Fresh & Easy

Feb 012012

David Irmer

According to the latest agenda, the San Leandro City Council will meet on Feb. 6th to discuss the price and terms of payment for the former Albertson’s property to developer David Irmer (president of Innisfree Co.), who plans to turn it into a strip mall.   Apparently, the City Council has already quietly agreed to sell the property to him.

The City bought the property for $6M in April 2009 and then immediately turned it over to Irmer to develop.  Three years later, it is selling it to Irmer for about $2.5M*, 60% less than it paid for it and a $3.5M loss to taxpayers.

The City has offered no explanation as to why Irmer didn’t directly buy the property in 2009, though  it was to Irmer’s advantage to wait until the commercial property market reached rock bottom before buying it.  Had the property’s price gone up, Irmer was under no obligation to buy it.    It is also unclear whether the city overpaid for the property in 2009 or whether it is selling it to Irmer for less than its market price.  While commercial property prices have gone down since 2009, the price decline has not been anywhere near 60%.  In either case the City, presumably following the advise from the lawfirm Meyers Nave, would have violated the law.

The City bought the Albertson’s property in 2009 to settle a lawsuit by Norcal, the former owners of the property.  Norcal sued when the City refused to allow Grocery Outlet to move into the Albertson’s property.  At the time, the City Council said that a supermarket was inconsistent with the City’s Transit Oriented Development plan (though apparently the City Council has changed its mind as another supermarket, Fresh & Easy, will anchor the new strip mall).  It is thus possible that the City willingly overpaid for the Albertson’s property at that time.  Doing so, however, would be illegal.

It is of course legal for cities to settle lawsuits, but they can only do so with their own.   The Albertson’s site was actually bought by the City’s Redevelopment Agency, an independent legal entity.  The recently eliminated redevelopment agencies were obligated to pay “market price” for any property they acquired – thus overpaying for a property to settle a lawsuit against a different party, is illegal.

If the City did not break the law in 2009 and did not overpay for the property then, then it must be undercharging for it now (as, again, property values have not gone down by 60%).  The California Constitution prohibits local government from making gifts of public money to private individual, allowing a private party to buy a public property for less than its worth constitutes a “gift”.  It is, therefore,  illegal.

The sale of the Albertson’s property to David Irmer has been done totally behind closed doors.  Not only did the City now allow any other party to bid on the property, but it conducted the sale without any notice to the public.  It gave the community no opportunity to be heard on this issue.  While the developer conducted a few community fora to inform the community about his plans, none of the concerns presented by San Leandrans have been addressed.

There isn’t very much we, as San Leandrans, can do about this now, though I’d urge you e-mail the City Council to at least put your objections on the record.  It is also something worth remembering come November 2012, when Ursula Reed and Jim Prola run for re-election.


* While City staff have indicated that they will sell the property for $3M, Irmer has said he expects to pay only $2.5M for it.

Jan 062012

Despite community opposition, the San Leandro City Council is set to approve the development of the old-Albertson’s property downtown into yet another strip mall, euphemistically dubbed “Village Marketplace“.  The anchor of the mall, occupying slightly less than half the total space, is supposed to be a branch of the “Fresh & Easy” grocery stores – but it’s just as likely that it will actually be a Wal-Mart, San Leandro’s third.

Fresh & Easy is a chain of small grocery stores, mostly located in California.  It was started in 2007 by British supermarket giant Tesco as a daring attempt to break into the American grocery market.  They modeled it after their own successful grocery stores back in England, offering assorted dry goods, packaged fresh vegetables and meats while emphasizing  frozen and refrigerated prepared meals and private labels.  They save costs by only using self-checkouts and running bare-bone stores.

So far, Fresh & Easy is not doing well.  In the four years since it opened it has lost $1.1 billion, while sucking up $1.5 billion in capital.  Fresh & Easy now recognizes it failed by attempting to impose the UK model onto the US market and it’s starting to revamp its stores to make them more appealing to American tastes.  It’s putting homey touches on the clinical decor, adding bakeries and loose produce and introducing loyalty cards.   But all of this ads cost while providing uncertain results and Fresh & Easy is running out of time.  Tesco’s brand-new CEO has suggested that Fresh & Easy must break even by the the beginnings 0f 2013, analysts believe if it doesn’t, Tesco will cut their losses.  It won’t be the first time; in August Tesco pulled out of Japan, closing its 129 stores.

So what happens if Fresh & Easy closes?   The Financial Time suggests that Walmart may pick up its crumbs.  Indeed, Walmart has been posing to compete with Fresh & Easy for a while.  Currently, it is pushing its Neighborhood Store concept in the Bay Area, but it’s also starting a new chain of even smaller stores dubbed Wal-Mart Express.  This stores are set to copy and provide competition to the very profitable dollar stores that have popped out throughout the country.  Walmart plans to open hundreds of these stores in the coming years, acquiring existing retailers to speed up the process.  While Wamart’s fortunes have also been declining, it has the knowledge of the US market and the buying power to succeed where Tesco has failed.  Village Marketplace’s developer, David Irmer, has previously spoken on the difficulties of finding tenants for the development, so it’s unlikely that Walmart will have much in the way of competition if it decides to move to that space.

It’s also unlikely there would be anything City Hall could do.  Once the city sells the property to Irmer (for half of what it paid for it in 2009), it will be up to Irmer to decide who he rents it to.  In the past, the City was able to use the Transit Oriented Development plan to keep Grocery Outlet out of the location, but once it permits Fresh & Easy to operate a grocery store on that property, it will need to allow any other company to do the same.  This is exactly what happened when Wal-Mart decided to open a second San Leandro store at the former Target property on Hesperian Blvd.

I can only hope that City Council members will take the issue of whether this is how they want Downtown San Leandro to develop.