For more than a year, Macy's (NYSE:M) has been talking about monetizing some of its underutilized real estate. However, it wasn't until last quarter that Macy's started to generate large amounts of cash from real-estate sales.

Many investors seem to be underestimating the potential of real-estate transactions to transform Macy's finances, but selling off valuable real estate has allowed Sears Holdings (NASDAQ:SHLDQ) to survive despite posting deep losses year after year. Macy's has an even more valuable real estate portfolio than Sears. As it captures that value, Macy's stock could soar.

A flood of cash arrives

During the first three quarters of fiscal 2016, Macy's brought in $138 million of proceeds from asset sales. By contrast, in the fourth quarter, Macy's asset sales surged to $535 million.

Nearly half of this windfall came from selling the Macy's men's store in San Francisco's Union Square shopping district. Macy's sold this 250,000 square-foot store for $250 million. Over the next two to three years, the merchandise will be moved into the main Macy's Union Square store. At 900,000 square feet, the main building has plenty of space for this.

The Macy's Union Square store in San Francisco

Macy's is consolidating into one 900,000 square-foot store in downtown San Francisco. Image source: Macy's.

Macy's also brought in $95 million during the quarter from selling a store in downtown Portland and a different store in San Francisco. Aside from these major real-estate deals, the company also began unloading a slew of stores that it's in the process of closing.

More opportunities on the horizon

On Tuesday, in conjunction with its Q4 earnings release, Macy's management described a few other emerging real-estate opportunities.

First, Macy's wants to rent out 10,000 square feet of street-level space in the remaining San Francisco Union Square store to luxury retailers. As of a year ago, asking rents for this area had reached $650 per square foot and were still rising. This project could bring in millions of dollars in annual rental income, while also potentially luring affluent customers into the Macy's store.

Second, Macy's hopes to sell the upper floors of its Chicago flagship store, which would be redeveloped into office space. A similar deal in Seattle brought in $65 million in 2015. Given that the Chicago store building is much bigger, and commercial real estate rents are higher there, the potential proceeds are significantly greater in this case.

Third, the company appears to have made some progress in its recently announced real-estate alliance with Brookfield Asset Management. During the earnings call, Macy's CFO Karen Hoguet gave two specific examples of potential redevelopment projects that Brookfield could help Macy's execute to monetize underutilized real estate.

This isn't Sears

Sears Holdings has raised over $4 billion from real estate sales (and similar transactions) over the past five years. This is an impressive figure considering that Sears didn't have valuable downtown stores like Macy's New York, Chicago, and San Francisco flagship locations.

All of these real-estate sales haven't stopped Sears Holdings stock from crashing over the past five years. However, that doesn't represent a failure of its real-estate strategy. The problem is just that Sears has been burning cash at a rate of more than $1 billion a year over this period. (In the past year, free cash flow was roughly -$1.7 billion.)

SHLD Free Cash Flow (TTM) Chart

Sears Holdings Free Cash Flow (TTM), data by YCharts.

By contrast, Macy's remains solidly profitable despite facing headwinds in its core business. It generated about $900 million in free cash flow last year. As a result, it was able to reduce its net debt by nearly $1 billion in 2016 while also paying a generous dividend and buying back some stock.

Macy's has a lot of real-estate monetization projects in the works. If it can simply duplicate -- or improve upon -- Sears Holdings' real-estate success while continuing to post strong free cash flow, patient investors are likely to be well rewarded.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.