Rendering of the new Safeway entrance at La Playa and Fulton
In case you haven’t heard the news, grocery chain Safeway is in the process of selling itself to Cerberus Capital Management, a private equity firm, for $9.4 billion. The deal is currently pending.
We’ve had inquiries from some readers about what this might mean for the upcoming remodel of the La Playa Safeway location.
The remodel, which will expand the store’s footprint from its current 40,000 square feet to nearly 59,000, has been in planning for several years. The project is currently in its environmental review phase, and expects to be in front of the Planning Commission for final approval by the end of 2014.
In addition to a completely new store, the remodel will also include 40-45 residential units on the north end of the property along Cabrillo and La Playa.
On Monday, Safeway Real Estate Manager Natalie Mattei sent out an email to project followers about the potential impact that the Cerebrus sale may have on the planned remodel:
Safeway is continuing with its Northern California projects on a business as usual basis. We remain very committed to San Francisco. Before proceeding with any construction, we always check budgets and evaluate return on investment. New investors in Safeway would become involved in this process, but we are confident that they will continue to consider San Francisco an important place for Safeway to invest.
Translation: We don’t really know yet.
The La Playa Safeway location presents an interesting opportunity for Cerebrus when it comes time to evaluate. That’s because Safeway owns the entire square block of land that the store sits on, which in the current San Francisco real estate market, is a very valuable piece of property that is highly attractive to developers.
Of the roughly 1,300 stores that Safeway operates, mostly on the West coast, they own about 48 percent of those locations and lease the rest, according to its annual filings [SFGate].
For a private equity firm like Cerebrus, whose primary goal is to make money for its investors within five years or so, selling a valuable parcel of SF real estate to a developer may make more sense than remodeling the aging store.
However, the La Playa Safeway also occupies a unique position in the outer Richmond and even outer Sunset as one of the largest grocery stores in the area with plenty of parking.
And with the planned remodel to include selling off the north end of the property to a developer for condominium construction, it may prove to still be an attractive investment to Cerebrus. After all, Safeway is already one of the nation’s top performing supermarket chains. Remodel the store to drive long term profits, and in the meantime, see a short term gain by selling off some valuable SF real estate on the north end.
With the Safeway sale to Cerebrus still pending, it’s a little early for the company to definitively say what will happen to the La Playa location. But given all the work and community input that has gone into the project already, here’s hoping it stays on track and brings a much needed revitalization to an important retailer in the outer Richmond.
Sarah B.
More reading: With Cerberus, Safeway may get revitalized, or lose assets [SFGate]
Hopefully the new owners will look to build a proper urban store with 6-7 stories of housing on top, rather than this suburban atrocity.
There’s something inherently scary about being owned by a company named after the watchdog of Hell! (Literally: in Greek myth, Cerberus was the 3-headed watchdog of the underworld.)
I really hope the antitrust portion of the US govt will block this sale. Really, they already own Lucky’s Albertson’s whatever. They basically own the entire super market chains in SF if this sale goes through. Sorry but I don’t like shopping at Luckys & Albertsons.
@sfresident,
Actually, Luckys stores are owned by SaveMart not Albertsons/Cerberus.
Cerberus will do to Safeway what they did to Mervyn’s. I believe Safeway owns the land at both Ocean Beach and 7th Avenue & Cabrillo, which will be refinanced in order to pay for the acquisition and bonuses to Cerberus principals for their participation in this deal. This cost will be passed onto these stores in the form of unsustainable massive rent increases which will waterfall into deeper cost cutting by district managers, increased prices and fewer customers.
Then we will have another crisis at City Hall and years of debates on whether to allow development by “formula retail” (i.e non-mom & pop) grocery stores within city limits on the sites of the shuttered stores. It took close to a decade for the former Lucky’s on Eddy which became independent Goldlane to be de-blighted and turned into condos.
In the interim Geary will become a massive construction zone for up to five years between 27th Avenue and Masonic while the BRT (which is planned to make all local stops while in the center lanes) and all local stop 38’s are migrated to the center lanes (which appear to be ok to use by “other” buses; tours? casino runs? GG Transit? private and paratransit shuttles of all sorts?). This will make it very hard for neighborhood residents to get to other areas of the City and outside of town to get groceries and household items and will drive up traffic at Trader Joes with cascading traffic effects into Laurel Heights and across Masonic over to Whole Foods in the Haight or to Albertson’s. Traffic in Golden Gate Park will increase with shoppers going to Andronico’s as will traffic on 19th Avenue and Sunset Boulevard for those going to Ranch 99. Target and Costco will also see some customers. Mom & pop stores will require increased deliveries which will be hampered by the loss of parking spaces during construction. Clement Street traffic will become unbearable. I found it perturbing that MTA used Bronx and Cleveland as BRT comparisons to the Richmond District for using the middle lanes on Geary and that “rapid” means a local stop on close to 1/3 of the line.
I too hope that this acquisition is blocked in whole or in part by Antitrust Law but am not hopeful as these laws have not been properly enforced for a good 30 years as evidenced by communications, media and petroleum mergers over this period.
Many years ago Safeway was the target of a hostile takeover(think of the film Barbarians at the Gate), the VC firm took a look at the property where Safeway stores were located, Downtown Beverly Hills, for example. And realized that the “true value” of this real estate was overlooked. You can guess what happened next.
Ironically, the hold up for development in downtown LA was the lack of a grocery store, because the Safeway “went away”. After many tax breaks, finally a grocery store moved in and development commenced. While past performance is not indicative of future returns, Cerberus does own Albertson’s and is already in the Grocery business, and went back for the whole chain after acquiring part of Albertson’s.
Upon closing the acquisition of Albertson’s, the loyalty/rewards program were shut down to focus on better pricing for all. Safeway has pioneered some very interesting loyalty/digital/rewards programs and perhaps this piece is what Cerberus wants to roll out across the entire chain. Not everyone gets to ride the google bus and can afford Whole Foods, so we need more options for our stores that require certain space. Moreover, if you look at SF, this is the home of the “slow food” movement, and while farmers markets are nice, you need something a bit more convenient. Considering that 1 in 7 Americans are “Food Insecure”, the market for groceries is a bit more democratic, even for SF.
Cheers,
40-45 residential units? Will there be a parking garage?
I can’t imagine this transaction would violate federal antitrust prescriptions. There is ample and vigorous competition in the retail groceries marketplace.