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Saks real estate an 'added gift': Hudson's Bay CEO

The real estate that came with Hudson's Bay's $2.9 billion purchase last year of the Saks department store chain was "a little added gift with purchase," CEO Richard Baker told CNBC on Tuesday.

That's some gift. On Monday, the company announced its Saks flagship on Manhattan's Fifth Avenue has been valued at $3.7 billion, making it the most valuable retail building in the world.

Baker said the appraisal was an example of an operating company with hidden real estate assets with tremendous value, comparing it to Hilton's nearly $2 billion sale of the Waldorf Astoria last month to Chinese insurance giant Anbang Group.

"This comes out most often in markets like this where the real estate market is really driving up and all of a sudden these jewels come out of these operating companies," Baker said in an interview on "Squawk on the Street."

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He said the appraisal is no surprise given the valuations of a number of asset classes on Fifth Avenue and the strength of New York City's real estate market.

Ron Antonelli | Bloomberg | Getty Images

Retail space along Fifth Avenue, between 49th and 59th streets, boasted the highest average ground floor asking rents among all shopping strips in New York City in 2014, according to the Real Estate Board of New York. Asking rents are up 16 percent over last year.

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By securing a $1.25 billion loan against its Saks Fifth Avenue building, Hudson's Bay was able to take out a 20-year interest-only loan with a fixed rate below 4.4 percent.

The company will use part of that loan to reinvest in the property that underwrote it, giving the iconic Fifth Avenue department store a $250 million touch-up.

"This is the single most valuable retail building in the world and it deserves to be the finest retail store in the world," Baker said, adding that the success of the location has the potential to drive up sales and EBITDA.

Hudson's Bay said Saks Fifth Avenue represents less than half of the company's real estate portfolio. By the end of the fiscal reporting period, the retailer will make clear its plans for its real estate portfolio, said Baker.

Exterior of Saks Fifth Avenue on November 24, 2014 in New York City.
Getty Images
Exterior of Saks Fifth Avenue on November 24, 2014 in New York City.

"We are working diligently and expect to present our entire real estate strategy, which will show more clearly the value of our other assets and the structure we'll have going forward," he said.