“HBC and WeWork have been working together to reimagine retail environments for current and future generations,” says Richard Baker, HBC's governor, executive chairman and interim CEO. “This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition.” Baker is filling in as CEO after the departure last week of Gerald Storch, who is returning to his advisory firm, Storch Advisors.

At WeWork, CEO and co-founder Adam Neumann says, “The trend of urbanization is something we must all recognize and understand. People from every walk of life are seeking spaces in big cities that allow for human connections. There is no reason why retail space should not be part of that movement. WeWork's role in this big trend will be to reimagine and reshape places so as to foster collaboration, innovation and creativity.”

At Fitch Ratings, associate director JJ Boparai notes that the sale of the Lord & Taylor flagship is in line with recent actions taken by other department stores to reduce or reorient square footage. “Retailers continue to evaluate their physical footprints in the context of growing online sales in order to find the right balance between the two,” she says. “Many department stores are selling square footage to add experiential components to the stores or allocating some of the existing square footage to growth concepts, such as Backstage inside Macy's. We expect department stores will continue to reevaluate their physical footprints in the near-term as they implement omni-channel strategies.”

Rhône's agreement with HBC involves a Rhône investment vehicle subscribing to 50.9 million eight-year mandatory convertible preferred shares. M. Steven Langman, managing director of Rhône, and WeWork's Eric Gross will join the HBC board of directors.

BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors to HBC, while Stikeman Elliott LLP and Willkie Farr & Gallagher LLP are serving as Canadian and US legal counsel, respectively, to the retailer. Morgan Stanley is serving as financial advisor to WeWork Property Advisors—the WeWork/ Rhône JV—and Rhône; Gibson, Dunn & Crutcher LLP and McCarthy Tétrault LLP are serving as US and Canadian legal counsel, respectively, to the two entities. The private placement with the Rhône vehicle is expected to close next month, while the sale of the Lord & Taylor flagship is targeted for an August 2018 close.