By Sneha Teresa Johny and Sruthi Ramakrishnan

(Reuters) - Hedge fund Starboard Value LP urged department store chain Macy's Inc (M.N) to enter into joint ventures for its stores, including its flagship Herald Square store in New York, to realize greater value from its real estate assets.

The activist investor said on Monday it supported Macy's cost-cutting plans, but wants the company to follow through with real-estate deals to add more cash to its reserves.

"We believe that a JV, or series of JVs, can crystallize the value of Macy's real estate while bringing in a partner with substantial capital and real estate expertise that will enable the JVs to grow and diversify their real estate holdings," Starboard managing member Jeffrey Smith wrote in a letter.

The letter suggested two separate joint ventures - one for Macy's landmark properties including Herald Square, Union Square, State Street and Downtown Minneapolis, and a second for its hundreds of mall-based stores.

Macy's shares were up 2.5 percent at $36.79 in premarket trading on Monday.

Starboard valued the real estate portfolio at about $21 billion, and said separating it could create $10 billion of shareholder value.

Wall Street Journal reported the news first.

The bulk of Macy's market value - $11.28 billion as of Friday's close - comes from its prized real estate asset holdings. Starboard has estimated that the Herald Square store alone is worth nearly $4 billion.

Pressured by Starboard last July, Macy's had hired advisers to study its real estate portfolio and said it had begun the process of exploring JVs and other deal structures with third parties to redevelop some of its flagship stores.

It also sold some floors of its stores in downtown Seattle and New York's Fulton Street.

"The viewpoint expressed by Starboard is consistent with actions already under way at Macy's ... to explore joint venture and other potential relationships related to the company's real estate and to improve our profitability from operations," Macy's said in an email on Monday.

"We look forward to continued dialogue with Starboard and other shareholders."

Starboard also reiterated that Macy's stock could trade as high as $70, nearly double its Friday closing price of $35.89.

Starboard owns a 1.04 percent stake in Macy's as of Sept. 30, according to Thomson Reuters data.

Macy's reported disappointing holiday sales last week, and said it would eliminate more than 2,000 jobs.