix “significant cracking” on an exterior wall; and more than $3-million for something referred to as “Hazmat removal.”
The Yorkdale expansion is not the first time Mr. Benitah has stepped forward to buy assets following the collapse of Hudson’s Bay. On Aug. 6, Mr. Benitah signed an agreement to purchase the intellectual property of discount-retailer Zellers, which was owned by the Bay. The department store chain revived Zellers in 2023 as a discount section inside the stores, but Zellers has not operated as a standalone store since 2013.
HBC transferred trademarks such as the Zellers name and various logos, the Zeddy mascot name, and the defunct Club Z loyalty program, to Les Ailes de la Mode Inc. Mr. Benitah is president of Les Ailes.
In August, Londonderry Mall in Edmonton announced plans to open a Zellers location in the space formerly occupied by a Bay store. The Zellers was initially slated for a “soft launch” in early September. It is now scheduled to open on Oct. 31, the mall’s landlord, Henry Zavriyev, confirmed in an e-mail to The Globe.