The Pavilions market is located at 8969 Santa Monica Blvd. It is the largest supermarket in the West Hollywood vicinity. The location is slated to be sold off if the merger between Kroger and Albertsons receives approval from the Federal Trade Commission. While the deal is on hold due to antitrust considerations, City Council recently offered its opposition to the merger in the form a letter.
But what struck me as odd in City Council’s discussion was the lack of understanding of the ramifications of the deal. Offering a letter against a merger does little to understand the depth and the effects of a potential sale. Can you imagine Pavilions sitting empty for a year? How about two years or ten years? It’s possible.
The key to the transaction is not the selloff of stores to C&S Market or Piggly Wiggly. The key to the future of the largest swath of land, and our largest supermarket, is who owns the land and how much time remains on the lease.
If Pavilions is a company-owned store on company-owned land, the company will become the landlord after the merger is completed. As the landlord, Kroger/Albertsons would retain control and be in a position to negotiate a new rent and lease term with the new operator satisfying the regulators. Except for one thing: if the land is owned by the company and held in a separate corporation or part of a REIT (Real Estate Investment Trust), there is no guarantee that terms will be reached with any new tenant.
If Pavilions is a tenant in the space and not the owner of the center, the space may sit empty until lease expiration. Look at Sprouts; they are trying to sub-lease the space. It’s empty, but they are still paying rent per their lease obligations.
This merger appears to be with a lower-end market which may not want a long-term lease in a high-cost market such as West Hollywood. It is possible the store is sold off to satisfy regulators, but there is no guarantee the buyer will want this location. The buyer would want a new long-term lease to make its capital investments. In this scenario, the owner of the land may sign a new long-term lease to the tenant, but it is also probable that the cost of doing business in West Hollywood is too high for a lower-end market to pay a new higher rent. In that case, we can expect the owner of the property to sell to a developer.
The value of the land in today’s market has tremendous value well above its current footprint. Understanding the possibilities is the first step to mitigating this potential disaster to our community. A changeover in ownership of the Pavilions market will have serious implications for our entire community. If City Council is flat-footed on this issue the potential for a Melrose Triangle or French Market sitting empty for 10 years is a real possibility. It’s important to have a an understanding or real estate and a business voice on City Council. I hope to be that voice.
Kroger, Albertsons/Safeway and C&S are all customers of mine. This merger is a scam. C&S will never be able to operate this store successfully. C&S is primarily a wholesale distributor that sells to major grocery accounts. Yes, they own Piggly Wiggly & Grand Union but those stores are primarily in the Carolinas, Wisconsin and the NE. These stores will probably get sold back to Kroger after the merger or just get shuttered. If the merger is allowed to go through Kroger will own all remaining Vons, Pavilions, Ralph’s, Albertson’s and Food 4 Less stores. It will be a complete disaster… Read more »
I’m from Cincinnati, OH, home of Kroger. They are HUGE! If the government approves this it is just another example of loss of competition in an industry. That is why meat prices are so high, why Boeing is unsafe, why Ticketmaster is unfair. Only stockholders matter to these companies, not the consumers who rely on them.
Larry, if you were on the city council (and you are running), how would you oppose this merger playing out with the FTC and in federal courts? Please provide specific solutions you would suggest. Also, if the merger is approved by the court, how would you handle communication with the new owner? It’s important to be specific and not just stand back and shake your fist.
Mergers benefit one group, GOLDEN PARACHUTES!
If it’s sold I am sure that it will be closed and razed. The “market” will tell them that we “nrrd” another mixed use project with more overpriced apartments, two or three affordable ones as a sop, ground floor retail and if we’re lucky a small grocery store. Underparked as well, since modern WeHoans ride scooters and live on Postmates. Or photosynthesis.
Wasn’t this going to be the site of a builders remedy project, like the Pavillions in BH?
What is the reasoning behind your comment? Do you have inside information that the building owner would choose to tear down a relatively new structure instead of working with the new store owner to rebrand the location or find a new tenant? It’s important to note that the store is being sold, not the property. This store is a top 1% performer in the Albertson portfolio and is being offered up in desperation to get the deal approved.
One of the ways I know West Hollywood is where I’m supposed to be is that going to Pavilions is a pleasure for me and never a chore.
This is exactly why we need Larry Block on the city council. No one there now knows to even ask these questions!
Yes, if Larry were on the city council, he would single-handedly stop a multi-billion dollar merger. If you read his op-ed, it’s evident that he has no real understanding of what divestiture means, the directives imposed on both the divesting company and the buyer, and the overall cost of not following through. But yeah, sure, Larry can handle it; maybe he can even cure cancer.
Im a commercial tenant and licensed real estate agent. Back in 2008 before losing my sight Keller Williams rewarded me with a cover in the LA Times thanking their top agents, including me as a top solo agent for my office. And you don’t get to be a top solo agent unless you can thread the needle in every transaction. I can’t cure cancer but one needs to understand whats happening. And thats the point of this op-ed.
Knock it down and build more high rise shelters.
Unfortunately if the merger happens, the new owner will close this Pavilions location instead of rebranding it. The shopping center has many unhoused individuals just hanging out and stealing from Pavilions. Doubt the new owner would want to deal with all the issues this center faces regularly with the unhoused individuals. It’s not safe to shop at this center anymore and best to shop online instead of in person.
I have never noticed any homeless people at or around Pavilions, other than occasionally on SM Blvd, but even there not all that much.
You probably don’t go in the AM then. The recycling center in the lot is a magnet for the homeless since they dig through recycling bins already being recycled to get cans and bottles to exchange for money at the recycling center. They usually are there in the mornings. I’ve started parking on the roof to avoid them.
That’s true. I don’t enter or leave in that direction.
I wonder why the recycling center has to be there, and maybe if it were not the draw for the homeless would also not be there.
Actually, I do enter there by the recycling center and go straight. If I don’t get a space in that first aisle I go to the roof. I don’t know what I’m was thinking when I said don’t unless I just wasn’t thinking at all.
It’s pretty foul around the recycling bins.
I have seen one or two (homeless) people outside of Pavillions sitting quietly. Sometimes I bring a sandwich to them; sometimes I don’t. But in no way do they impact whether or not I go to shop. I love Pavillions and I think this whole area would be lost without it. I understand the sale has been put “on hold” and I hope it stays that way because to close this store would be a “shanda” for many of us living in West Hollywood. It has everything; it’s clean; the people who work there are delightful. And there always seems… Read more »
If the store is part of divestiture that allows firms merge, the store can’t be closed by the company buying the location and lease. Common codicil for merger/ divestiture agreements. .