Developer’s Long Shopping List In Chicago Supermarket Shakeup

A Safeway before opening time. (This is NOT a ...

In the wake of grocery giant Safeway’s recent exit from the Chicago area market, Oakbrook, IL-based Inland Real Estate Group of Companies has gone to the market to pick up a few things.

Weighing The Anchor

When Safeway’s Chicago chain Dominick’s announced its closure and pullout in October, the history of the Chicago supermarket took a notable turn as 66 Dominick’s stores were to shut down at once, creating a metro-wide absorption problem in the anchor store space not seen before.  Two million square feet of mostly leased space (Safeway owns only about 15 buildings), based on an average store size of 62,000 sq. ft. landed on the market with a deafening bang, leaving landlords anchorless, pondering cutting rents or rethinking grocery’s traditional anchor role.

Even though California-based Safeway remains solvent, meaning rent payments on empty store leases won’t be interrupted, the shopping centers stuck with vacant grocery stores face more than just a financial problem.  Traffic loss looms large over rent negotiations and the symbolism of such conspicuous closures means economic health of entire neighborhoods might be at stake.

Mariano’s Steps Up (For A Few Locations)

Led by former Dominick’s CEO Bob Mariano, the namesake grocer chain stepped into the breach, announcing plans to buy 11 of the 66 stores in locations it prized.   In a $36 million cash deal with Safeway, Mariano’s will undertake conversion of 11 stores, the majority located in suburbs.

That isn’t likely to be the last expansion of the Mariano’s brand into Chicago, for two reasons.  As Bob Mariano told investors, the city and suburbs can support 50 stores.  The second reason is the developer interests in the wake of Safeway’s exit.

Inland On Both Sides

Inland’s been on a buying tear to get behind the Chicago expansion of Mariano’s, a subsidiary of Milwaukee-based Roundy’s, Inc., racking up nearly $90 million in recent acquisitions. Since 2011, Inland, a broker/developer/landlord/REIT owner, has booked acquisitions and undertaken a joint venture to develop a Mariano’s-anchored shopping center with an option to buy.

Yet that activity is also defensive from Inland’s point of view, because as reported by Chicago Real Estate Daily, the firm owns seven properties leased to the shuttered Dominick’s as well as three shopping centers anchored by the chain.

Does Mariano’s have the punch to restore to landlords and communities what the Safeway/Dominick’s pullout takes away?Maybe. As Micah Maidenburg reports in CRE Daily:

Safeway’s impending exit has likely unsettled some real estate investors who have long viewed grocery chains as stable investments. Yet Mariano’s is seemingly gaining acceptance among investors. Parent company Roundy’s had net sales of $3.89 billion in 2012, even if it had a net loss of $69.2 million. The Mariano’s unit, which leases all of its stores, has 13 locations in the Chicago area, with plans for five more in 2014.

“As the local footprint here for Mariano’s continues to grow and there’s more historical reference to their unit-level performance being sustained, you’ll continue to see investor demand grow,” said Brandon Duff, regional director in the Chicago office of real estate brokerage Stan Johnson Co. who has handled Mariano’s transactions [...]

 

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03. December 2013 by Wayne Grohl
Categories: Retail | Tags: , , , , , , | 1 comment

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