Safeway to Dive More Deeply Into the Real-Estate Biz

While not awful, grocer Safeway's third-quarter results weren't stellar either, with the chain posting modest decreases in sales and earnings. But that's not keeping management from talking about a capital expenditure that puts it in a whole new arena from the business-as-usual activity of opening and remodeling stores.

Management is considering stepping up its development of shopping centers and owning more of its stores. Right now, in Safeway's portfolio of about 1,730 stores across the country, the grocer only owns about 40 percent of their locations.

A Safeway spokeswoman told GlobeSt.com that: "We have the opportunity [to do that more] and then choose whether we want to continue to be the landlord and gain the revenue stream or sell some of it. If we decided to do it [on a larger scale] we might seek out a partner because it would be capital intensive."

Safeway Chairman and Chief Executive Steve Burd mentioned this late last year as well, when he said the supermarket chain was looking for development partners to help it in its efforts, which included the construction of 36 projects. One of those projects might be the redevelopment of a shopping center in Oakland, Calif.; which could include a new CVS store.

In fact, Safeway has its own separate property management arm for potential tenants of properties it already owns, called Property Development Associates LLC. The firm is currently marketing a handful of former Safeway and Vons stores (a chain Safeway owns), as well as shopping centers for lease.

There are certainly opportunities out there for Safeway. Its already has leasing and management capabilities for prospective tenants. New construction on shopping centers is at a standstill in the current economy. Plus, the retail chain can now take advantage of lower construction costs in this climate. And a huge public company like Safeway certainly shell out the money to take a risk in this endeavor.

It all depends on how one views the commercial real estate industry. Some investors are saying now is the time to buy, while others still have a lot of concern about the arena.