When NRDC Equity Partners bought department store chain Lord & Taylor in 2006, CEO Richard A. Baker believed the deal was a pure real estate play. The storied department store chain seemed to be on its way out and its real estate holdings were among its most valuable assets. But the downturn intervened and what started out as a real estate deal has become a successful long-term retail investment.

“Our approach right from the beginning [was] that we have tremendous real estate assets that have tremendous value,” Baker said during his speech at the ICSC New York National Conference and Dealmaking show taking place Dec. 3 and 4. “But you can’t unlock that value without the operating company.”

As NRDC acquired Lord & Taylor about three years after Macy’s merged with Federated Department Stores and became more geared toward middle-income consumers, Lord & Taylor executives saw an opportunity to become the leading department store player for slightly more upscale, classic department store customer—the suburban woman. To position itself to dominate that space NRDC invested millions of dollars in renovating its stores, as well as promoting elevated merchandise presentation, a higher level of customer service and the incorporation of more contemporary product among the more classic clothing and accessories.

As a result, over the past three years, Lord & Taylor experienced growth of 25 percent, Baker notes.

In Canada, where NRDC operates 90 Hudson’s Bay stores, the dominant department store player in the country after adding Hudson’s Bay Co. to its portfolio in 2008, it has also been trying the store-within-a-store model to drive up productivity at its bricks-and-mortar locations.

According to Baker, Hudson’s Bay’s sales had been trending flat or negative for two decades prior to NRDC acquiring the company. At least part of the problem was the fact that individual merchandise departments were not being right-sized to ensure maximum sales potential. That’s where NRDC’s contract with British fast fashion chain Topshop came into play. The company holds the exclusive right to operate Topshop in Canada and it has been downsizing less productive departments inside Hudson’s Bay stores and opening store-within-a-store Topshop locations in their place.

The move proved to be profitable for both Hudson’s Bay and Topshop. After Topshop’s first year at Yorkdale Shopping Centre in Toronto, it was bringing in more than $750 per sq. in sales. Meanwhile, it has brought in younger, hipper shoppers to the department store, the kind of customers who would never otherwise visit Hudson’s Bay.

Hudson’s Bay used to be the Canadian version of JC Penney, “very promotional and not very exciting,” Baker says. Since NRDC acquired the chain, “business has been up approximately 15 percent,” he notes.

Baker added that NRDC plans to invest approximately $1 billion in cash into its stores over the next five years.