Hy-Vee extended First Avenue store for lease 5 years before closure announced. What Cedar Rapids says happened prior.

CEDAR RAPIDS — Despite assurances Cedar Rapids officials received in November that Hy-Vee extended the lease of its First Avenue NE store another five years, the West Des Moines-based company announced last week that the store will close in June.

After Hy-Vee alerted city officials last May that it was considering closing its First Avenue NE store when its lease expired, Cedar Rapids officials over the last year met several times with representatives of the property owner to explore options to keep Hy-Vee in that store.

The city of Cedar Rapids wasn’t directly involved with Hy-Vee on the lease negotiation, as the lease is between Hy-Vee and the property owner who was represented at the time by Net Lease Capital Advisors.

Here’s what happened leading up to the closure, which takes effect June 23. To learn how Cedar Rapids is addressing the store’s closure, read The Gazette’s story here.

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Here’s how C.R. is working to address Hy-Vee’s closure of First Avenue location

Hy-Vee warns it’s considering closure

At Tuesday’s council meeting, Pomeranz provided a timeline of discussions with Hy-Vee dating back to last year. It started May 1, 2023, when he said city staff and elected officials met with Hy-Vee corporate regarding their intent to close the store.

On May 19, 2023, Pomeranz said city officials met with Bill Flynn and Robert Horvath as representatives of the property owner with Net Lease Capital Advisors. City officials held a second meeting May 22 with Flynn and Horvath at the International Council of Shopping Centers Conference in Las Vegas, where they discussed the vitality of the neighborhood.

The city provided information about neighborhood initiatives to revitalize the area. Several projects have been recently completed or are underway, such as the city’s rehabilitation of the former Colonial Center building into 25 new affordable housing units, dubbed The Heights.

Five-year lease extension confirmed

Net Lease Capital Advisors informed city officials Sept. 13 that there was an agreement in principle for Hy-Vee to renew the lease for five years. The advisers updated city officials Oct. 19 that lease negotiations were nearly complete.

Flynn confirmed Nov. 15 that the new five-year lease extension was complete: “I am pleased to announce that we have successfully extended the lease with Hy-Vee for another 5 years,” Flynn wrote in an email that Pomeranz read. “Your work and support behind the scenes made a significant difference in getting this deal done.”

New owner takes over

While city officials thought Hy-Vee remaining on First Avenue NE was a done deal, Pomeranz said ownership of the property changed hands as of Jan. 24. It is now owned by Delaware-based Agree Limited Partnership, according to city assessor’s records. The city has not yet had conversations with the new owner, Pomeranz told The Gazette, but officials are working to do so.

In an email provided to The Gazette through a records request, Horvath and Flynn assisted city staff with identifying a contact for the new property owner once news broke last week of Hy-Vee’s impending closure. Horvath on Monday shared an Agree Realty contact with city staff and said “this was news to them as well.”

Hy-Vee spokesperson Tina Potthoff said “we will work with the landlord so they can find another tenant for this space,” but did not answer questions about when or if Hy-Vee has communicated with its new owner about the closure.

Can city recruit new grocer?

Council member David Maier asked if there are noncompete clauses in the lease that would hinder the city’s ability to recruit another grocer at the First Avenue location.

Pomeranz said the city does not have a copy of the lease agreement between Hy-Vee and the property owner, but is emphasizing that the city wants to “make sure that another grocery store can go in that location.”

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Council member Scott Olson referenced the Collins Road NE Hy-Vee, which closed in January 2022, as an example of a Hy-Vee store that is running out its lease and effectively blocking another business from locating there.

Potthoff did not answer questions about whether Hy-Vee will continue to hold the First Avenue building through the remaining years of its lease or terminate its lease, or whether the lease includes such a noncompete clause.

“We remain committed to serving the Cedar Rapids area through our remaining stores, local donations, and community involvement initiatives,” Potthoff wrote.

Low rent, but store sustained ‘significant’ losses

On May 9, Mayor Tiffany O’Donnell was notified of the First Avenue Hy-Vee closing. The next day, Pomeranz contacted the Hy-Vee regional director but said there was “no difference in outcome.” The conversation revolved around operating margins and the “financial viability of that particular store,” he said. O’Donnell had another call with Hy-Vee officials Monday.

As of June 2023, the 26,954 square-foot building rents for $227,794 — $8.45 per square foot, according to a document that the previous owner’s representatives with Net Lease Capital Advisers shared with the city summarizing the property. The Gazette received the records through a request.

According to that document drafted by the advisers, the property rented for $2.04 less per square foot compared to the Hy-Vee store with the next lowest rent in Cedar Rapids.

“This is very significant and may provide a limit to any discounted rent offer,” the document stated. “The best outcome may involve trading a concession in rent for a 10-year lease extension. There is a grid below that details pricing with rent and cap rate valuations. Other retail tenants agree to longer lease extensions for additional discounted rent.”

It also noted this area has a lower income base — $66,980 within three miles — than other parts of Cedar Rapids. The area is designated by the U.S. Department of Agriculture as low-income, meaning the poverty rate is 20 percent or higher, or the median family income is less than 80 percent of the median family income for the state or metropolitan area.

Asked how rent affected Hy-Vee’s decision to close the store, Potthoff said in an email “the lease had nothing to do with our ultimate decision to announce the closure of this store. Despite the lease, the store continued to lose a significant amount of money, and continuing our operations at this location was unfortunately not sustainable.”

‘It’s time for a better partner’

Vanorny said the city team’s focus will be on Cedar Rapids, but found it concerning that this is a trend in Eastern Iowa as Hy-Vee is closing stores in Waterloo and Davenport, and a downtown Des Moines location has faced headwinds and risks closure as well.

“To see Hy-Vee destabilize these communities with their actions is really concerning to me,” Vanorny said. “Personally, I feel like it’s time for a better partner who understands the industry that they’re in … They’re abandoning the most complex neighborhoods in Davenport, Waterloo and Cedar Rapids.”

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Council member Dale Todd, who represents District 3 where the store is located, said Hy-Vee last year asked city officials to keep the possibility of the store’s closure quiet.

While the store’s financial performance was a concern for the company, Todd told The Gazette the city didn’t want to further jeopardize the store’s success. Then, Hy-Vee’s lease extension provided assurance to the city that the store would remain open while the city spurred further investment around First Avenue East.

Council member Ann Poe said there seems to be an “urban myth” that Hy-Vee isn’t safe and it is often patrolled by police. City officials indicated safety wasn’t the reason the store closed.

Poe said having a walkable grocery store and pharmacy was important for people who lack transportation and take multiple trips by foot to the store to carry groceries in smaller quantities. This was an “unexpected emergency” and will be “a travesty” during winter, she said.

“This is about people,” Poe said. “This is about a human element and what’s missing here is the compassion.”

Comments: (319) 398-8494; marissa.payne@thegazette.com