Does Berkshire’s Macy’s math add up?

Last week, Berkshire Hathaway (BRK-A)(BRK-B) released its latest 13F filing, which made for quite the interesting read.

For one thing, it included a massive new $2.6 billion position in Delta Airlines (DAL). For another, it decided to sell its remaining shares in Amazon (AMZN), Mastercard (MA), Visa (V), and UnitedHealth (UNH).

These are all high-quality companies with excellent balance sheets and almost unbeatable competitive advantages. So we don’t read Berkshire’s sells as reason to follow suit.

More than likely, these were strategic decisions for its specific portfolio, not an indication that Amazon and the other stocks are overvalued.

I imagine the same is true of Berkshire’s decision to exit Lamar Outdoor (LAMR), a billboard-owning real estate investment trust (REIT) we covered last year. Berkshire didn’t even hold those 1.2 million shares for a full year, having only purchased them in Q2-25. Yet it probably netted gains in the high teens once dividends are factored in.

All told, it seems that Berkshire trimmed or closed positions purposely and intelligently. It’s already gotten the gains it wanted in these cyclical, economically sensitive, and/or slower-growing companies. It now wants to put those profits toward higher-conviction assets…

And, apparently, struggling retailer Macy’s (M).

Founded in 1858, there’s no doubt that Macy’s has seen better days. It was already losing ground to e-commerce before 2020, and the shutdowns only magnified those problems.

Shares fell significantly as a result, with many investors now just waiting for Macy’s to die. So the fact that Berkshire purchased around 3 million shares for $55 million is quite the contrary position.

Could there still be something left to the store after all?

The answer, it turns out, is complicated.

There’s no denying that today’s Macy’s is not the Macy’s of the 20th century.

Back then, the company stood for class and quality apparel, beauty products, home furnishings, and more for middle-class shoppers. Consumers flocked to the stores wherever they were built across the U.S.

As of 2024, however, Macy’s has been implementing a plan to shutter and/or sell about 150 of its underperforming locations by the end of 2028. To most observers, that’s a sign of defeat.

In which case, they’re partially right.

What they’re missing is the amount and quality of the real estate Macy’s has to sell. The fact that it’s a property owner on top of being a retailer can make quite the difference.

That combination opens up enormous investment opportunities – especially when the market misprices them.

In short, analysts are so focused on Macy’s declining sales that they’re forgetting how it controls a real estate empire… one it largely amassed long before property prices exploded. It therefore takes more than a cursory glance to understand how much it really holds.

Macy’s Herald Square flagship store in New York City is, in and of itself, worth a small fortune. Located in the heart of Manhattan, it takes up 2.5 million square feet – a whole city block – in one of the world’s densest commercial corridors.

Wall Street has valued it between $1.5 billion and $3 billion. But that only takes its square-foot retail space into consideration, leaving out air rights and what the property could be worth as a mixed-use development.

Considering Berkshire’s move into Macy’s, I would imagine the conglomerate has done a much more thorough evaluation of how this crown jewel property might be monetized through joint ventures, ground leases, and more.

Any serious analysis of Macy’s has to also include Union Square in San Francisco. As in Manhattan, this property takes up an entire block in the heart of the city’s shopping district.

Last year, the retailer signed a joint-venture agreement to redevelop the 1.1 million square-foot space with TMG Partners. And, based on comparable store sales, we can easily value Union Square at $275 million.

Another full-block asset is Macy’s Midwest flagship store at 111 N. State Street in Chicago’s Loop Retail Historic District. As the former Marshall Field and Company building, it’s deemed a National Historic Landmark.

This State Street property’s value goes well above and beyond mere retail potential. And Macy’s has the receipts to prove it.

Back in 2018, it sold top floors 8-14 – amounting to roughly 700,000 square feet – for around $30 million without relinquishing control over the larger property. As such, Wide Moat Research still puts the remaining real estate at about $200 million.

In all, Macy’s outright owns 243 properties, with no mortgages left to worry about. It then partially owns three, leases 340 from third-party owners, and owns another 73 buildings while renting the land beneath them through ground leases.

Long before e-commerce, much less Covid’s social distancing, entered the picture… Sears became a classic example of how far a well-established retailer can fall.

The company began losing market share to up-and-coming competitors like Walmart (WMT) and Target (TGT) in the 1970s and ‘80s. And management didn’t make things better by overdiversifying into sectors that were completely separate from its retail core.

In 2015, having long-since lost its top shopping spot to Walmart, Sears decided to raise money a different way. This time, it was by spinning off over 200 former Sears and Kmart properties into a real estate investment trust, or REIT, called Seritage Growth Properties (SRG).

Sears kept a $2.7 billion stake in the new company, which was supposed to make money by repurposing those assets. And Warren Buffett stepped in as well to personally purchase about 2 million shares, amounting to about 8% of the REIT.

That’s a high amount of confidence, to say the least. Nor did he back down on that bet as Seritage showed almost immediate signs of stress.

Instead, in 2018 – the same year Sears filed for its first Chapter 11 bankruptcy – Buffett’s Berkshire Hathaway basically bailed the failing REIT out with a $2 billion term loan through one of its insurance subsidiaries.

But thanks to the changing retail landscape and complex capital markets, that loan became more of a burden than anything else. It forced Seritage into selling off assets just to survive – a place it’s never recovered from.

Technically, yes, the REIT has paid over $1.5 billion back to Berkshire since late 2021. This leaves it with “mere” millions outstanding today.

Even so, I’d hardly call this a win for anyone involved.