The Resistance to a REIT Spin-Off (OpCo/PropCo)
Given this massive valuation disconnect, the immediate question from investors is why Macy's does not simply spin off its real estate into a Real Estate Investment Trust (REIT) to unlock value for shareholders. Activists like Starboard Value previously pressured Macy's to execute this exact OpCo/PropCo structure, arguing it could unlock up to $21 billion (institutionalinvestor.com) [cite: 55, 56, 57].
However, Macy's management has consistently rejected this maneuver. Relinquishing ownership would force the operating company to pay market rents to the newly formed REIT, stripping precious operating capital from the retail business and subjecting store upgrades or strategic closures to third-party landlord approvals (emerymatthews.com) [cite: 58, 59]. Management prioritizes the flexibility of an investment-grade rating and views aggressive real estate asset-stripping as a pathway to operational strangulation and eventual bankruptcy, frequently citing the demise of Sears as a cautionary tale of this exact strategy (retaildive.com) [cite: 56, 60].
The Buyout Bids and Berkshire Hathaway
Despite management's resistance to a REIT spinoff, the real estate valuation has made Macy's a prime target for activists and private equity. Beginning in December 2023, activist investors Arkhouse Management and Brigade Capital Management attempted a hostile takeover, initially offering $5.8 billion ($21 per share) (wsj.com) [cite: 61, 62]. Over several months, they escalated their bid to $6.9 billion ($24.80 per share) (reuters.com) [cite: 6, 7].
However, in July 2024, Macy's Board unanimously terminated discussions. The Board concluded that Arkhouse and Brigade failed to provide fully negotiated commitment papers for the debt and equity required, and that their ultimate goal was to strip and monetize the real estate for short-term gain (bloomberg.com) [cite: 6, 7, 62].
Despite the failed buyout, institutional "smart money" continues to circle the asset. In Q1 2026, Warren Buffett's Berkshire Hathaway—under the leadership of Greg Abel—initiated a position in Macy's, acquiring roughly 3 million shares valued at $55 million (cnbc.com) [cite: 44, 63]. While a small stake for Berkshire, the institutional validation of taking a position in a deeply discounted equity underscores the "margin of safety" provided by Macy's cash flows and real estate portfolio.
Risks, Red Flags, and Open Questions
Despite the undeniable value of its assets and recent earnings beats, Macy's equity is heavily discounted for valid reasons. Investors must underwrite several severe risks and reputational red flags.
The $151 Million Accounting Scandal
The most glaring red flag in recent history is an internal controls failure that surfaced in late 2024. During the preparation of its Q3 2024 unaudited financials, Macy's discovered that a single employee had intentionally made erroneous accounting accrual entries to hide approximately $151 million in cumulative small-package delivery expenses (sec.gov) [cite: 64, 65, 66].
This fraudulent activity spanned nearly three years, from Q4 2021 through November 2024 (wsj.com) [cite: 64, 67]. The revelation forced the company to delay its earnings report, an event that deeply spooked investors and drew sharp criticism regarding the competence of both Macy's internal audit teams and external auditors (ft.com) [cite: 65, 67]. While the independent investigation confirmed that the hidden expenses did not impact actual cash management, vendor payments, or inventories—meaning no actual cash went missing—the sheer length of time this went undetected raises serious open questions regarding corporate governance (bloomberg.com) [cite: 64, 65]. Has the corporate culture that incentivized an employee to allegedly hide expenses to boost division bonuses been fully rectified?
Execution Risk in Real Estate Monetization
While the theoretical value of Macy's real estate is enormous, the practical realization of that value is fraught with friction. Converting empty department stores into cash is a slow, execution-heavy process. In 2024, Macy's generated $283 million from real estate asset sales (macysinc.com) [cite: 68]. However, management projected a slowdown in 2025, anticipating only $175 million in real estate sale proceeds (macysinc.com) [cite: 68]. Selling monolithic, windowless, multi-story retail spaces in dying suburban malls often yields much lower valuations than anticipated, meaning the higher-end $16 billion portfolio estimates may be overly optimistic pipe dreams if the market for commercial real estate remains frozen.
Secular Mall Headwinds
Finally, Macy's is fighting against the tide of shifting consumer behavior. Placer.ai data from recent periods has shown foot traffic at Macy's locations declining by nearly 11% year-over-year during certain quarters (placer.ai) [cite: 69]. While digital sales have stabilized at around 31% to 32% of total net sales (sec.gov) [cite: 16], the transition from an anchor tenant in physical malls to an omnichannel retailer forces Macy's to compete directly with Amazon and nimble direct-to-consumer brands. The open question is whether the outperformance of Bloomingdale's and Bluemercury can consistently offset the steady erosion of the core Macy's consumer base.
Synthesis
Macy's represents a classic value paradox. Its robust balance sheet, secure dividend, and massive real estate holdings provide a sturdy floor, effectively limiting the downside risk commonly associated with struggling retailers. However, realizing the upside requires flawless operational execution from CEO Tony Spring. If management can cleanly navigate the closure of its 150 weakest stores while maintaining the current momentum in its luxury divisions, the equity could experience a massive upward re-rating. Until then, investors are being well-compensated by a safely covered 3.4% dividend while they wait for the "Bold New Chapter" to fully materialize.
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