🛒 Kroger-Albertsons Merger: California Impact

[veteran+]

Anyway a tale of two cities in La Jolla. I wouldn't be surprised if they were forced to divest a store if they didn't let the big Ralphs box go because it's clearly on a horrible downward trajectory and looks like it's going to get shoplifted out of business thanks to the new multi billion dollar train line that has also ruined the parking situation despite adding a 4 story deck. Looks like a very dark day there at Ralphs while you see a bright future at the Pavilions.

That’s the MTS Blue Line- opened in 2021.
I suspect most of the folks shoplifting are homeless imported by train from Downtown. Many of the homeless in San Diego are bussed in from other states. What Todd Gloria needs to do with the homeless people causing trouble is: put them on buses and have a state like Texas deal with them. I mean, states like Texas and Florida rely on us to babysit the homeless, now it’s their turn. And I’m no conservative.

I’m hoping San Diego elects a tough on crime mayor similar to Eric Adams.

Ralphs is arguably the highest volume tenant in that center which as we know has astronomically high rents. But even with all that volume if they experience a large enough spike in theft the financials are not going to be good. If they're smart, which doesn't seem to be the case right now, they would be all over their center management demanding the same level of security that is in place one train station away at UTC which is clearly "off limits" to anyone homeless (and also anyone lacking a triple Platinum Diamond Ruby Sapphire Amex card). And I would imagine that the Pavilions conversion might have something to do with what's happening there because that banner landed with a swift thud when it first landed in San Diego in the Sorrento Valley area, that should have been enough to cause them to pause going deeper into a market where nobody has heard of the name. The very rich people in $15 Million dollar mansions around that Pavilions are not going to tolerate shopping alongside the homeless that have taken over the Ralphs Fresh Fare. A similar situation happened in Long Beach, the 7th St. Ralphs was the first there to be upgraded to Fresh Fare and it received a full gut to the brick walls remodel, no expense spared. It serviced the three richest areas in Long Beach, Park Estates, Naples and Belmont Shore. (They actually left the store closer to the shore as a regular Ralphs at the time because it never caught on and Whole Foods was cleaning their clock). The ownership of the center changed and they pulled back on security and the homeless took over the center. It was also a super convenient location as all of the major Orange County, LA and Long Beach bus lines converged there as a transfer point bringing in traveling homeless. The store was under siege immediately and shoplifting went through the roof; I had a high school buddy working there who said it was losing money as a store for the first time in it's existence of over 40 years. The same issue I described occurred with the affluent customers who held the store up abandoning it. The same kinds of changes started, reduction of higher end liquor, meats, etc. And the store was closed within 5 years despite being in the best location in Long Beach from a road traffic perspective (a meeting of the Boulevard at the end of CA-22, PCH, and Bellflower Blvd). It's now a small format Target and being shoplifted out of business too. Ironically if the same thing happened there I'm sure Target would gladly take over the Ralphs slot as they could get a decent medium size box in there...

Ralphs is going to have to get aggressive with the property management in La Jolla and fix this fast, because college students buying endless cases of Coors Light aren't going to keep that store in business. When I went with my VP to look at a small site there we learned that to break even it would have had to be the highest volume store in our entire multinational chain, even more than NYC stores which obviously wasn't going to happen. I actually wonder if the store is already losing money so they aren't investing in maintenance, yet ironically they also fear being outbid for their spot at the next lease renewal which has to be very close based on the opening and closing of the Smiths chain. The removal of the high end liquor, which definitely was selling as the store used to be a designated recipient of allocated product, means they have been forced to surrender a lot of sales volume and profits to stop the bleeding from the shoplifters. They are no longer the fanciest store in town with the new Gelsons and now what seems to be a slightly evolved rendition of the Pavilions brand (where it seems the store is being given more autonomy to select product and bring in local vendors as I saw in bakery, produce, and meats). They should have been skyrocketing in sales too with the forced closure of the high volume Bristol Farms up the street (for a mixed use center under high rise ultra luxury condos, the project has seemingly been aborted after booting out dozens of stores and very busy restaurants leaving a multi-block boarded up eyesore in the heart of University City). If they don't take aggressive action they're going to kill the golden goose here. If I was a shareholder I would be raising holy Hell over the incredible neglect of what must have been one of the highest grossing stores in the Kroger chain.

Worst thing is that even though San Diego has gone straight to Hell under Todd Gloria's short tenure as Mayor, I saw a news story that apparently he doesn't appear to have any real competition for reelection. Apparently the situation is so incredibly bad, and happened so quickly, that nobody wants to do the heavy lifting that it would take to clean up his mess. If you think Portland, Seattle, and San Francisco went downhill fast, the crash of San Diego has been even faster with the same entire vast areas of nice parks and open spaces turned into tent cities and homeless encampments. There are some areas near downtown only a few blocks from Petco Park where you cannot walk on the sidewalks as they are all tents and the streets are filled with garbage; I saw one video of this area with a disturbed individual walking up and down swinging a machete at people and objects. The homeowner in his once luxury condo across the street was being threatened by the person over calling the police who did absolutely nothing; personally I thought the social media video contained multiple accounts of attempted murder as he swung the machete at other people who had to duck, fall and or run as he likely did not have enough control to refrain from killing them. It's already so bad nobody sane will come in to try to fix it.

That homeless situation in downtown has been around for a long time under another party's purview. There even was a huge tent city that was sort of dismantled when the gigantic over building of High Rise apartment buildings went up (that still have the highest vacancy rate in San Diego County).

[ClownLoach]

That’s the MTS Blue Line- opened in 2021.
I suspect most of the folks shoplifting are homeless imported by train from Downtown. Many of the homeless in San Diego are bussed in from other states. What Todd Gloria needs to do with the homeless people causing trouble is: put them on buses and have a state like Texas deal with them. I mean, states like Texas and Florida rely on us to babysit the homeless, now it’s their turn. And I’m no conservative.

I’m hoping San Diego elects a tough on crime mayor similar to Eric Adams.

Ralphs is arguably the highest volume tenant in that center which as we know has astronomically high rents. But even with all that volume if they experience a large enough spike in theft the financials are not going to be good. If they're smart, which doesn't seem to be the case right now, they would be all over their center management demanding the same level of security that is in place one train station away at UTC which is clearly "off limits" to anyone homeless (and also anyone lacking a triple Platinum Diamond Ruby Sapphire Amex card). And I would imagine that the Pavilions conversion might have something to do with what's happening there because that banner landed with a swift thud when it first landed in San Diego in the Sorrento Valley area, that should have been enough to cause them to pause going deeper into a market where nobody has heard of the name. The very rich people in $15 Million dollar mansions around that Pavilions are not going to tolerate shopping alongside the homeless that have taken over the Ralphs Fresh Fare. A similar situation happened in Long Beach, the 7th St. Ralphs was the first there to be upgraded to Fresh Fare and it received a full gut to the brick walls remodel, no expense spared. It serviced the three richest areas in Long Beach, Park Estates, Naples and Belmont Shore. (They actually left the store closer to the shore as a regular Ralphs at the time because it never caught on and Whole Foods was cleaning their clock). The ownership of the center changed and they pulled back on security and the homeless took over the center. It was also a super convenient location as all of the major Orange County, LA and Long Beach bus lines converged there as a transfer point bringing in traveling homeless. The store was under siege immediately and shoplifting went through the roof; I had a high school buddy working there who said it was losing money as a store for the first time in it's existence of over 40 years. The same issue I described occurred with the affluent customers who held the store up abandoning it. The same kinds of changes started, reduction of higher end liquor, meats, etc. And the store was closed within 5 years despite being in the best location in Long Beach from a road traffic perspective (a meeting of the Boulevard at the end of CA-22, PCH, and Bellflower Blvd). It's now a small format Target and being shoplifted out of business too. Ironically if the same thing happened there I'm sure Target would gladly take over the Ralphs slot as they could get a decent medium size box in there...

Ralphs is going to have to get aggressive with the property management in La Jolla and fix this fast, because college students buying endless cases of Coors Light aren't going to keep that store in business. When I went with my VP to look at a small site there we learned that to break even it would have had to be the highest volume store in our entire multinational chain, even more than NYC stores which obviously wasn't going to happen. I actually wonder if the store is already losing money so they aren't investing in maintenance, yet ironically they also fear being outbid for their spot at the next lease renewal which has to be very close based on the opening and closing of the Smiths chain. The removal of the high end liquor, which definitely was selling as the store used to be a designated recipient of allocated product, means they have been forced to surrender a lot of sales volume and profits to stop the bleeding from the shoplifters. They are no longer the fanciest store in town with the new Gelsons and now what seems to be a slightly evolved rendition of the Pavilions brand (where it seems the store is being given more autonomy to select product and bring in local vendors as I saw in bakery, produce, and meats). They should have been skyrocketing in sales too with the forced closure of the high volume Bristol Farms up the street (for a mixed use center under high rise ultra luxury condos, the project has seemingly been aborted after booting out dozens of stores and very busy restaurants leaving a multi-block boarded up eyesore in the heart of University City). If they don't take aggressive action they're going to kill the golden goose here. If I was a shareholder I would be raising holy Hell over the incredible neglect of what must have been one of the highest grossing stores in the Kroger chain.

Worst thing is that even though San Diego has gone straight to Hell under Todd Gloria's short tenure as Mayor, I saw a news story that apparently he doesn't appear to have any real competition for reelection. Apparently the situation is so incredibly bad, and happened so quickly, that nobody wants to do the heavy lifting that it would take to clean up his mess. If you think Portland, Seattle, and San Francisco went downhill fast, the crash of San Diego has been even faster with the same entire vast areas of nice parks and open spaces turned into tent cities and homeless encampments. There are some areas near downtown only a few blocks from Petco Park where you cannot walk on the sidewalks as they are all tents and the streets are filled with garbage; I saw one video of this area with a disturbed individual walking up and down swinging a machete at people and objects. The homeowner in his once luxury condo across the street was being threatened by the person over calling the police who did absolutely nothing; personally I thought the social media video contained multiple accounts of attempted murder as he swung the machete at other people who had to duck, fall and or run as he likely did not have enough control to refrain from killing them. It's already so bad nobody sane will come in to try to fix it.

That homeless situation in downtown has been around for a long time under another party's purview. There even was a huge tent city that was sort of dismantled when the gigantic over building of High Rise apartment buildings went up (that still have the highest vacancy rate in San Diego County).

I'd still like to think that certain positions, such as mayors, should be non-partisan. So saying under another party goes nowhere with me. I'm in a highly productive city that solves problems and I have no idea what party the mayor is in, in fact the city rotates the mayor position around. For these big cities I can't help but wonder if they went back to that kind of system if things would not be a lot better. If you want to represent a specific political ideology then run for Congress, or the Assembly. By widening the net of the political parties on both sides nobody is winning.

What has changed is that the problem has spread across the entire county when it used to be concentrated in the downtown areas. The lack of fare enforcement on the transit system is turning them into mobile homeless shelters. In the past I rode the trains and busses in San Diego and they were clean and safe, but not anymore. They're just dispersing the homeless throughout the entire area now. It's a sad situation that is being accelerated by poor public policy just like Portland and Seattle. The laws passed to "simplify" building are just used by the developers to tear down the affordable properties that these folks live in and replace them with luxury high rises. The parking requirements that have been removed were supposed to make it easier to build from scratch but that isn't what the developers are doing since there really isn't any open space to do so. Instead it makes a old motel which previously couldn't be profitably acquired and replaced because of parking into a target for a luxury tower with a few "affordable" units which are still three times higher than the rents at the facility being torn down.

Trying to bring this somewhat back to topic, this is still one of the reasons why I believe Kroger is pursuing this merger, many shopping centers are still being shopped for development even today and it really doesn't matter how profitable the store is to the operator because the lease separation penalty fee is pennies compared to the profit that the developer will make even if half the units stay vacant for years. At my last company our Real Estate team had identified that development was a threat to nearly half of our West Coast stores and, wouldn't you know it, the threatened stores represented the top half of sales and profits. I can't imagine how many Kroger and Albertsons stores may be in the path of a bulldozer we can't see yet, which is likely a reason to consolidate especially since Kroger botched expanding when it was still easier to do so in these urban areas and is stuck now with a bunch of outdated, small and cramped SoCal Ralphs units, nothing in the bay except for FoodsCo, and a potentially expensive but lucrative opportunity with many Fred Meyer stores sitting on valuable land in the PNW.

[ClownLoach]

I didn't have time to get into the Trader Joe's next door but it looked very busy. The Whole Foods center across the street did not appear to have any issues with the homeless; I think they're staying contained in the Ralphs center.

One more issue worth mentioning is the basement parking, it was empty. Like no cars at all. While the surface level was so packed you could hardly park. Putting two and two together, I'm guessing that the basement level garage has become unsafe to park in with all the homeless people, assuming they have break in problems and such down there so that the customers don't feel safe going down there anymore. That parking at surface level is inadequate for these stores and if the employees aren't parking there either anymore out of safety then these stores will definitely start losing sales volume simply from running out of parking spaces. The MTS garage is built on the freeway side on what was a surface lot, I believe they bought it with eminent domain. That connects to the train station and is where the homeless are living in their cars and such. The constant turnover and noise probably renders the surface lots inhospitable plus I think they have posted time limits of two hours in the Ralphs/TJs area.

Also what is happening with Best Buy in that shopping center?

I'm trying to figure out what happened with the corporate Starbucks. It appears to me they took away the inside seating during COVID and just never brought it back.

I haven't been to this center since before COVID and I took a look at photos of that MTS garage. I understand the placement but it isn't good and it isn't good for the shopping center. Doesn't that MTS have a police force to patrol the garage to ensure people are not living in the garage? I have parked days (multiple overnights I mean) in BART garages before at edges of the bay area and while I was warned about potential vandalism risks etc., I never observed people living in the garages.

The Best Buy is new enough that it probably has years ahead on its lease. I didn't go over there but I have to assume losing all visibility behind the MTS garage has not been good for them.

The MTS garage smells of Marijuana and many old clunker vehicles with the windows blocked with window shades over all sides, obviously people sleeping in them. It's not a ton of people, I would say several dozen cars that I saw, but as we know it doesn't take much and the situation could be changing day to day. And obviously something bad is happening in the center garage basement which has caused the guests and employees to become uncomfortable parking there.

As far as the corporate Starbucks, that is not a past COVID situation. I checked with the DM I talk to and the stores where inside seating wasn't allowed were not to remove anything, which matches what I observed during that time. Chairs would be turned over and on the fixed tables, and furniture pushed all together into the corner if possible. Where it was all fixed benches and such then caution tape was the last resort. If furniture has been removed from a store it is part of the "Partner Safety" program in stores with homeless problems. I would guess that the restrooms are also employee only in that location now.

[ClownLoach]

I went to the La Jolla Ralphs and new Pavilions yesterday. I mentioned before they're way too far apart to be considered overlaps, and now they're totally a tale of two cities.

The La Jolla Ralphs Fresh Fare I believe is 2nd to the store by UCLA in volume, a very large old Smiths conversion if I recall correctly, probably a 70,000 Sq ft store with a full Kosher dept. Including separate service bakery, deli and meat with a Rabbi supervising.

The store has gone straight to Hell for reasons both external and internal. The external reason is the new train station in the center. The store had multiple angry and disturbed looking individuals walking around, some who you could smell aisles away. One bumped into me rudely as he couldn't keep his balance walking the aisles. The store has now installed alarming gates around the front end like Walmart but with large panic bars as you would expect on a fire exit. They removed the test for the self-scan groceries, closed all but one bank of self checkouts which is closely supervised now. The liquor department has been slashed from the fresh fare assortment although there's still a ridiculous amount of beer (it's next to UC San Diego). I don't recall seeing the bar that they had installed in the middle of the store so I'm assuming it's been removed although I didn't remember it until now. The liquor has been remerchandised onto a short gondola with limited selection of lower end brands and a 3rd party security guard was marching around the department. I think the high sales volume of alcohol prevents them from putting everything in a glass case otherwise they probably would have. This store always felt upscale and delightful, now it feels like something in a rough neighborhood. The Fresh Fare signage needs to be removed as it is anything but. The Starbucks next door has been changed to a "inhospitable" version where all furniture has been removed, restrooms are closed, and more amusingly all the electrical outlets have been covered. The frozen yogurt shop inside Ralphs left over all these years from Smiths apparently closed and the space is being converted to a replacement for the kiosk Starbucks inside the Ralphs, which will place two Starbucks all of 30 ft apart. I'm expecting the company store is going to close, used to be packed with college students but the homeless express train line killed it in no time. Somehow Westfield is keeping the problems out at UTC but the owner of this Plaza isn't. Maybe Ralphs could build a new store on that site.

All that pales to the store conditions which are inexcusable and the worst I've seen yet with Kroger. This store was remodeled not long ago to the newest decor being used in Fred Meyer and other Kroger formats, with some additional "local" art from a design school if I recall correctly. The floor is peeling up everywhere and only half of the areas are held down with black duct tape. Others are loose and bubbling everywhere, capturing dirt and filth under and around fresh food displays. The roof leaks I noticed last winter have not been fixed and even more alarming the drop ceiling has large patches of visible green blue fuzzy mold everywhere, the entire depth of the store in the frozen area. This is an incredible health hazard and the entire store should be closed until all leaks are addressed and more importantly the site can be remediated for this obvious excess of mold. I was so disgusted that I put the few items I had selected back and walked out empty handed.

Later I hadn't planned it but I visited the newly converted Pavilions on the opposite side of town. Although the entrances are odd and seem to open up into nothing on the left side, and the ceiling is very low which forced a reduced size decor package, the store is very nice. They have what I would say is hands down the finest meat department I've seen at any of these chains. They had 4 different seafood vendors featured, each with their own case. They have a huge section of Wagyu, Snake River Farms, and Harris Ranch prime meats including whole sections in cryovac available, and the butcher was out in front of the counter greeting every customer and constantly facing and straightening the self serve cases. The seafood and beef were absolutely beautiful and the cases had the old fashioned decorations cut out of peppers and kale and such. Obviously a real professional running this department. Mind you this isn't a grand opening, it's just a regular Saturday night and it's relatively slow because it's dinner time. Produce was impeccable, and Bakery was outstanding - they have a different type of oven I have never seen at a Pavilions or Vons which is enabling them to have a large selection of actual scratch made breads, it's a 4 level oven with different temps for each. Plus three rotary ones next to it for a total of 7 ovens all brand new. I got some sourdough rolls and aside from inconsistent length (two are like three inches shorter than the rest) they are fabulous, with a bubbly crackling crust and delightful sourness. The store also has a large Kosher section obviously to compete with the Ralphs although no separate bakery or meat or deli. The lighting is nice and they actually maintained the louvers on the lifestyle era fixtures to reduce glare, the LED strips elsewhere plus a new high spectrum intensity specialty LED rail to light all of the perimeter signage so it really pops. Where the two different types of LED are near each other it's obvious that the signage lights are a specialty type with far more color spectrum. The only flaw was the concrete floor conversion which shows decades of trenches and patches all different colors of cement, really takes away from the upscale expectation. But it was a delightful store with many specialty brands and items I'm not familiar with all interspersed on the shelves. Easily the best Pavilions in the chain from a merchandise perspective even if the building shows it's age as a old Vons with new shelves and fixtures.

Anyway a tale of two cities in La Jolla. I wouldn't be surprised if they were forced to divest a store if they didn't let the big Ralphs box go because it's clearly on a horrible downward trajectory and looks like it's going to get shoplifted out of business thanks to the new multi billion dollar train line that has also ruined the parking situation despite adding a 4 story deck. Looks like a very dark day there at Ralphs while you see a bright future at the Pavilions.

Wow, that was the most impressive LARGE Fresh Fare I have seen. Loved that store!!! An exigent stop on your way to Blacks Beach! The layout was supreme, especially comparing to the Westwood store by UCLA (chopped up and weird, plus the parking ).

No excuse IMO for Kroger, regardless of the Train issue. Put on your big boy pants and adjust to the situation. Oh wait, that's right, you are always blaming others for "things".

Shame, shame, shame!

It's absolutely shocking to see the rapid decline of this flagship store. And like I said, the situation is bad but if Kroger stepped up they could stop the issue today. File the no Trespassing paperwork with the city allowing for removal of any individual at any time, it's legal and enforceable. Have the big shot lawyers send threats to withhold rent and such until the situation is fully remedied. Instead they're removing what made it a Fresh Fare by cheapening things up. I think the Starbucks construction project (moving the kiosk to the former Frozen Yogurt corner) will be better for them since they will have much more space to operate, but the motivating factor is probably to install the ingress/egress fence systems seen in the pictures of the San Francisco Safeway stores and the kiosk is in the way. They can rearrange the self checkouts and install the gates that require scanning a receipt to open them. I can't name any other Ralphs location I've been to that has these alarming gates and security, and let's face it they aren't putting this level of security up because they're dealing with excessive college students running out with a six pack of beer. But the rich customers who pay the bills here are not going to tolerate glass cases, scanning gates, and such. So something has to give.

What worries me is that the landlord probably still has an advantage. Retail space in the area has been reduced with the eviction of all of Costa Verde center (which seems now like a mistake since every business is sitting vacant behind a construction fence that has been up for almost two years now). I'm sure either Target or Walmart or even Whole Foods have competing offers sitting in the files with the landlord who could theoretically tell Ralphs that they're not going to listen to complaints and if they want to leave they can turn in the keys tomorrow. (The Whole Foods across the street is busy and very old, it actually still has a Mrs. Gooch's Cafe sign up although I doubt the Amazon recipe formulary serves any of their original dishes). So in this type of situation the landlord basically is passing the buck and expecting the store to pay for its own security and other costs that should be included in their tens of thousands of dollars Common Area Expense payments each month. Ultimately the question becomes can Kroger make money on this store with the astronomically high rent plus taking on the burden and liability for substantially increased security? If not then high volume or not they'll close the store.

[retailfanmitchell019]

What worries me is that the landlord probably still has an advantage. Retail space in the area has been reduced with the eviction of all of Costa Verde center (which seems now like a mistake since every business is sitting vacant behind a construction fence that has been up for almost two years now). I'm sure either Target or Walmart or even Whole Foods have competing offers sitting in the files with the landlord who could theoretically tell Ralphs that they're not going to listen to complaints and if they want to leave they can turn in the keys tomorrow. (The Whole Foods across the street is busy and very old, it actually still has a Mrs. Gooch's Cafe sign up although I doubt the Amazon recipe formulary serves any of their original dishes). So in this type of situation the landlord basically is passing the buck and expecting the store to pay for its own security and other costs that should be included in their tens of thousands of dollars Common Area Expense payments each month. Ultimately the question becomes can Kroger make money on this store with the astronomically high rent plus taking on the burden and liability for substantially increased security? If not then high volume or not they'll close the store.

There would be a TON of NIMBY opposition to putting a Walmart in that Ralphs space. La Jolla is the polar opposite of a place Walmart would do well in. I don’t think the landlords would want Walmart there.
If Kroger demands the shopping center have better security and is successful with doing that, I still wonder (assuming the merger is approved) if this store is being unloaded into C&S and converted to the Albertsons banner. Assuming C&S pulls a Haggen and trainwrecks, I’d think Gelson’s would have interest. But the security would need to be updated before then.

[ClownLoach]

What worries me is that the landlord probably still has an advantage. Retail space in the area has been reduced with the eviction of all of Costa Verde center (which seems now like a mistake since every business is sitting vacant behind a construction fence that has been up for almost two years now). I'm sure either Target or Walmart or even Whole Foods have competing offers sitting in the files with the landlord who could theoretically tell Ralphs that they're not going to listen to complaints and if they want to leave they can turn in the keys tomorrow. (The Whole Foods across the street is busy and very old, it actually still has a Mrs. Gooch's Cafe sign up although I doubt the Amazon recipe formulary serves any of their original dishes). So in this type of situation the landlord basically is passing the buck and expecting the store to pay for its own security and other costs that should be included in their tens of thousands of dollars Common Area Expense payments each month. Ultimately the question becomes can Kroger make money on this store with the astronomically high rent plus taking on the burden and liability for substantially increased security? If not then high volume or not they'll close the store.

There would be a TON of NIMBY opposition to putting a Walmart in that Ralphs space. La Jolla is the polar opposite of a place Walmart would do well in. I don’t think the landlords would want Walmart there.
If Kroger demands the shopping center have better security and is successful with doing that, I still wonder (assuming the merger is approved) if this store is being unloaded into C&S and converted to the Albertsons banner. Assuming C&S pulls a Haggen and trainwrecks, I’d think Gelson’s would have interest. But the security would need to be updated before then.

What would Gelson's do with a 70,000 sq ft store that's sandwiched between two other locations? The 40,000 sq ft one in La Costa was too large for them, so they walled off 40% of the store and made it into a separate suite. They do not know how to profitably operate large format. I think their new West LA store that opened last week as their newest prototype is about 25,000 sq ft or less. Walmart could try to do a upscale grocery prototype, and seeing their new "flagship" format I actually think they could pull it off as they have a good track record in Encinitas. Furthermore nobody is going to be able to oppose Walmart leasing an existing store; building one is a whole different story. The point is that it's a huge site that needs to do more volume than it's doing right now to stay afloat and that means either a Target or Walmart. The Whole Foods of the past could handle 70,000 sq ft. but now that it has been trimmed to such a small perimeter I doubt they could find enough merchandise for such a store. The answer should seem obvious to all of us, the Kroger folks need to get off their lazy butts and address the problems quick. I really wonder if despite being the probable #2 Ralphs in the chain if they're already thinking about writing it off because of the deterioration they're allowing (floor not being repaired and peeling off, mold nightmare, burned out lights, scaled back service meat and seafood, liquor, removal of FroYo stand, general feeling of reduced quality and assortment storewide). Maybe they are out of lease term and know they're battling against deep pockets to keep the store? As bad as it looks, if I knew my landlord was acting in bad faith like this and furthermore there is no assurance that I'm not going to lose my lease to a competitor then I would only put in the least amount of repair work too. But it is still alarming to see the deterioration in such a short time especially after it was remodeled not that long ago, this was probably the best maintained Ralphs with flawless shiny floors like an ice rink, shelves so clean you could eat off them, newer carts that glide silently and steer straight (I don't recall seeing any carts outside either, did the homeless take them all?). Something is terribly wrong in La Jolla.

[ClownLoach]

Ralphs is arguably the highest volume tenant in that center which as we know has astronomically high rents. But even with all that volume if they experience a large enough spike in theft the financials are not going to be good. If they're smart, which doesn't seem to be the case right now, they would be all over their center management demanding the same level of security that is in place one train station away at UTC which is clearly "off limits" to anyone homeless (and also anyone lacking a triple Platinum Diamond Ruby Sapphire Amex card). And I would imagine that the Pavilions conversion might have something to do with what's happening there because that banner landed with a swift thud when it first landed in San Diego in the Sorrento Valley area, that should have been enough to cause them to pause going deeper into a market where nobody has heard of the name. The very rich people in $15 Million dollar mansions around that Pavilions are not going to tolerate shopping alongside the homeless that have taken over the Ralphs Fresh Fare. A similar situation happened in Long Beach, the 7th St. Ralphs was the first there to be upgraded to Fresh Fare and it received a full gut to the brick walls remodel, no expense spared. It serviced the three richest areas in Long Beach, Park Estates, Naples and Belmont Shore. (They actually left the store closer to the shore as a regular Ralphs at the time because it never caught on and Whole Foods was cleaning their clock). The ownership of the center changed and they pulled back on security and the homeless took over the center. It was also a super convenient location as all of the major Orange County, LA and Long Beach bus lines converged there as a transfer point bringing in traveling homeless. The store was under siege immediately and shoplifting went through the roof; I had a high school buddy working there who said it was losing money as a store for the first time in it's existence of over 40 years. The same issue I described occurred with the affluent customers who held the store up abandoning it. The same kinds of changes started, reduction of higher end liquor, meats, etc. And the store was closed within 5 years despite being in the best location in Long Beach from a road traffic perspective (a meeting of the Boulevard at the end of CA-22, PCH, and Bellflower Blvd). It's now a small format Target and being shoplifted out of business too. Ironically if the same thing happened there I'm sure Target would gladly take over the Ralphs slot as they could get a decent medium size box in there...

Ralphs is going to have to get aggressive with the property management in La Jolla and fix this fast, because college students buying endless cases of Coors Light aren't going to keep that store in business. When I went with my VP to look at a small site there we learned that to break even it would have had to be the highest volume store in our entire multinational chain, even more than NYC stores which obviously wasn't going to happen. I actually wonder if the store is already losing money so they aren't investing in maintenance, yet ironically they also fear being outbid for their spot at the next lease renewal which has to be very close based on the opening and closing of the Smiths chain. The removal of the high end liquor, which definitely was selling as the store used to be a designated recipient of allocated product, means they have been forced to surrender a lot of sales volume and profits to stop the bleeding from the shoplifters. They are no longer the fanciest store in town with the new Gelsons and now what seems to be a slightly evolved rendition of the Pavilions brand (where it seems the store is being given more autonomy to select product and bring in local vendors as I saw in bakery, produce, and meats). They should have been skyrocketing in sales too with the forced closure of the high volume Bristol Farms up the street (for a mixed use center under high rise ultra luxury condos, the project has seemingly been aborted after booting out dozens of stores and very busy restaurants leaving a multi-block boarded up eyesore in the heart of University City). If they don't take aggressive action they're going to kill the golden goose here. If I was a shareholder I would be raising holy Hell over the incredible neglect of what must have been one of the highest grossing stores in the Kroger chain.

Worst thing is that even though San Diego has gone straight to Hell under Todd Gloria's short tenure as Mayor, I saw a news story that apparently he doesn't appear to have any real competition for reelection. Apparently the situation is so incredibly bad, and happened so quickly, that nobody wants to do the heavy lifting that it would take to clean up his mess. If you think Portland, Seattle, and San Francisco went downhill fast, the crash of San Diego has been even faster with the same entire vast areas of nice parks and open spaces turned into tent cities and homeless encampments. There are some areas near downtown only a few blocks from Petco Park where you cannot walk on the sidewalks as they are all tents and the streets are filled with garbage; I saw one video of this area with a disturbed individual walking up and down swinging a machete at people and objects. The homeowner in his once luxury condo across the street was being threatened by the person over calling the police who did absolutely nothing; personally I thought the social media video contained multiple accounts of attempted murder as he swung the machete at other people who had to duck, fall and or run as he likely did not have enough control to refrain from killing them. It's already so bad nobody sane will come in to try to fix it.

That homeless situation in downtown has been around for a long time under another party's purview. There even was a huge tent city that was sort of dismantled when the gigantic over building of High Rise apartment buildings went up (that still have the highest vacancy rate in San Diego County).

I'd still like to think that certain positions, such as mayors, should be non-partisan. So saying under another party goes nowhere with me. I'm in a highly productive city that solves problems and I have no idea what party the mayor is in, in fact the city rotates the mayor position around. For these big cities I can't help but wonder if they went back to that kind of system if things would not be a lot better. If you want to represent a specific political ideology then run for Congress, or the Assembly. By widening the net of the political parties on both sides nobody is winning.

What has changed is that the problem has spread across the entire county when it used to be concentrated in the downtown areas. The lack of fare enforcement on the transit system is turning them into mobile homeless shelters. In the past I rode the trains and busses in San Diego and they were clean and safe, but not anymore. They're just dispersing the homeless throughout the entire area now. It's a sad situation that is being accelerated by poor public policy just like Portland and Seattle. The laws passed to "simplify" building are just used by the developers to tear down the affordable properties that these folks live in and replace them with luxury high rises. The parking requirements that have been removed were supposed to make it easier to build from scratch but that isn't what the developers are doing since there really isn't any open space to do so. Instead it makes a old motel which previously couldn't be profitably acquired and replaced because of parking into a target for a luxury tower with a few "affordable" units which are still three times higher than the rents at the facility being torn down.

Trying to bring this somewhat back to topic, this is still one of the reasons why I believe Kroger is pursuing this merger, many shopping centers are still being shopped for development even today and it really doesn't matter how profitable the store is to the operator because the lease separation penalty fee is pennies compared to the profit that the developer will make even if half the units stay vacant for years. At my last company our Real Estate team had identified that development was a threat to nearly half of our West Coast stores and, wouldn't you know it, the threatened stores represented the top half of sales and profits. I can't imagine how many Kroger and Albertsons stores may be in the path of a bulldozer we can't see yet, which is likely a reason to consolidate especially since Kroger botched expanding when it was still easier to do so in these urban areas and is stuck now with a bunch of outdated, small and cramped SoCal Ralphs units, nothing in the bay except for FoodsCo, and a potentially expensive but lucrative opportunity with many Fred Meyer stores sitting on valuable land in the PNW.

I read the simplest explanation of the housing development issue and how all of this "simplified and expedited development" is causing homelessness: 80% of what is being built is "Luxury Apartments" or "Luxury Condos" which even the top 10% of earners can barely afford in California. And nearly 100% of what's being built is either replacing shopping centers that house entry level paying jobs, or housing that is 100% very affordable such as low end apartment complexes or motels. Depending on the area, 10% to 20% of what's built has to be set aside as "affordable" although the definition is dubious. The higher the landlord pushes the "Luxury" rent level, the higher the median rent goes and "affordable" just means whatever percent below median. So 80% of what's being built is for the top <10% of society, while 20% is for the remaining 90%. The bottom 10% of earners who lived in the demolished homes, plus the bottom 10% who worked entry level service jobs in the shopping centers and such torn down lose 100%.

Truth is we don't have a housing shortage, we have a luxury surplus.
And the facts from the census back me up 100% on this (we already have far more housing units in California right now as we speak than households), and that's before I bring up the other housing issue of AirBNB sucking up slots on the market.

Anyway cranking the wheel hard to steer this back on topic as long as this insanity continues it will still be worth more for developers to buy out perfectly good shopping centers, just like Costa Verde up the street from this La Jolla Village Ralphs I'm talking about, and replace them with luxury apartments and such. Even if they sit vacant, they also are assets on the books for these guys and as such they then borrow against last month's new properties to build next month's projects, an endless chain of paper asset gains. If you've heard about what's happening in China then you know where this will end (Google search: EverGrande group crisis). Entire cities that could hold tens of millions of people in brand new, luxury high rise towers are sitting completely vacant and empty all over China, and the debt from leveraging each asset to build more finally caught up with them nearly taking down the entire Chinese economy with it. I think that Kroger and Albertsons both see the risks to their existing properties being taken from them in most of the West, along with the opportunity to potentially develop some of the same properties themselves especially the large owned Fred Meyer type properties that take up some of the largest available lots in the PNW. The question for them becomes how do they maintain market share while they're actively working to tear down their freestanding store fleet and replace them all with mixed use ground level/basement markets with these same luxury units above? Safeway owned their own shopping center development company ("PDC") and has far more experience with that type of work than Kroger does, but Kroger has the largest land available in the PNW. Thus I think the PNW is one of the main reasons for their merger, plus re-entering NorCal with Safeway acquired while trying to protect share as they play whack-a-mole throughout California with developers popping up trying to buy out their existing profitable and high volume stores.

[storewanderer]

I'd still like to think that certain positions, such as mayors, should be non-partisan. So saying under another party goes nowhere with me. I'm in a highly productive city that solves problems and I have no idea what party the mayor is in, in fact the city rotates the mayor position around. For these big cities I can't help but wonder if they went back to that kind of system if things would not be a lot better. If you want to represent a specific political ideology then run for Congress, or the Assembly. By widening the net of the political parties on both sides nobody is winning.

What has changed is that the problem has spread across the entire county when it used to be concentrated in the downtown areas. The lack of fare enforcement on the transit system is turning them into mobile homeless shelters. In the past I rode the trains and busses in San Diego and they were clean and safe, but not anymore. They're just dispersing the homeless throughout the entire area now. It's a sad situation that is being accelerated by poor public policy just like Portland and Seattle. The laws passed to "simplify" building are just used by the developers to tear down the affordable properties that these folks live in and replace them with luxury high rises. The parking requirements that have been removed were supposed to make it easier to build from scratch but that isn't what the developers are doing since there really isn't any open space to do so. Instead it makes a old motel which previously couldn't be profitably acquired and replaced because of parking into a target for a luxury tower with a few "affordable" units which are still three times higher than the rents at the facility being torn down.

Trying to bring this somewhat back to topic, this is still one of the reasons why I believe Kroger is pursuing this merger, many shopping centers are still being shopped for development even today and it really doesn't matter how profitable the store is to the operator because the lease separation penalty fee is pennies compared to the profit that the developer will make even if half the units stay vacant for years. At my last company our Real Estate team had identified that development was a threat to nearly half of our West Coast stores and, wouldn't you know it, the threatened stores represented the top half of sales and profits. I can't imagine how many Kroger and Albertsons stores may be in the path of a bulldozer we can't see yet, which is likely a reason to consolidate especially since Kroger botched expanding when it was still easier to do so in these urban areas and is stuck now with a bunch of outdated, small and cramped SoCal Ralphs units, nothing in the bay except for FoodsCo, and a potentially expensive but lucrative opportunity with many Fred Meyer stores sitting on valuable land in the PNW.

Public transit systems lost many of their "commuter" riders during COVID as a result of work from home. But the homeless riders remained as they had nowhere to go. I am appalled by the condition of some public transit systems since COVID. I don't know where the police forces for these systems are but the use of taxpayer dollars to have people on these trains doing some of what they are doing with the drug use is appalling and I don't care if they need to put an officer on every train, cut train frequency to make it happen, close some of the cars, whatever, they need to get some control. Denver.... absolutely appalling what is going on within those trains. Also it spreads to fast foods near some train stops. Armed security at a McDonalds at Bellevue in Englewood due to issues caused by loitering. Stand there and watch the problem traffic and it comes straight from the trains and goes straight to the train. Denver trains - again- holy smokes. Portland light rail always was not great but now.... just no. The BART between Oakland Airport and into downtown San Francisco doesn't feel really any different to me than it ever did (but some of the stations around Oakland look even worse than before- I do not exit anymore and walk around downtown Oakland in the daytime as I once did). So I at this point have quit using these public transit systems for the most part and will not even consider them except that OAK BART-San Francisco. Anyway enough of that topic.

I don't think a lot of these developments that will take out a ton of additional shopping centers are going to materialize. Dense developments have been overdeveloped in many markets or are about to be overdeveloped and rent rates cannot keep rising forever. We may start to see it happen in larger cities again once larger cities get popular again (it will happen eventually... but it could be decades), but these dense developments in medium/suburb type locations often don't seem to work out too well.

[ClownLoach]

I don't think a lot of these developments that will take out a ton of additional shopping centers are going to materialize. Dense developments have been overdeveloped in many markets or are about to be overdeveloped and rent rates cannot keep rising forever. We may start to see it happen in larger cities again once larger cities get popular again (it will happen eventually... but it could be decades), but these dense developments in medium/suburb type locations often don't seem to work out too well.

The news articles saying that we are going to have a "glut" of luxury apartments and such go way back to 2015, and new ones are being written everyday but the developers keep building them. I'm convinced it is a way to milk their holdings for shorter term cash. Can't borrow much against the old "No Tell Motel" property that's falling down, but every dollar you invest in rebuilding it as a luxury apartment complex yields $3 in equity. Those paper gains can then be borrowed against. It's a gigantic house of cards. Yet I am completely baffled by the fact that I've seen more new megacomplex construction starts in the last 6 months than I have in the preceding 5 years. The developments are accelerating, and they keep getting bigger. Furthermore single family home starts seem to be down, replaced by multiunit townhome/condo starts. This is what I said when this merger first arrived out of left field, and I continue to say it - the real estate scenario in the urban parts of the west coast is a threat to the existance of both chains and merging is a way to get ahead of it.

[storewanderer]

The news articles saying that we are going to have a "glut" of luxury apartments and such go way back to 2015, and new ones are being written everyday but the developers keep building them. I'm convinced it is a way to milk their holdings for shorter term cash. Can't borrow much against the old "No Tell Motel" property that's falling down, but every dollar you invest in rebuilding it as a luxury apartment complex yields $3 in equity. Those paper gains can then be borrowed against. It's a gigantic house of cards. Yet I am completely baffled by the fact that I've seen more new megacomplex construction starts in the last 6 months than I have in the preceding 5 years. The developments are accelerating, and they keep getting bigger. Furthermore single family home starts seem to be down, replaced by multiunit townhome/condo starts. This is what I said when this merger first arrived out of left field, and I continue to say it - the real estate scenario in the urban parts of the west coast is a threat to the existance of both chains and merging is a way to get ahead of it.

Not to keep going off topic but there are also major tax incentives for these developers to build energy efficient dense properties and the incentives are in some cases contingent on the density of the property. Certain incentives you need a minimum number of units in the property to qualify for. The best tax code money can buy.

Some of these tax benefits can exist for commercial property too but you can make out like a bandit doing multi family development with those various energy efficient incentives.