Thursday, February 5, 2009

Is Tesco's Fresh & Easy Changing its Real Estate Strategy? An E-Mail From Fresh & Easy Neighborhood Market's Real Estate Director

[Fresh & Easy Buzz Editor's Note: Chris Rodriguez is a commercial real estate industry professional who focuses on retail properties. He also writes and posts at, which is a Blog that focuses on the commercial retail real estate business and related topics and issues.

Below (in italics) is a piece he wrote and posted yesterday, Wednesday, February 4, about an e-mail -- and an offer -- that he received from Fresh & Easy Neighborhood Market's director of real estate. The e-mail he received is included in his piece. [You can visit the RetailChatr Blog here, where his original post is located.]

Fresh & Easy Changing Strategy
By Chris Rodriguez -
Retail Blog
Special to Fresh & Easy Buzz

Fresh & Easy Neighborhood Market has altered it’s course. Until now, Fresh & Easy has been a savior tenant for many developers, eating up 14,000 square foot chunks of old space and dark drug stores. They have done deals in existing spaces, build-to-suits and ground leases. Last week I heard that they had changed course and have decided to purchase the real estate for their new stores. What I did not know was that they are also in the market to buy back existing stores from current landlords.

I received an email from a real estate director for Fresh & Easy yesterday (full text below) stating their interest in purchasing the land (they already own the building) at the site I am selling in Henderson, NV. Get this - they want to purchase the property at a 9.00% CAP Rate! He said that he is getting a very good response from landlords at these prices. Yeah right. I’d be tickled pink to have just bought the property for a 6.50% CAP Rate and then sell it back to you for a 250 basis point loss. I know CAP Rates are rising but 9.00% for the fee interest in a ground lease is quite high. The parcel is over 2 acres and Walgreens, CVS, Target and Wells Fargo Bank have all just landed at the same intersection. It is a very good site.

The real estate director made a point to tell me how much money Fresh & Easy was losing and how he was not sure they’d be around long. Sure. That’s why you want to buy this property and tie up $3,000,000 in a single asset. I proceeded to tell him that I see Tesco / Fresh & Easy as the architects of a highly successful misinformation campaign over the last year. They have tried to scare landlords into thinking they are hurting, allowing them to cram down rents with developers and preventing several of the properties from selling at all - keeping their cost of occupancy lower because there will not be a reassessment and an increase in property taxes.

Tesco / Fresh & Easy is playing hardball. They did not get to be the 3rd largest retailer by getting walked on by landlords nor are they unfamiliar with operating in the high rent district (see London retail rents). They clearly know what they are doing. We’ll have to wait and see how successful they are at acquiring existing stores. I’m not holding my breath.

The e-mail:

Dear Chris

I understand you have listing instructions from our Landlord, (INTENTIONALLY DELETED), to dispose of the ground lease investment in our store at Horizon Ridge & Green Valley Pkwy. We would prefer to deal direct with our landlord, and will not be represented by any broker in this matter.However, for the sake of good communication, I am informing you of our potential interest, so that you can be as equally informed as him. Please do not hesitate to contact me to discuss.


fresh & easy Neighborhood Market Inc.
Real Estate Director

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