La Jolla Vons to be converted to Pavilions

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Re: La Jolla Vons to be converted to Pavilions

Post by ClownLoach »

retailfanmitchell019 wrote: January 25th, 2023, 8:38 pm Here's how I think the Albertsons/Kroger merger will go in San Diego's North County:

Every Albertsons branded store will be divested into SpinCo. There are 13 Albertsons stores in North County: Oceanside (3), Vista (2), San Marcos (3), Escondido (2), Fallbrook, Ramona, and Rancho Bernardo.
I also think Vons stores in Oceanside, Encinitas (El Camino), Carmel Valley (both stores including the Pavilions), Rancho Bernardo, Escondido (Valley Pkwy) and Carlsbad (El Camino) will go into SpinCo and be rebranded to Albertsons. Those stores directly compete with a Ralphs in the same zip code. I expect the remaining Vons stores to be rebranded to Ralphs.
The Food 4 Less in Escondido could also go into SpinCo, or maybe to a Hispanic chain.
I expect the Food 4 Less in Vista (former Smith's) will stay with Kroger and be rebranded to Ralphs.
If they had to divest that many stores it would not be worth it to merge at all. Ralphs failed in Oceanside completely and has one store left while Albertsons/Vons has 5. Ralphs in general has performed poorly in San Diego County compared to Albertsons/Vons; I highly question the documents in which Kroger declared themselves the market leader based on their own research. In that Oceanside scenario the only question is if they keep the Ralphs on SR-76 or the Vons on SR-76 within a few blocks of each other. There are numerous examples where you could argue Albertsons/Vons ran Ralphs out of the neighborhood. Why would the combined entity abandon Oceanside and shed all but one store in the fastest growing city in San Diego County?

In your example 15 stores in the SR-76/SR-78/CR-11 corridor market will divest/spin and 5 will be kept, 1 of which is a Food4Less that is in an area too borderline to be upgraded to a Ralphs. There is no way they keep 4 Ralphs and abandon 15 other stores. In that scenario even Stater Bros. would outnumber them in the northern area which I will state again is the fastest growing area in the county. Many customers in that scenario would drive past two or three SpinCo stores to get to a Ralphs in that example. Spinco becomes market leader.

The volume and population in SoCal is not to be underestimated. The store count here has already been culled over the past 20 years and arguably all chains have less stores per capita than many other western markets. If any serious number of stores in the west have to be divested or spun off then the benefits of merging are largely nullified. Basically if Washington, Oregon and California band together tomorrow and state they will aggressively fight this merger and demand maximum divestitures by all measures (zip codes, per capitas, and geographic distances) the deal is off same day.

Using zip codes is obsolete and has not helped at all with past mergers (hence all the Albertsons and Vons divests yet examples like Murrieta where two stores are still across the street from each other at the same intersection because they border zip code changes). Zip codes have not kept up with population changes. Many parts of the Inland Empire which have one or two zip codes would have ten or more zip codes today if they were allocated by population evenly. Here's a good example of why zip codes are really inaccurate today: Murrieta has 3 zip codes. Temecula next door has 6 zip codes. Murrieta has nearly double the population of Temecula. Murrieta is 3 square miles larger than Temecula. Clearly zip codes are way out of alignment and that's just two cities. When zip codes came out in 1963 some of these areas had populations in the hundreds. Now the same areas have a hundred thousand. Using zip codes today to determine overlap would potentially put stores many miles apart as overlaps yet again allow stores across the street from each other to be left alone. In your same zip code scenario if used in Temecula and Murrieta I believe that one store would have to divest and Ralphs would go from 2 stores in the area to 9, including a Ralphs across the street from a Ralphs (if they rebranded everything kept to Ralphs) because they're in different zip codes, plus one Food4Less. That seems to be using zip codes to enable a near monopoly - while your San Diego examples would eliminate two thirds of the stores giving Spinco a monopoly in the fastest growing areas.

I really think the only stores that are going to be seriously considered for divestiture are if they are within a certain geographic radius of each other which will probably be a half mile or less depending on local population density. The other key factor is going to be the status of the lease and landlord relationships. None of us know or can even guess how this will shake out. It is extremely likely that some of the best stores in the market are targeted for demolition by their landlords due to the push for conversion of commercial properties to residential high density up and down the West Coast. This will also be an argument to allow as few divestitures as possible due to the fact that every supermarket not owned by the company is a closure risk regardless of how highly it currently performs. Based on some speculation in other posts it seems that just a little over 50% of the stores are under company ownership if no divestitures were required. If it's leased it is worth more dead than alive to the landlord right now. Therefore there are many complicated aspects that will not meet public discussions, and many surprises where we may see the dowdy, run down old store kept and the shiny newer store sold because they do not have lease control. There will also be cases where they will have to make concessions because they will overlap and the FTC will NOT want the store at highest risk of closing sold (plus who would buy it?).

I'll give you another crazy idea: Spinco gets every single store that has a landlord that is interested in redevelopment. Spinco then controls the narrative and negotiates the process. They profit from lease severance agreements and asset sales. Spinco becomes a wind down organization (like Sears and Seritage) for these stores. If they can negotiate a ground floor under apartments location for a future store in a development deal they do so, and those will be the only Spinco go forward locations. Government can't say one word because they're demanding more housing be built even if every workplace in the state and every shopping establishment gets torn down to build it (wonder how much Amazon stock these politicians own-and how many Amazon donations they take in?).

None of this is going to shake out the way we expect. Our boots on the ground observations are really not the best indicator due to the push by developers to tear down their shopping centers and go vertical with massive condos or apartments. If you've visited Seattle or to a lesser extent Portland lately you know what I'm talking about. I ran out of good reasons for this merger other than it is a very complicated and difficult real estate situation where these two companies have realized by combining they can remove the high risk that currently threatens the stability of their business especially on the West Coast.
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Re: La Jolla Vons to be converted to Pavilions

Post by HCal »

I think you are vastly overstating the threat of retail buildings being torn down for residential use. Even if there is some sort of accelerated zoning approval, there are a lot of other factors that go into such big projects. With the economy heading into a recession and home prices dropping significantly and projected to drop further, financing may not be available for such projects. Then there are other issues such as high labor costs (or even a lack of workers) and lawsuits from NIMBYs on spurious environmental grounds.

I don't think the FTC has ever considered leased vs. owned stores when approving mergers or mandating divestitures, and I doubt they will do so this time, but who knows.
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Re: La Jolla Vons to be converted to Pavilions

Post by ClownLoach »

HCal wrote: January 26th, 2023, 1:11 am I think you are vastly overstating the threat of retail buildings being torn down for residential use. Even if there is some sort of accelerated zoning approval, there are a lot of other factors that go into such big projects. With the economy heading into a recession and home prices dropping significantly and projected to drop further, financing may not be available for such projects. Then there are other issues such as high labor costs (or even a lack of workers) and lawsuits from NIMBYs on spurious environmental grounds.

I don't think the FTC has ever considered leased vs. owned stores when approving mergers or mandating divestitures, and I doubt they will do so this time, but who knows.
Every District Manager I know that works on the West Coast currently, today, has multiple stores that are high performing where their corporate Real Estate department is fighting a future redevelopment that boots them out. In my near decade previous in a multi unit position I added 4 stores and only had one ever credibly threatened with redevelopment, which was the worst real estate location I had. (Ironically that dreadful unit finally got their lease bought out in August and the developer has already leveled the center for, guess what, 6 stories of apartments which will suffer from the same problems that store did, bad location with limited ingress).

The issue becomes what happens in the forced consolidation of the market. In the most densely populated areas where traditional grocery stores are already under represented the challenge is that if a chain loses one store the "next store over" is already maxed out - they are already operating with long lines, full parking lots, and shelves that get wiped out in an environment too crowded to restock through the day. So the next store over doesn't pick up one dollar of extra sales after a nearby closure anymore, the share gets fractured across big box stores, dollar stores, and of course forces more customers to choose delivery services which may or may not be the chain that lost the location. The argument now becomes that the past decision making criteria of retail consolidation is no longer valid in a digital world where the big boxes continue to gain share and developers are still able to make a massive profit even if they have to pay out the full lease severance costs prescribed. These amounts which in the past were insurmountable are now pocket change to a developer who can build unlimited density apartments. And the slowing economy is what will drive the development. There are still many, many people who bought at the pit of the recession and now have properties that are worth many times their mortgage balance even though they have lost a couple of percentage points of value. I am in a market which has "crashed" from a real estate perspective and based on selling prices I am looking at a total loss of 1.3% of my total home value since last year, that's it and I can still expect to see a full cash offer in less than a month. I used to live next to a condo development where I was astounded to see units purchased in the mid 2010s for what seemed overpriced at $1.2M - they are still reselling today within two weeks of listing for $2.6M, a drop of $200K from where they were selling before the first rate hike. Many of the people who bought these are laughing all the way to the bank as they are able to walk away from their mortgage fully paid off with a mountain of hundreds of thousands of dollars. They exit after capital gains tax with 15+ years of rent in their pocket and get one of these new expensive apartments where they're drooling over the prospect of a recession because they're going to be able to walk in and buy a larger house with a lower payment than they had before/than they pay in rent at their temporary luxury apartment. This scenario repeats itself hundreds of times each day on the West Coast and is why apartment developments can't go up fast enough.

The idea that developers can't afford to build in a recession is not realistic. In fact they are accelerating construction all around my area, which I will repeat has "crashed" but the rapid decline in building material prices and resolution of supply chain backlogs represents a massive opportunity. The cost of construction has plummeted compared to the last two years. Developers who have been sitting on properties waiting for the "opportune moment" to break ground are doing it right now because of the opportunity to maximize their profits. US interest rates are meaningless because all the big developers get money from all around the world. US interest rates are high... China interest rates are crashing. In my "dead" area five massive new developments which developers have owned for over a decade all were rushed and have broken ground in the last 90 days, one within ten miles is so huge it will have 15 different "communities" and at least 40 different floorplans; I can't get a final count on how many homes are being built on that lot but I would imagine it is in the thousands. And because the developers own their own finance companies they are offering interest rates on new homes right now as low as 1.9% because they're funded with international debt. The higher interest rates being used to "combat inflation" are just playing into the pockets of these developers who can offer a lower rate. (The inflation problem is entirely being caused by soaring energy prices that get passed along to the customer - has nothing to do with interest rates - but the government does not want to acknowledge the damage soaring electric, gas, oil and natural gas prices cause to the economy).

The housing "shortage" is greatly overstated and really has been created by the governmental actions that are "intended" to resolve it. Again I bring up the Seattle area where right now, today, single family homes on good size lots are being acquired by developers who now have zero parking requirements, zero environmental approval requirements, and zero zoning requirements other than building a building compliant with current codes. Plus you have government like the State of CA directly stating to cities who are 100% built out with zero open land that if they do not "find a way to make room to build" thousands of required homes then they will be sued by the state. In other words the state is telling them that they need to find ways to approve these developers tearing down non-residential to build more residential. And the state wins because they hope these newer homes get folks to sell their old property which is at a lower tax rate per Prop 13 so it is reassessed and the state gets a windfall profit on it going forward.

I recently stayed at an Airbnb in Seattle which was in a condo built on what was a old craftsman type single family home still standing in 2020. It was replaced, along with the house behind it, by 18 very skinny 3 story row houses, 10 with garages and 8 with a single parking space. And if they went back to the same site today they could skip those garages and parking spaces. There is no property in that market short of mansions on Queen Anne Hill that a developer can't afford to buy and rebuild in this manner (which is really ugly, plain cookie cutter row house look) and they'll still make a big profit long term. Unfortunately these laws boot out businesses and drive up the homeless count (despite the argument that making housing builds easier will make more affordable housing - what do you think gets torn down first to build these developer profit centers?). Yet despite what is obvious to anyone who lives up there the same practices are being pushed out to the rest of the West Coast. The only real winners will be the developers, and the politicians who they paid to get these restrictions relaxed so they could maximize their profits. Everyone else loses. And despite the claims of population leaving California - its funny that the statistics of people moving in are "fuzzy." The last two homes on my street sold to folks moving out of Texas and back to California. If you build it you can sell it or rent it immediately, and the same can't be said about stores anymore.

The FTC does have to adjust their strategy when they are challenged to do so. This merger is a real estate play and it is really about the West. The retailer who can't control their own destiny here isn't going to survive. Right now neither Kroger nor Albertsons have anything close to a safe level of control. Again if they can control the narrative of how the market consolidates as it is forced to - then they can ensure that they remain relevant. Otherwise they're at the mercy of these developers who really couldn't care less as long as they make a buck.

This is the biggest residential development opportunity in decades, fed by developer control of governmental regulation, and they are going to rush through as much as they possibly can before everyone wakes up, sees what they did, and demands that a stop get put to the "green light" for unlimited building. The homeless crisis is the most visible part of this problem and until it reaches a true boiling point I do not see the public pushing back.
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Re: La Jolla Vons to be converted to Pavilions

Post by storewanderer »

The residential real estate bubble will blow up bigger and bigger, until it pops. The pop is coming soon. Already seeing it in my area- hundreds of new apartments, nobody moving in. Rents across the market already down 10%. Developers built these expecting $2k a month and now average rent is back around $1.5k a month and falling (and will fall more when the next batch of hundreds more new apartments come on line). A couple large apartment complexes under construction stopped construction last November for some reason, supposedly a "change in contractor" - but I suspect the real reason is developers who are freaking out over rents collapsing and knowing these projects will never meet their debt covenants once operational.
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Re: La Jolla Vons to be converted to Pavilions

Post by veteran+ »

Awwwwwwwwwwww.........................................

I feel so bad for these "developers"
CrySadGIF.gif
Not!

🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣
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Re: La Jolla Vons to be converted to Pavilions

Post by storewanderer »

veteran+ wrote: January 27th, 2023, 9:03 am Awwwwwwwwwwww.........................................

I feel so bad for these "developers"

Not!

🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣
Everyone is paying for what they are doing. Or what they are bribing city leadership in cities across the US to let them do.
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Re: La Jolla Vons to be converted to Pavilions

Post by ClownLoach »

storewanderer wrote: January 26th, 2023, 11:41 pm The residential real estate bubble will blow up bigger and bigger, until it pops. The pop is coming soon. Already seeing it in my area- hundreds of new apartments, nobody moving in. Rents across the market already down 10%. Developers built these expecting $2k a month and now average rent is back around $1.5k a month and falling (and will fall more when the next batch of hundreds more new apartments come on line). A couple large apartment complexes under construction stopped construction last November for some reason, supposedly a "change in contractor" - but I suspect the real reason is developers who are freaking out over rents collapsing and knowing these projects will never meet their debt covenants once operational.
I hope it pops too, but for some reason despite this alleged exodus of folks away from the West Coast all I see is construction ramping up. Lumber prices are suddenly at record lows while transportation costs are sky high, so the developers would rather build up and down from California to Washington while it is still so profitable to do so. I've gone from being in the heart of Orange County to a more remote Inland Empire location and there will be at least 5000 new homes and apartments on line within a 5 mile radius by Summer. And other areas are busier. The cost of materials is the biggest determinant of profits for builders and we had 30 months of sky high prices that have plummeted now. So they are in a hurry to build, not necessarily sell.
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Re: La Jolla Vons to be converted to Pavilions

Post by storewanderer »

ClownLoach wrote: January 28th, 2023, 7:19 pm

I hope it pops too, but for some reason despite this alleged exodus of folks away from the West Coast all I see is construction ramping up. Lumber prices are suddenly at record lows while transportation costs are sky high, so the developers would rather build up and down from California to Washington while it is still so profitable to do so. I've gone from being in the heart of Orange County to a more remote Inland Empire location and there will be at least 5000 new homes and apartments on line within a 5 mile radius by Summer. And other areas are busier. The cost of materials is the biggest determinant of profits for builders and we had 30 months of sky high prices that have plummeted now. So they are in a hurry to build, not necessarily sell.
There may be an exodus away from the West Coast but there is also a large exodus of current residents who are growing up and going out on their own and opting to remain on the West Coast.

Also as more companies end "work from home" or lay most of the people off who were under "work from home," I think we will see some folks who tried to leave the West Coast, coming back to the West Coast. I think companies are being very short sighted ending "work from home" however if you can work from home from Ridgecrest and get an Orange County or Los Angeles wage, someone can also work from home from India doing that same task and get paid... a lot lower wage. So these companies ending "work from home" may be doing the US worker a favor.
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Re: La Jolla Vons to be converted to Pavilions

Post by arizonaguy »

storewanderer wrote: January 28th, 2023, 11:32 pm
ClownLoach wrote: January 28th, 2023, 7:19 pm

I hope it pops too, but for some reason despite this alleged exodus of folks away from the West Coast all I see is construction ramping up. Lumber prices are suddenly at record lows while transportation costs are sky high, so the developers would rather build up and down from California to Washington while it is still so profitable to do so. I've gone from being in the heart of Orange County to a more remote Inland Empire location and there will be at least 5000 new homes and apartments on line within a 5 mile radius by Summer. And other areas are busier. The cost of materials is the biggest determinant of profits for builders and we had 30 months of sky high prices that have plummeted now. So they are in a hurry to build, not necessarily sell.
There may be an exodus away from the West Coast but there is also a large exodus of current residents who are growing up and going out on their own and opting to remain on the West Coast.

Also as more companies end "work from home" or lay most of the people off who were under "work from home," I think we will see some folks who tried to leave the West Coast, coming back to the West Coast. I think companies are being very short sighted ending "work from home" however if you can work from home from Ridgecrest and get an Orange County or Los Angeles wage, someone can also work from home from India doing that same task and get paid... a lot lower wage. So these companies ending "work from home" may be doing the US worker a favor.
Most of the "work from home" jobs that were converted to "work from home" jobs during the pandemic could've been performed from home since at least the late 2000s / early 2010s but weren't until the pandemic. Just because something is feasible doesn't mean it's the best option. The truth is someone who works from home generally has less attachment to the company and their team members than someone who is physically on the company's site and interacts with their coworkers in person on a regular basis. I'd imagine companies found higher rates of turnover from those who were in WFH positions as a result. Increased turnover leads to decreased productivity.
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Re: La Jolla Vons to be converted to Pavilions

Post by veteran+ »

I know several people that Work from Home. Good people and a mix of family and friends.

I must say that after being a boss (high level management and/or owner) for so many years I truly believe this is not a good thing. There are exceptions that are due to exceptional people.

I find these folks I know are taking advantage and doing too many personal things on the clock. I also strongly believe that those "multi -task" claims are B.S. The majority of people who claim that they are all that with multi-tasking is just NOT true. And there are recent studies that indicate multi tasking is a myth.

Multi tasking is the antithesis of focus. Are there some rare people who can do this? I m sure there is.
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