Macy's sells downtown Minneapolis store, will close it in March

Macy's Inc. is closing the biggest store in downtown Minneapolis.

The retail giant said Wednesday that it is selling the three buildings on Nicollet Mall that the store occupies, a place known to Minnesotans for decades as the flagship of the Dayton's department store chain. A New York firm with a record of remaking older properties will take over.

The move ends more than a century of department store retailing in the heart of Minneapolis.

Shoppers have wondered for several years whether the store would survive as Macy's was shuttering stores in city centers across the United States. Company executives signaled last year that they were seeking a buyer for the Minneapolis property after they failed to form a redevelopment team for the site.

Macy's announced the deal as part of a larger restructuring that involves dozens of other store closings and a cut of about 10,000 of its 150,000 jobs across the country. About 280 people will lose their jobs when the downtown Minneapolis store closes in March.

Gov. Mark Dayton, whose great-grandfather George Dayton created the Dayton's department store company that ultimately became Target Corp., issued a statement that noted his family always adapted the business to changing conditions.

"Fifty years ago, Dayton-Hudson began investing in Target stores, because my father and uncles foresaw that large, downtown department stores were not the future of retailing," Dayton said. "Unfortunately, their foresight has proven to be correct, as it now affects the former Minneapolis Dayton's store."

601W Cos. is paying more than $40 million for the property and plans to redevelop the buildings into a mix of office space, with large open floor plans, and retail space on the ground and skyway levels.

Macy's representatives met Wednesday morning with City Council members to tell them about the deal.

"We have a lot of people living and working in our downtown, far more than we used to," Council President Barb Johnson said after the meeting. "But buying habits are changing and that will impact what kind of retail we see in that building."

The downtown Minneapolis store has been on the decline for years. Macy's was using only about half of its 1 million square feet of space. Helped by occasional briefings from Macy's, downtown boosters and city officials had time to brace for the news and are now optimistic about the site's future.

"For many years the former Dayton's building has been an underutilized asset at the center of our business district, with hundreds of thousands of vacant square feet," Steve Cramer, president of the Minneapolis Downtown Council, said in a statement. "With the sale of the building to an experienced, well capitalized developer with urban retail experience — 601W Companies — we have an opportunity to revitalize this iconic structure in the heart of downtown."

Minneapolis Mayor Betsy Hodges said she will miss Macy's, but encouraged the new owners to bring in "the kind of targeted, specialty retail that will be successful in our vibrant, safe, 24-hour downtown."

The scale and potential of the property is enormous, said Jim Vos, a real estate professional and member of the Downtown Council.

"The volume of traffic through the skyways still keeps that a pretty vibrant retail space. Think of large, multi-tenant markets," Vos said. "I think this historic location with high ceilings is an interesting space to offer the office market right now. It needs some architectural imagination to get the sunlight inside, but it could be a great spot for a large employer."

Vos said the timing is right for a major renovation with the Nicollet Mall currently under construction. "If we have to do it, let's do it while everyone is making a mess and get after it," he said.

Vos estimates the upper floors of the property could hold as many as 2,000 workers.

The oldest portion of the property, at 7th and Nicollet, was built in 1902 and has the most ornate exterior. Two adjoining structures were built in 1913 and 1929 with more modern styles.

Macy's acquired the property in its 2005 merger with May Department Stores, which a year earlier had purchased from Target a business that consisted of the former Dayton's chain and others.

Since then, Macy's kept up in the downtown Minneapolis store many of the traditions that originated at Dayton's, including a spring flower show and a holiday display on the eighth floor. It ended a summer fashion show in 2015 after 23 years.

"It's hard to lose all those traditions," Johnson said. "But the saddest part are all those people who are longtime employees who will lose their jobs. I think that will be really hard on people."

Macy's continued to operate two restaurants that originated at Dayton's, the Oak Grill and Skyroom, which are on the 12th floor and opened in 1947. In 2013, it renovated the Oak Grill, a fine dining room anchored by a 300-year-old fireplace Dayton's brought from England.

Speculation abounded about the fate of the Minneapolis store as Macy's closed stores in other city centers around the country, including its downtown St. Paul site in March 2013.

But in late 2015, Macy's reaffirmed its commitment to what it called flagship properties in New York, Chicago, San Francisco and Minneapolis.

It changed course last spring by hiring Eastdil Secured and Goldman Sachs to seek options for those sites. Stephen J. Livaditis, senior managing director at Eastdil in Chicago, represented Macy's in the deal.

The Star Tribune reported in October that Macy's was looking to shed the downtown property and either close or downsize the store.

Macy's on Wednesday declined further comment about the deal beyond its announcement.

Calls to 601W's chief executive Mark Karasick were not returned.

The former Macy's property in St. Paul was acquired by the Port Authority of St. Paul, which in the past 18 months worked with a developer to transform that 360,000-square-foot property into a mixed-use building that includes a practice facility for the Minnesota Wild hockey team.

Macy's has department stores at several malls around the Twin Cities: the Mall of America in Bloomington, Rosedale Center in Roseville, Ridgedale Center in Minnetonka, Southdale Center in Edina, Maplewood Mall in Maplewood and Burnsville Center in Burnsville. It also has two furniture galleries in the region.

Staff writers Nicole Norfleet and Ricardo Lopez contributed to this report.

Kristen Leigh Painter • 612-673-4767